Topics Covered in this article
The desire for prompt and affordable justice is ubiquitous, hence disposal of cases in time fundamental to ensure fair justice and to preserve the rule of law. Justice Warren Burger remarks that ‘the notion that most people want black-robed judges, well-dressed lawyers and fine panelled courtrooms as the setting to resolve their disputes is not correct. People with problems, like people with pains, want relief and they want it as quickly and inexpensively as possible’. Let us discuss the purpose of ADR.
Article 21 of the Constitution guarantees fair, just, and reasonable procedure and access to courts. Article 39A prescribes free legal aid to indigent persons. However, Indian courts often fail in delivering justice owing to the backlog and unscrupulous parties. The Law Commission of India in its 14th Report categorically stated that the delay in results not from the procedure laid down by the legislation but by reason of non-observance of its important provisions particularly those intended to expedite the disposal of proceedings. Denial of justice through delay is the biggest mockery of law, but in India, it is not limited to mere mockery; the delay, in fact, kills the entire justice dispensation system of the country.As of November 2019, the number of pending cases in India stands at a shocking ₹3.14 crore.
When people fail to get access to justice, they lose confidence over the Judiciary and resort to other means to secure justice. These might be criminally motivated, defeating the purpose of the rule of law and civil society.
The quest for an alternative system for redressal of disputes began in the U.S.A in the early ’70s. The concept of ADR originated from English common law. ADR was used sporadically in the U.S.A, and it was not until the late 19th century did ADR receive a formal institution in the U.S.A.Towards the 20th century, U.S.A started taking more interest in systematic ADR as a substitute and contemporary arbitration laws were passed. ADR became institutionalised in the U.S.A owing to its cost-effective nature and efficient and speedy disposal of cases.
Likewise, India felt a need for alternatives to ease the burden off the overworked Judiciary. An effort was made in 1999 to harmonise the blend of judicial and non-judicial dispute mechanisms. Upon recommendations made by the Law Commission and the Malimath Committee, the Parliament amended the Civil Procedure Code (CPC) and inserted Section 89 as well as Order 10 Rule 1-A to 1-C. The section provided for settlement of disputes between parties amicably and swiftly outside of courts to reduce the pendency of suits before the courts. The section came into force on July 1, 2002. It provides for settlement of disputes through Arbitration, Conciliation, Judicial Settlement including settlement through Lok Adalat or Mediation.
The constitutional validity of Section 89 was upheld by the Hon’ble Supreme Court in the Salem Advocate Bar Association case. Similarly, the Apex Court in Afcons Infrastructure Ltd. V. Cherian Varkey Construction Co. (P) Ltd. laid down detailed guidelines on which kind of civil suits can be referred to ADR and which redressal mechanism requires the parties’ prior consent.
Types of ADR
- Arbitration: Arbitration in India governed under the Arbitration and Conciliation Act, 1996. The act is based on the UNCITRAL (United Nations Commission on International Trade Law) Model Law and the New York Convention. It is an attempt by the Parliament to take a holistic approach to alternative dispute resolution in India. In arbitration, the parties refer the dispute to an arbitrator who reviews the case and passes an award which is judicially binding on both the parties. Section 16 of the act empowers the arbitrators to decide their jurisdiction. Furthermore, Section 36 equates an arbitrary award to a decree of a court. Moreover, Section 37(3) limit the number of statutory appeals to one. This is one of the purpose of ADR.
In Uttarakhand Purv Sainik Kalyan Nigam Ltd. V. Northern Coal Field Ltd., the Hon’ble Supreme Court relying on the doctrine of ‘kompetenz-kompetenz’ (Competence of jurisdictional body) held that the legislative intent behind Section 16 of the act is to let the arbitrator decide the issue of limitation and curb judicial intervention. Likewise, the intention behind parties agreeing to a specific venue for arbitration proceedings is to oust the jurisdiction of all other courts under Section 11(6) of the act and words like ‘exclusive jurisdiction’ do not make a material difference.
Recently, the President gave assent to the Arbitration and Conciliation (Amendment) Act, 2019. The amendment seeks to establish an Arbitration Council of India. This will help transform India as a hub for arbitration proceedings.
- Conciliation: Conciliation is not a new concept as far as India is concerned. Kautilya’s Arthashastra also refers to the process of conciliation. Conciliation falls within Part III of the act. It is based on the UNCITRAL Rules on Conciliation, 1980. Conciliation is a private, confidential, and the voluntary dispute redressal mechanism in which a neutral person, the conciliator helps parties reach a negotiated settlement. Conciliation proceedings are non-adversary; there is no claimant or plaintiff. Furthermore, they are voluntary and require the consent of the parties. The disputes are settled amicably by mutual agreement, and parties can at any time choose to discontinue the proceedings. Moreover, the conciliator has the freedom to adopt a flexible procedure for speedy and inexpensive disposal of the suit. As per Section 80 of the Act, the conciliator does not actually decide the suit, he rather facilitates parties to reach an amicable decision. However, the conciliator may at any time, himself make proposals for settlement of the dispute in accordance with the rules laid down in Section 67 of the act.
