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Report No. 176

2.4.10 Proposed section 8(6):

Scott vs. Avery clause A Scott vs. Avery clause is one which requires an award to be first obtained as a condition for starting any legal proceedings. Such a clause is intended to see that parties do not bypass arbitration clauses and go to a Court of law so as to compel the opposite party to raise a plea based on the existence of an arbitration clause. Both in England and in India, such clauses have been upheld. However, there was a provision in sec. 19 of the 1940 Act for supersession of the arbitration agreement by the Court in certain situations.

The old Act therefore had to deal with a situation where the arbitration clause was superseded by the Court, for, in that event, a party would not be in a position to obtain an award and then the condition of first obtaining an award would be a condition impossible of being complied with. Hence sec. 36 of the old Act provided that in case the arbitration agreement is superseded, the Court should also supersede the Scott vs. Avery clause.

A further provision was made in the old Act in sec. 37(2) that so far as the period of limitation is concerned, once the arbitration clause and the Scott vs. Avery clauses are not applicable, the period has to be reckoned from the date of the cause of action as done normally. Thus sec. 37(2) was consequential to sec. 36 which was in itself consequential to an order of supersession of the arbitration clause under sec. 19 of the old Act.

The 1996 Act makes a deviation and there is no provision corresponding to sec. 19 of the old Act for superseding an arbitration clause. Hence, the legislature rightly dropped a provision corresponding to sec. 36 and sec. 37(2). This is understandable. But then, we have to refer to another similar situation that can arise as per the proposals made by us for amending sec. 8 of the principal Act of 1996 enabling the 'judicial authority' to decide (i) whether an arbitration agreement is null and void, (ii) inoperative or (iii) not capable of enforcement (iv) whether there is a dispute in existence or (v) whether there is an arbitration clause in existence.

Of these contingencies, if under (i), (ii) and (iii), it is held by the judicial authority that the agreement which is in existence is null and void or inoperative or incapable of enforcement, then, the arbitration agreement cannot be of any help and it is not possible to obtain an award initially, as required by the Scott vs. Avery clause. In that event, a provision has to be made that the 'judicial authority' under sec. 8 will refuse to stay the legal proceeding and will decide it on merits.

In other words, in as much as it is not possible in contingencies (i), (ii) and (iii) to pass an award though the arbitration clause is in existence, it is necessary to have a provision that the Scott vs. Avery clause requiring an award to be obtained as a condition precedent is not applicable. Therefore, a provision nullifying the Scott vs. Avery clause in situations covered by contingencies (i), (ii) and (iii) above referred to, has to be made as under the English Act, 1996.

The English Act, 1996 contains a provision similar to the proposed sec. 8 and enables the Court to decide whether an arbitration agreement is null and void or inoperative or incapable of enforcement. If these pleas are accepted, the Court will refuse stay of the legal proceeding and decide the said proceeding on merits. The English Act, 1996, therefore, made a special provision in sec. 9(5) that in case the arbitration agreement goes out of operation on any of these grounds, the Scott vs. Avery clause does not apply. Sec. 9(5) of the English Act, 1996 states as follows:

"Section 9(5): If the court refuses to stay the legal proceedings, any provision that an award is a condition precedent to the bringing of legal proceedings in respect of any matter is of no effect in relation to the proceedings."

Therefore, in view of the proposal to amend sec. 8 conferring power on the judicial authority to decide issues (i), (ii) and (iii), referred to above, a provision similar to sec. 9(5) of the English Act, 1996 becomes necessary, stating that if the judicial authority decides that the agreement is null and void, inoperative or unenforceable, then it will proceed to decide the legal proceeding on merits and refuse stay and that there is no need to obtain an award as a condition precedent. Accordingly, it is proposed to have such a provision by inserting sub-section (6) in sec. 8 as already mentioned in preceding para 2.4.9.

The Arbitration and Conciliation (Amendment) Bill, 2001 Back

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