Report No. 176
2.5.1 Proposed section 8A:
Separate provision for reference where, pending proceedings in courts of law, the parties agree to have the disputes referred to arbitration and corresponding amendments in Section 42(4) Under section 21 of the Act of 1940 there was a specific provision enabling a court to refer disputes to arbitration, pending suits or proceedings, if parties so agreed. In fact in several cases the trial courts or after long years of litigation, the High Court and the Supreme Court have been referring matters to arbitration because of subsequent agreement of parties with a view to shorten litigation.
The absence of such a provision in the Act of 1996 has given rise to serious difficulties. As it is, sections 8, 11 and 16 apply only in cases where there is already an 'arbitration agreement' between parties well before the parties have gone to Court. We are now considering a case where after parties go to court, they agree to resolve disputes by arbitration.
The UNCITRAL model, no doubt, does not expressly provide for a contingency where at any stage during the pendency of legal proceedings before a court of law, parties agree to go for arbitration. Sometimes, it happens that after fighting litigation from the trial court upwards, the parties decide at the stage of an appeal in the High Court or the Supreme Court to go for arbitration. The British Columbia Act, 1996 (which is said to have been followed while drafting the 1996 Act, (see Dr. P.C. Rao, The Arbitration and Conciliation Act, A commentary 1997 edn., page 9), does contain in section 36 a provision similar to section 21 of the 1940 Act which reads as follows:-
"Section 36: Reference by Court Order (1) The Court may order at any time that the whole matter, a question of fact arising in a proceeding, other than a criminal proceeding, be tried before an arbitrator agreed by parties if -
(a) all the parties intended, and not under disability, consent;
(b) the proceeding requires a prolonged examination of documents or a scientific or local investigation before a jury or conducted by the Court through its other ordinary officers, or
(c) the question in dispute consists wholly or partly matters of account".
Though there is no corresponding provision in the 1996 Act to cover such a case, the Supreme Court implied such a power in sec.11. A separate provision is now proposed to be made to deal with agreements for arbitration entered into after the filing of suits before courts. Of course, this is different from what is proposed in sec.89 of the Code of Civil Procedure as stated earlier. (That section has not yet come into force). That section would permit the Court, if it appears to the Court that there exist elements of settlement, to refer parties to arbitration, conciliation or to Lok Adalat or to mediator.
Section 89 does not depend upon consent of parties. There are two cases of the Supreme Court on this point. The Supreme Court had occasion to deal with a civil proceeding which came up from the High Court in appeal from a suit in P. Anandagjapathi Raju vs. P.V.G. Raju (2000(4) SCC 539 = AIR 2000 SC 1886). In Tamil Nadu Electricity Board vs. Sumathy 2000 (4) (SCC 543 = AIR 2000 SC 1603) the High Court had appointed an arbitrator in a writ petition where damages were claimed against the Tami Nadu Electricity Board on account of death by electrocution.
Reference to arbitration was made by the court after the 1996 Act and award was passed which became a decree. It was sought to be attacked in appeal to the Supreme Court. The Board contended that the High Court could not have appointed an arbitrator by relying upon Articles 21 and 226 of the Constitution. This contention was rejected following the judgment in P. Anandgajapthy Raju's case. The Supreme Court held that Section 8 of the Act applied not only to arbitration agreements entered into before the commencement of the suit or other proceeding but also those entered into pending suit or other proceedings.
To the above extent the problem was solved. But the Supreme Court still held that under section 2(1)(e) of the 1996 Act, the award decree could be questioned only before the Court in which a suit for the relief could have been filed. The result was that litigation would start again, in the 'Court' as defined in Sec. 2(1)(e) and then move up to the High Court and Supreme Court.
It has been pointed out during the discussion on the Consultation Paper (Annexure-II) that sec. 42 of the 1996 Act requires that further proceedings need be taken in the same court and that the Supreme Court in the case of Sri P. Anandagajapathi Raju (supra) did not notice this provision when it directed the award to be filed in the principal District Court as defined in sec.2(1)(e). Without going into the controversy, it is decided to have a separate section enabling reference to arbitration in pending legal proceedings, i.e., suits or appeals or writ petitions by any court if parties so agree and file an application for reference to arbitration.
Application to set aside the award has to be filed before the same court which made the reference except in the case of courts co-equal, or inferior in rank to the principal civil court in the district or the court of the Principal Judge City Civil Court, in the city. In such cases the subsequent applications including applications to set aside the award, will be made to the aforesaid Principal courts. These aspects will be covered by proposed section 8A and proposed amendments to section 42 (see proposed section 42 (4) and Explanations proposed thereto).
In fact, in the 76th Report of the Law Commission, this aspect was dealt with in the context of making amendments to section 21 of the 1940 Act (see paras 7.1 to 7.3). The Commission suggested that the word "suit" in section 71 should be enlarged as "suit or appeal". But now, in the light of the decision of the Supreme Court in Tamil Nadu Electricity Board's case, it is felt that there should be a new provision like section 21 of the old Act, covering not only suits or appeals but also other legal proceedings in Courts, in which parties agree to go for arbitration.
We are not prepared to extend this benefit to proceedings before quasi-judicial authorities as in section 8. There, the use of the words "judicial authority" in the principal act 1996 together with the law decided by the Supreme Court in Fair Air Engineers case (AIR 1997 SC 533), permitted quasi-judicial tribunals also to come within section 8. But, when we are proposing a new provision thereby, we propose to restrict the new provision only for legal proceedings in a court at any stage of the proceedings.
The proposed section will be section 8A. It is also proposed to add an 'Explanation' below section 8A to clarify the meaning of the word "legal proceedings" which will include not only suits, appeals or other civil proceedings at any stage but also proceedings in writ jurisdiction involving civil rights.