While arbitration is more privatised than judicial settlement, conciliation is more privatised than arbitration.A conciliation agreement should be an ad hoc agreement entered only after a dispute has arisen. The party initiating conciliation shall send a written invitation to the other party, and the proceedings commence once the other party accepts such invite. Conciliation offers greater freedom in the decision-making process. They are not bound by an award and have the privilege to negotiate and arrive at an amicable setting in a casual manner. Furthermore, Section 30 of the act permits parties to conduct conciliation proceedings even while arbitral proceedings are on simultaneously. Such settlement would be recorded in the arbitral award.
- Mediation: Mediation is a voluntary process, wherein parties enter into a written agreement to appoint a mediator to mutually resolve the dispute. Such mediator possesses unique conciliating, social and interactive skills. The mediator acts as a buffer and helps parties reach an agreed outcome. The process of mediation is voluntary and strictly confidential. Any information disclosed in the mediation process is inadmissible in civil proceedings without the prior consent of all parties in writing. Mediation has been effectively used in matrimonial disputes and corporate affairs to find a prompt solution which is both time-saving and cost-effective and helps keep the entire process private. Mediation in India is primarily court-annexed. The Hon’ble Supreme Court established the Mediation and Conciliation Project Committee (MCPC) in April 2005 to oversee the effective implementation of mediation. The MCPC aims to boost court-annexed mediation and to help mediation in growing not as an alternative resolution mechanism, nay as another effective mode of dispute resolution. If a settlement has been reached, then the mediator prepares such compact and gets it duly signed by the parties to be sent to the court for passing an appropriate order.Furthermore, referral of the Ayodhya dispute has concreted mediation as a reliable form of ADR.
The Hon’ble Supreme Court in Moti Ram (D) Tr. LRs & Anr. V. Ashok Kumar & Anr. held that mediation proceedings are strictly confidential in nature. The 129th Law Commission Report recommends courts to compulsorily refer disputes for mediation.Under the Commercial Court Act, 2015, it is obligatory for parties to exhaust the remedy of pre-institution mediation before instituting a suit.The Apex Court in MR Krishna Murthi V. New India Assurance Co. Ltd., asked the government to consider the feasibility of enacting an Indian Mediation Act to handle various aspects of mediation in general. Furthermore, the court directed the government to examine the feasibility of setting up a Motor Accidents Mediation Authority (MAMA). Recently, the Hon’ble Supreme Court formed a committee to draft a mediation law.
- Lok Adalats:Based on Gandhian principles, Lok Adalats or people’s court is a forum where cases pending at the panchayat or pre-litigation stage are decided. It is governed under the Legal Services Authorities Act, 1987. Lok Adalats deal with cases pertaining to partition claims, bonded labour, motor accident compensation, unpaid bank loans, etc. Every Lok Adalat shall be deemed to be a civil court and likewise wield identical powers under CPC. Lok Adalats are presided over by statutory conciliators who facilitate in helping parties reach a settlement amicably. The parties aren’t represented by lawyers and are encouraged to interact with the conciliator. The award of a Lok Adalat is binding on both the parties and no appeal lies against such orders. However, if a party is dissatisfied with the award, such a party can initiate litigation proceedings.
In State of Punjab & Anr. V. Jalour Singh & Ors., the Hon’ble Supreme Court held that a Lok Adalat is confined only to passing of award based on compromise and it doesn’t possess powers to hear the parties adjudicate their disputes as a regular court.
Gammon India Judgement
On June 20, 20020, the Hon’ble High Court of Delhi, comprising of Justice Pratibha M. Singh held that arbitration was supposed to be the panacea for the woes of litigation. However, in recent times it has become complex, owing to long delays, enforcement challenges, high costs, and most importantly, multiplicity, in invocations, awards, challenges, etc. between the same parties and the same contract or series of contracts. I’ll lay down the facts of the case and analyse several practice directions established by the Arbitration and Conciliation Act, 1996 to curb multiplicity of proceedings.
Facts of the case: A contract was executed between Gammon-Atlanta JV (Contractor) and NHAI on December 23, 2000 for the work of widening lanes and strengthening the existing 2-lane carriageway on NH-5 in the state of Orissa. The value of the project was approximately ₹118.9 crores and was expected to be completed by January 14, 2004. However, the project was not executed within the prescribed time and extensions were granted till December 31, 2006. Vehicular traffic was allowed on the main carriageway in March 2007 and the same was deemed to be ‘taking over’ of the carriageway by the contractor and hence completion. Each of these disputes was referred to three different Arbitral Tribunals in 2005, 2006, and 2008 respectively, leading to three separated awards.
