Statutory Arbitrations and Conciliation

The dispute which may be the subject of an arbitration agreement need not necessarily arise out of a contract. They may also arise out of statutory provisions.

A reference can be made under the provisions of an act. There are many Acts of parliament which provide that any dispute about their provisions shall be settled by arbitration. The Electricity Supply Act, 1948, for example, provides for disposal by arbitration the disputes that may arise about its provisions.

Dealing with statutory arbitrations, Section 46 of 1940 Act provided that the provisions of the act would apply to such arbitrations as if the arbitration was the result of an agreement between the parties and as if the statute providing for arbitration was an agreement for arbitration. But the arbitration act was not to apply to the extent to which its provisions were inconsistent with act providing for arbitration. This subject-matter is now to be found in section 2(4) of the arbitration and Conciliation Act, 1996.The sub-section says that Part 1 of the act shall apply to every arbitration under any other enactment for the time being in force, as if the arbitration were pursuant to an arbitration agreement and as if that other enactment were an arbitration agreement. In the case of any inconsistency between the two enactments, the provisions of the other act apply. The provision also says that Section40 (1) [effect of death of a party], section 41[insolvency of a party] and section 43[limitations] are not to apply to arbitrations under other enactments. Where there is a provision for statutory arbitration as a result of which the statutory requirement of arbitration has the effect of being an agreement to refer dispute to arbitration, the provisions of the Arbitration Act (Section 32 and 33 of the 1940 Act) enabling the parties to question the validity of the arbitration agreement were not attracted. The statutory provisions are presumed to be valid.

Statutory arbitrations [Section 2(4)]

Section 2(4) of The Arbitration and conciliation act.1996 provides for the application of the act to statutory arbitrations. It replaces Section 46 of the repealed 1940 act. The Provision is as follows:

“(4) This part except sub-section (1) of Section 40.sections 41 and 43 shall apply to every arbitration under any other enactment for the time being in force, as if the arbitration were pursuant to an arbitration agreement and as if that other enactment were an arbitration agreement ,except insofar as the provisions of this part are inconsistent with that other enactment or with any rules there under.(5)subject to the provisions of sub-section(4),and save insofar as is otherwise provided by any law for the time being in force or in any agreement in force between India and any other country or countries, this part shall apply to all arbitrations and to al proceedings relating thereto”.

The effect is that the provisions of the arbitration and conciliation act became applicable to every arbitration under any other enactment for the time being in force. An arbitration under an enactment is known as statutory arbitration. The provisions of the act are applicable to every such arbitration to the same extent as if the arbitration is under an agreement of the parties and the enactment is in itself an arbitration agreement. The section also refers to certain limitations as to the application of the act. The provisions of the act will not apply to the extent to which they are inconsistent with those of the other act. Further sections 6(1), 7, 12 and 37 are also not applicable [1] .Section 6(1) effect of death of a party and section 7 with insolvency of a party. Section 12 indicates the power of the court where an arbitrator is removed or his authority revoked. Section 37 prescribes the period of limitation. These provisions have been expressly declared to be not applicable to statutory arbitrations. [2]

The section applies only to such arbitrations as are the direct result of an Act without reference to the consent or intention of the parties. Where the application of the act is not automatic, but can be brought about only by a written agreement of the parties, that is not a statutory arbitration, even if after the submission, all proceedings are conducted in accordance with an act. An example is Section 66 of the Bombay Industrial Relations Act, 1940 under which the parties have to make a written submission for an arbitration. [3]

When awards are made in disputes between the parties by the arbitrators of their choice, who may be appointed by the court on their behalf, as provided for under the Principal Act, such awards can never be regarded as those made by the arbitrators in exercise of the judicial power conferred upon them. However, if reasoned awards are made by the special Arbitration Tribunals constituted under a legislative enactment in exercise of the power conferred upon them under such enactment in the matter of adjudicating upon disputes between the parties according to accepted norms of judicial procedure, such awards can be regarded as those rendered by the Arbitral Tribunals in exercise of the judicial power of the state conferred upon the state under legislative enactment. [4]

