Provisions of the Arbitration and Conciliation Act, 1996, relating to arbitration are applicable when there is a arbitration agreement in writing between the parties, as referred to in Section 7 thereof. Of course, this section makes it clear that arbitration agreement is not required to be in any particular form. It can even be in the form of an exchange of letters, telex, telegrams or other means of telecommunication, such as email, which provide a record of the agreement, etc.
In the case of Rukmanibai v. Collector, (1980) 4 SCC 556 : AIR 1981 SC 479, the Supreme Court has also held that arbitration agreement is not required to be in any particular form and that what is required to be ascertained is whether the parties have agreed that if disputes arise between them in respect of the subject-matter of contract such disputes shall be referred to arbitration, then such an arrangement would spell out an arbitration agreement.
Under Section 8 of the Arbitration and Conciliation Act, the court can refer parties to arbitration where there is an arbitration agreement.
However, there is also a provision in Section 89 of the Civil Procedure Code (CPC) as per which the court can refer a case for settlement, inter alia, through arbitration.
In this regard, it is pertinent to point out that in Salem Advocate Bar Assn. (2) v. Union of India, (2005) 6 SCC 344, referring to an earlier decision [P. Anand Gajapathi Raju v. P.V.G. Raju, (2000) 4 SCC 539], the Supreme Court observed that the Arbitration and Conciliation Act, 1996, governs a case where arbitration is agreed upon before or pending a suit by all the parties. It was held that the 1996 Act, however, does not contemplate a situation as in Section 89 of the Civil Procedure Code where the court asks the parties to choose one or other ADRs including arbitration and the parties choose arbitration as their option. It was held that, of course, the parties have to agree for arbitration.
Thus, it should be clear that even if there is no arbitration agreement between the parties, under Section 89 of CPC, the court can refer the case for settlement through arbitration. However, as held in aforesaid Salem Advocate Bar Assn. case (and, in some other cases noted below), the parties have to agree for arbitration even in such situation, i.e., even for Section 89 CPC reference.
In Shailesh Dhairyawan v. Mohan Balkrishna Lulla, (2016) 3 SCC 619, by reiterating that reference of dispute to arbitration under Section 89 CPC in a pending suit by the orders of the court would be only when parties agree for settlement of their dispute through arbitration, the Supreme Court held as under:
“It has been noticed by this Court in some earlier judgments that Section 89 CPC is not very happily worded. Be that as it may, Section 89 provides for alternate methods of dispute resolution i.e. those methods which are alternate to the court and are outside the adjudicatory function of the court. One of them with which we are concerned is the settlement of dispute through arbitration. Insofar as reference of dispute to arbitration is concerned, it has been interpreted by this Court that resort to arbitration in a pending suit by the orders of the court would be only when parties agree for settlement of their dispute through arbitration, in contradistinction to the alternate dispute resolution mechanism (for short “ADR”) through the process of mediation where the Judge has the discretion to send the parties for mediation, without even obtaining the consent of the parties. Thus, reference to arbitration is by means of agreement between the parties. It is not in dispute that there was an agreement between the parties for reference of dispute to the arbitration and it was so referred.”
In the case of Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., (2010) 8 SCC 24, the Supreme Court had explained in detail as to how the parties can show their consent for arbitration being resorted to under Section 89 CPC:
“Even if there was no pre-existing arbitration agreement, the parties to the suit can agree for arbitration when the choice of ADR processes is offered to them by the court under Section 89 of the Code. Such agreement can be by means of a joint memo or joint application or a joint affidavit before the court, or by record of the agreement by the court in the order-sheet signed by the parties. Once there is such an agreement in writing signed by parties, the matter can be referred to arbitration under Section 89 of the Code; and on such reference, the provisions of the AC Act [Arbitration and Conciliation Act] will apply to the arbitration, and as noticed in Salem Bar, the case will go outside the stream of the court permanently and will not come back to the court.”
In a recent case, namely in Kerala State Electricity Board v. Kurien E. Kalathil, (2018) 4 SCC 793, there was no arbitration agreement between the parties. However, after pointing out the disputed claims of additional work and on the oral consent of the counsel for the appellant, the High Court had referred the parties to arbitration.
In these circumstances, the Supreme Court held that reference to arbitration by High Court was not permissible in this manner, even when the counsel of the parties consented to the same. The Supreme Court held that for reference of the parties to arbitration, oral consent given by the counsel without a written memo of instructions does not fulfil the requirement under S. 89 CPC.
The Supreme Court clarified that the Arbitrator/Tribunal is a creature of the contract between the parties. It was observed that:
“Jurisdictional precondition for reference to arbitration under Section 7 of the Arbitration and Conciliation Act is that the parties should seek a reference or submission to arbitration. So far as reference of a dispute to arbitration under Section 89 CPC is concerned, the same can be done only when parties agree for settlement of their dispute through arbitration in contradistinction to other methods of alternative dispute resolution mechanism stipulated in Section 89 CPC. Insofar reference of the parties to arbitration, oral consent given by the counsel without a written memo of instructions does not fulfil the requirement under Section 89 CPC. Since referring the parties to arbitration has serious consequences of taking them away from the stream of civil courts and subject them to the rigour of arbitration proceedings, in the absence of arbitration agreement, the court can refer them to arbitration only with written consent of parties either by way of joint memo or joint application; more so, when Government or statutory body like the appellant Board is involved.”
The Supreme Court observed that referring the parties to arbitration has serious civil consequences. Once the parties are referred to arbitration, the proceedings will be in accordance with the provisions of the Arbitration and Conciliation Act and the matter will go outside the stream of the civil court. Under Section 19 of the Arbitration and Conciliation Act, the Arbitral Tribunal shall not be bound by the Code of Civil Procedure and the Evidence Act. Once the award is passed, the award shall be set aside only under limited grounds.
It was accordingly held that since referring the parties to arbitration has serious civil consequences procedurally and substantively, when there was no arbitration agreement between the parties, without a joint memo or a joint application of the parties, the High Court ought not to have referred the parties to arbitration.
Thus, from the above-mentioned legal provisions and the judgments of the Supreme Court, it is quite clear that a court can refer parties to arbitration under 8 of the Arbitration and Conciliation Act only where there is an arbitration agreement in writing between the parties, though there is no specific form of such written agreement and it can even be in the form of exchange of letters, emails, etc.
Likewise, even under Section 89 of CPC, court can refer the parties to arbitration only if the parties agree and moreover, the parties must agree in writing by means of a joint memo or joint application or a joint affidavit before the court, or by record of the agreement by the court in the order-sheet signed by the parties. Oral consent given by advocates of the parties is also not sufficient for this purposes.