Award 1: The Dispute Resolution Board (DRB) was unable to resolve the issues. Hence, the contractor invoked the arbitration clause and referred the following claims:
- Claim 2.1: Compensation for losses incurred on account of overhead and expected profit
- Claim 2.2.:Compensation for reduced productivity of machinery and equipment deployed
- Claim 2.3: Revision of rates to cover for the increase of costs on materials and labour during an extended period
The Arbitral Tribunal was duly appointed, and the award was rendered on October 5, 2007. Accordingly claims 2.1 and 2.2 were allowed and claimed 2.3 was rejected as it was outside terms of reference. The award was challenged by both the parties in several proceedings. However, the contractor withdrew its objections with respect to claim 2.3 and sought permission to approach a second arbitral tribunal.
Award 2: The contractor once again invoked the jurisdiction of DRB in respect of payments. The DRB rejected the claim. Thus, the contractor referred the claim to a tribunal on the basis of permission granted by the court. The tribunal by a 2:1 majority rejected the claim and passed an award on February 21, 2011. The same was challenged in the petition.
Award 3: NHAI imposed damages on the contractor for delay in completion of work. The contractor, dissatisfied with the recommendations of the DRB invoked the third arbitration. The tribunal passed an award on February 20, 2012, allowing for the recovery of amounts paid as liquidated damages.
Issue: There have been three different awards adjudicated by the tribunal for three different disputes and claims, while award 1 and 2 have attained finality, award two stands contested. The contract submits that the findings in award three be relied upon, to jettison award 2.
Analysis of multiplicity of proceedings: The court expounds that a perusal of provisions of the Arbitration and Conciliation Act, 1996 shows that disputes can be raised at different stages and there can be multiple arbitrations in respect of a single contract. For e.g., under Section 7 of the Act, an agreement to arbitrate could be for all or certain disputes which have arisen or which may arise. Likewise, under Section 8 of the Act, if a particular dispute is pending before a judicial authority, for other disputes, arbitration can commence or continue and an arbitral award is made.
Disputes in a long duration project may arise multiple times. Thus filing of different claims at different stages of a project or contract is permissible in law. However, parties shouldn’t overlook the principles enshrined in Order 2 Rule 2 CPC, Section 10 CPC and Res Judicata. The endeavour of courts is to ensure claims of parties are adjudicated simultaneously, or if they involved overlapping issue, the subsequent suit has stayed until a decision is delivered in the former suit. This is to maintain the fundamental principle of public policy.
The court realised that multiple arbitrations could be of various kinds. For e.g. in Indian Oil Corporation V. SPS Engg. Co. Ltd., the Hon’ble Supreme Court referred disputes between the same parties arising under the same contract, to arbitration for adjudication. Likewise, in Indian Railway Catering & Tourism Corporation Ltd. case, the Hon’ble High Court of Delhi appointed a single arbitrator to adjudicate the disputes.
Judgement: Generally, in construction contracts, disputes may run into multiple claims often related to delay, breaches, termination. etc. In the present case, three separate tribunals were constituted, and three awards were rendered for parties in a dispute arising out of the same contract. The constitution of three different tribunals was unwarranted and inexplicable as it led to enormous confusion.
The court placed reliance on Dolphin Drilling Ltd. V. ONGC and expressed that all disputes that are in existence when the arbitration clause is invoked, all disputes which exist at the time of invocation ought to be referred and adjudicated together.
Constitution of multiple tribunals in respect of the same contract is counter-productive, impish, and sets the entire arbitration process at nought, as the purpose of arbitration is to provide for speedy disposal of suits. The court acknowledges that it is possible that subsequent disputes may arise which might require a second reference, however, if a party does not raise claims which exist on the date of invocation, it ought not to be given another chance unless there exist legally sustainable grounds.
The court held that in respect of a particular contract or a series of contracts that bind parties in a legal relationship, the objective shall always be to make one reference to one tribunal. Furthermore, if disputes have arisen and the arbitration clause is to be invoked at different stages, then the party conjuring the same ought to raise all the claims that have already arisen on the date of invocation for reference to arbitration. Moreover, if a tribunal is constituted to adjudicate disputes arose out of a contract, any further dispute which may arise thereon in respect of the same contract, ought to be referred to the same tribunal.
Above all, if there are multiple challenges pending in respect of awards arising out of the same contract, parties ought to bring the same to the notice of the court adjudicating so all challenges can be adjudicated comprehensively at one go.
