How is Arbitration Law and Code of Civil Procedure related?



 The importance of Arbitration Law was also mentioned in the case of Konkan Railway Corporation vs. Mehul Constructions Co That, “ to attract confidence of International Mercantile Community and the growing volume of India’s trade and commercial relationship with the rest of the World after the new Liberalization Policy of the Government, Indian Parliament was persuaded to enact Arbitration and Conciliation Act in 1996 (hereinafter the Act 1996) in UNCITRAL Model. The Arbitration Law endeavours to settle the dispute amicably by negotiating between the parties.”

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Civil Procedure Code

“Civil Procedure” is the body of laws which concern the prescribed methods of resolving disputes through litigation. Civil trials can be used by anyone to enforce, redress or protect their legal rights through court orders and monetary awards. These procedures apply in the cases that do not fall under criminal Law domain and includes various kinds of Appeals like Property dispute cases, contract matters, Partition cases, Environment related cases, Rent control matters, educational institution cases, Service related cases, labour cases, intellectual property right related cases, debt recovery cases, Mines and Mining rights cases, wills and succession cases, Income tax appeals, Sales tax Appeals etc.

Civil Procedure includes many subtopics like jurisdiction & venue (describe particular country or geographical area in which a particular court with jurisdiction may hear and determine a case), pleadings & motions (formal documents includes plaintiff’s initial allegations and defendant’s responses over them) discovery (gather case based information by documents and deposition i.e. written or oral interview of a party or witness by a lawyer).

Relevant provisions of Arbitration and Conciliation Act, 1996 Act

Section 19-"Determination of rules of procedure.—

  1. The arbitral tribunal shall not be bound by the Code of Civil Procedure, 1908 (5 of 1908) or the Indian Evidence Act, 1872 (1 of 1872).
  2. Subject to this Part, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting its proceedings.
  3. Failing any agreement referred to in sub-section (2), the arbitral tribunal may, subject to this Part, conduct the proceedings in the manner it considers appropriate.
  4. The power of the arbitral tribunal under subsection (3) includes the power to determine the admissibility, relevance, materiality and weight of any evidence."

Section 5- "Extent of judicial intervention.—notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part."

From a combined reading of the provisions, it can be clearly inferred that the legislative intent was to curtail judicial interference of the civil courts which are infamous for their long, costly and delayed proceedings. Further, it also satisfies the primary objective of the Act which was to minimize the supervisory role of courts in the arbitral process and expeditious disposal of disputes.

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Application of Civil Procedure Code

So far as the application of Civil Procedure Code (herein after referred to as "the Code") in the arbitral proceedings is concerned, Section 19 of the Act exempts the arbitral tribunal from the shackles of the Code as also the rules of evidence contained in the Indian Evidence Act, 1872 and empowers it to formulate its own rules of procedure.

 However, the Act itself in sections 36 and 37 of the Act provide for resorting to civil courts. The Delhi High Court, putting rest to the contradictory provisions, correctly said that the parties are required to proceed to the civil courts either for setting aside the award or its effective enforcement under section 36 or Section 37 of the Act only once the arbitral proceedings are complete and an arbitral award is made. However, the question whether all the features and provisions of CPC will be applicable to an arbitration proceeding still remains unresolved. This issue has come up before the Apex Court and High Courts in a number of cases.

The Supreme Court in its landmark judgment while examining the issue whether a revision petition under Section 115 of the Code lies to the High Court as against an order made by a civil court in an appeal preferred under Section 37 of the Act held that "there is always a strong presumption that the civil courts have the jurisdiction to decide all questions of civil nature, therefore, if at all there has to be an inference the same should be in favour of the jurisdiction of the court rather than the exclusion of such jurisdiction and there being no such exclusion of the Code in specific terms except to the extent stated in Section 37(2), we cannot draw an inference that merely because the Act has not provided the CPC to be applicable, by inference it should be held that the Code is inapplicable."

So what can be inferred is that unless the statute expressly or implicitly provides, the jurisdiction of a civil courts cannot be ousted.

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Affirming the law laid down by the Apex Court in the case Municipal Corporation of Delhi v. International Security and Intelligence Agency the High Court of Karnataka in the case of Syko Bag Industries, Proprietor, Mr. T.K. Yahoo and Mrs. K. Zubaida Vs. ICDS Limited rep. by its GPA Holder, K. Balakrishna Rao and Sri B.I. Sharma, Advocate and Arbitrator took a similar view that "The applicability of the provisions of the Code of Civil Procedure to the Arbitral proceedings under the Arbitration and Conciliation Act shall be subject to affecting any rights of a party under special law or local law in force in relation to the arbitration proceedings." and that "the provisions of Civil Procedure Code can be applied if they are not inconsistent with the provisions of Arbitration and Conciliation Act."

While all of the above judgments were regarding the application of CPC post arbitration award, the High Court of Bombay in the case Sahyadri Earthmovers Vs. L and T Finance Limited and Anr. examined the scope of applicability of CPC during the arbitration proceedings and held that although the Code and the Evidence Act are not applicable strictly, (Section 19), but their settled principles do apply.

The court further took the view that, "Section 19 of the Arbitration Act, which is reproduced contemplates when the parties agree on a particular procedure to be followed by the Arbitral Tribunal, all are bound to follow the same, but in its absence, the Arbitral Tribunal is bound to conduct the proceeding in the manner it considers appropriate. It also means that the Arbitrator has power to determine the admissibility, relevance, materiality and weight in evidence though the provisions of the Code of Civil Procedure and/ or Indian Evidence Act, are not binding upon the Tribunal. 

The principles of natural justice, fair play, equal opportunity to both the parties and to pass order, interim or final, based upon the material/evidence placed by the parties on the record and after due analysis and/or appreciation of the same by giving proper and correct interpretation to the terms of the contract, subject to the provisions of law, just cannot be overlooked."

The division bench of the Supreme Court in Mahanagar Telephone Nigam Ltd. Vs. Applied Electronics Ltdhad raised doubt over the correctness of judgment in ITI Ltd. vs. Siemens Public Communications Network Ltd. wherein it was held that that the applicability of the Code is not prohibited in an arbitration appeal proceedings under Section 37 of the Act. The matter has now been referred to a larger bench for reconsideration. Until then, the Apex court judgment in the ITI Ltd. case will continue to be the binding precedent.The provisions of part I of the Act, deals with all the arbitral proceedings including International Commercial Arbitration. The parties are bound by these provisions unless they  want to exclude the same. It would be necessary for them to expressly or impliedly mention such in the contract