The provisions of the Arbitration Act would not be attracted by the deeming fiction under Section 46 of the 1940 Act [now Section2 (4)] thereof. Arbitration agreement signed by the parties is the foundation for the reference under the Arbitration Act to an arbitrator appointed by the court to decide dispute arising under the contract as per its terms. In case of failure of arbitration under any other enactment, section 46 of the arbitration act1940 {repealed, now section 2(4)} seeks to step in an effectuates arbitration of the dispute referred under the statute. However, it would be subject to the provisions of the special law and the exceptions envisaged in the section. Section 46, 1940 act clearly showed that when a statutory arbitration had become unworkable, it introduced a fiction that the arbitration under the statute stood substituted by a deeming agreement between the parties, as if it was a bilateral agreement for reference under Arbitration Act.The provisions of the Arbitration act would then apply, except those excluded by the section itself. One of the excluded sections is section 12 of the Arbitration Act, which gives power to the court, after removal of the arbitrators, to appoint an arbitrator or umpire. The condition precedent for applying the section is that there should not exist any inconsistency between the special law and arbitration act. Where the provisions of the West Bengal Cooperative Societies Act were inconsistent with the Arbitration Act, the registrar under the Cooperative Societies Act had the power to withdraw the matter from the arbitrator and refer it to another person. [5]

The Provisions of the Act are applicable to all arbitrations and to all proceedings under an arbitration, except to the extent to which a Special Act exempts Statutory arbitrations from some of its provisions and subject also to the provisions of any other Act providing for arbitration.

A proviso to Section 46 of the 1940 Act (repealed) dealt with a situation like a compromise between the parties to a pending suit. Where a suit was pending and the parties desired an arbitration they had to do so with an order of the court, ordinarily such an award was a nullity. But if they desired to file the award, the court could accept it as a compromise or adjustment under Order 23 Rule 3 of the Civil Procedure Code. It is necessary that all the parties should consent to the ward being taken into consideration. If a single party objected the award would be nullity.”Consent” meant consent to the filing of the award and not merely the antecedent agreement of submission to arbitration.

From google books [International arbitration law and practice By Mauro Rubino-Sammartano]

Statutory Arbitration

“Statutory Arbitrations” are arbitrations conducted in accordance with the provisions of certain special Acts which provide for arbitration in respect of disputes arising on matters covered by those Acts. There are about 24 such Central Acts. Among them are the Cantonments Act, 1924, the Indian Electricity Act, 1910, the Land Acquisition Act, 1894, the Railways Act, 1890 and the Forward Contracts Regulation Act, 1956. Many State Acts also provide for arbitration in respect of disputes covered by those Acts, including Acts relating to co-operative societies. The provisions of the Arbitration Act, 1940 generally apply to those arbitrations unless they are inconsistent with the particular provisions of those Acts, in which case the provisions of those Acts will apply (Sections 46 and 47, Arbitration Act, 1940). The above position continues in substance under the new Act. The provisions of the 1996 act also generally applies to arbitration unless they are inconsistent with the particular provisions of the above mentioned acts, in which case the provisions of the said acts apply (Section 2(4) and 2(5)).

Government contracts generally provide for compulsory arbitration in respect of disputes arising there under and usually the arbitrator appointed to decide such disputes are senior government officer. A large number of public sector undertakings also follow a similar procedure. There is also the Government of India’s Scheme, evolved on the directions of the Supreme Court, with regard to settlement of disputes between one Government Department and another and one Government Department and a public enterprise and between public enterprises themselves. This Scheme provides for the constitution of a standing committee of senior officers who ensure that no litigation involving such disputes is taken up in a court or tribunal without the matter having been having first examined by the said committee and the committee’s clearance on litigation is obtained. The Ministries concerned in specific cases are also represented in the said committee.

The committee assesses the reasonableness of the rival stands before it decides. This procedure has helped in an amicable settlement of a large number of disputes which would have otherwise ended in litigation.

There is also a permanent machinery of arbitrators constituted by the Government of India to settle all current and future commercial disputes between public sector undertakings inter se as well as between a public sector undertaking and a Government Department. The award of the arbitration in such a dispute is binding on the parties to the dispute. Any party aggrieved by the award may make a reference for setting aside or revision of the award to the secretary, Minister of Law, Justice and Company Affairs, Government of Indian, whose decision binds the parties finally and conclusively.

Compulsory or Statutory arbitration

Compulsory or statutory arbitration is difficult to situate it within the framework of arbitration, since the latter takes place pursuant to the agreement of the parties, and not because it is mandatory to refer the dispute to an arbitrator.

Compulsory arbitration is closely linked to the domestic provisions of ach individual legal system.

In some jurisdictions, authors [6] tend to consider compulsory arbitration different from arbitration. In fact it derives its authority from acts of parliament through which, in some case, the citizen is obliged to submit some disputes to arbitral tribunals to be formed as ordered by parliament. It follows that these proceedings are a creation of parliament and not of a meeting of minds even if arbitration law is applied to them, and a new kind of arbitrator may, as a result of this, be created, who can be situated between an arbitrator and a special judge.

The major criticism to be made against the doctrine is that in real (ordinary) arbitration the parties are free and not obliged to resort to arbitration and the choice of the arbitrators is simply a consequence of the decision to go to arbitration.