The court relied on Vijay Karia & Ors. V. Prysmian Cavil E Systemic SRL & Ors. rejected the argument that since the award under challenge is irreconcilable and inconsistent with another award, it deserved to be set aside. The findings of the second tribunal do not suffer from any patent illegality and no other grounds for interference under Section 34 of the act are made out. Furthermore, the subject matter of award 2 is completely different from that in award 3. Hence the latter cannot be jettisoned into the present petition to rule in favour of the contractor. The plea of the contractor is untenable and liable to be set aside.
In a Canadian case, Saskatchewan Power Corp. V. Alberici Western Constructors, Ltd., the Saskatchewan Court of Appeal held that the arbitration clause of the main contract between the owner and the contractor should be enforced, albeit there was court litigation involving the subcontractors and ruled that multiplicity of litigation is not a sufficient reason to stay arbitration. In Canadian Natural Resources Ltd. V. Flatiron Constructors Canada Ltd. the court stayed an arbitration and allowed overlapping litigation to proceed first.
Similarly in the UK, in Fiona Trusts V. Primalov, the House of Lords held that a court while analysing an arbitration clause ought to presume that parties always intent to refer their commercial dispute to be decided by the same tribunal. Likewise, in Trust Risk Group V. AmTrust Europe, the Court of Appeal held that if parties deliberately and on a rational basis decide to refer disputes to separate tribunals then the same must be upheld. However, the aforesaid proposition should not be the guiding principles wherein the constitution of multiple tribunals is a dilatory tactic to frustrate the objective of the act.
ADR was formed for the purpose of lessening the burden on the overworked Judiciary. It provided litigants with cost-effective and speedy alternatives for disposal of their disputes. A contemporary way to settle disputes amicably with the help of adroit arbitrators or mediators. The multiplicity of arbitration proceedings (ADR) is counter-productive to the provisions stated in the act. It brings the act at nought, ciphering its purpose. It leads to inevitable procedural efficiencies and imitation of efforts. The Hon’ble High Court of Delhi brought forward the menace of such acts and held that parties to the arbitration are expected to adhere to a bona fide discipline of use of the arbitral process (purpose of ADR), withal also laid down certain directions to curb the same. They are:
- Parties approaching the court by way of Section 34 have to disclose whether there are any other proceedings pending or adjudicated in respect of the same contract, and if so, what is the stage of the said proceedings and forum where they are pending.
- When the petition under Section 34 is being heard, parties ought to disclose whether any other Section 34 petition is pending and seek disposal of simultaneous and comprehensive disposal of all petitions to avoid cluttering.
- If a tribunal has already been constituted for a dispute arising out of the same contract, an exertion must be made to refer any other dispute arising out of the same contract to the same tribunal. Likewise, appointing authorities under contractors ought to avoid appointment or constitution of separate arbitrators or tribunals for different disputes arising out of the same contract.
In P.R. Shah V. M/s B.H.H. Securities Pvt. Ltd., the Apex Court held that in a multi-party arbitration, where a few parties are not signatories to the arbitration clause, this leads to complexity and multiplicity. To avoid it, parties must be consolidated into a single proceeding. This is in consonance with Article 28.1(c) of the Honk Kong International Arbitration Rules, 2018 which states that pending arbitration proceedings must be consolidated with the consent of the parties if it involves a common question of law or fact arising out of the same contract. Recently in Global Infonet V. Lenovo & Ors., the Hon’ble High Court of Delhi, effectively consolidated three arbitration (ADR) proceedings into one single arbitration as all three were underlying distribution agreements which made up a single economic transaction. The guidelines issued by the High Court can act as a guide for future arbitration proceedings.
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 Afcons Infrastructure Ltd. V. Cherian Varkey Construction Co. (P) (2010) 8 SCC 24
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Indian Oil Corporation v. SPS Engg. Co. Ltd, (2011) 3 SCC 507
Dolphin Drilling Ltd. V. ONGC AIR 2010 SC 1296
Vijay Karia & Ors. V. Prysmian Cavil E Systemic SRL & Ors. (Civil Appeal No. 1544 of 2020, decided on 13th February 2020) O.M.P (COMM) 392/2020
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Canadian Natural Resources Ltd. V. Flatiron Constructors Canada Ltd. (2018) ABQB 613
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Fiona Trusts V. Primalov (2007) UKHL 40
Trust Risk Group V. AmTrust Europe (2015) EWCA Civil 437
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 P.R. Shah V. M/s B.H.H. Securities Pvt. Ltd. (2012) 1 SCC 594 see also Amar Lal Chand Shah V. Rishabh Enterprises AIR 2018 SC 3041
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Judgment dated July 25, 2019, in C.S.(Comm.) No. 658 of 2017
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