Ethics to be followed by mediator:

Legal ethics refers to the code of conduct regulating and instructing behaviour of persons
within the legal profession. In Alternative dispute resolution need of ethics is more important
because there is no court established by the state. It is almost as if we thought that anyone
who would engage in alternative dispute resolution must of necessity be a moral, good,
creative, and, of course, ethical person. The most prevalent issues with regard to alternative
dispute resolution are: -
 Confidentiality:
The notion of confidentiality is a significant part of ADR mechanism. Arbitration procedures
is based on autonomy, the parties adopt the procedure for the process. Confidentiality plays a
important role in arbitration process. In the recent years arbitration has grown more especially
due to the idea of confidentiality. The Arbitration and Conciliation (Amendment) Act,
2019 officially enumerated the ground for confidentiality in the proceedings of arbitration.
Prior to the Amendment of 2019, confidentiality principle was only relevant to conciliation
under Section 75.
A host of reasons are in charge for making confidentiality so vital to the parties.  If the
information turns into public knowledge, it can destructively affect the status of such party. It
can also lead to a media trial. More remarkably, competing organisations being aware of to
such information can have the potential the very survival of a business.
 Neutrality
It also requires a mediator to bear the globally recognised principles of neutrality in mind.
Dictionary meaning of “neutral” mean “not supporting any side in a controversy”. These
meanings in an alternative dispute resolution context infer a distance from the parties and
their dispute, created by a lack of connection to any party, a disinterest in the issue and an
unbiassed approach to challenging the dispute. The alternative dispute resolution practitioner
comes from outside the parties’ conflict, having no link with any side.
Ethics standards function are variable to endorse neutrality. Some values state alternative
dispute resolution practitioners must not act with partiality, or must not do partiality, or may
state the mediator or arbitrator must in a positive way inform themselves of threats to
neutrality and divulge them.
Neutrality involves freedom from biasness and also from prejudice and ability to evaluate and
apply legal, trade, or business principles.
Model standards explain impartiality that it should have freedom from favouritism, biasness
or prejudice” and it also tells that a mediator should not act with partiality or prejudice based
on any participant’s background, personal characteristics, their beliefs and values, or
performance at a mediation, or for any other ground.
 Fairness in Alternative Dispute Resolution are:-
 The process of mediation should always be a fair one. Fair treatment should be given to the
parties and in no case, it should be arbitrarily, parties concerns should be looked and
addressed correctly further it should uphold the fairness and integrity of the mediation
process.
In proceedings of mediation and arbitration, there must be comply of justice, equity, law and
fair play in action. The proceedings should comply to the ethics of natural justice and must be
in harmoniousness with the procedure which will lead to appropriate resolution of dispute.
In Oil & Natural Gas Commission Ltd. v. New India Civil Erectors Pvt. Ltd it was held that
the rule of natural justice entails that parties must be given an occasion to be heard by the
arbitrators, which means whatsoever material they wish to put before the arbitrators should be
permitted to be placed.
Personal Values in Alternative Dispute Resolution are:-
 Lawyer is under the obligation to inform the client regarding all the possible
mechanism of dispute resolution, or participating in legislative, planning a transaction
and also inform to the client all other such process which can be best addressed to
their needs.
 Lawyers should not recklessly deceive another or it is expected that he/she should
answer all material and relevant questions while representing clients.
 It is also expected from a lawyer to immediately communicate all proposals to resolve
disputes by any process suggested by other parties, decision makers or clients.
 Lawyers should treat all parties to a legal matter as they wish to be treated themselves.
In essence, lawyers should respect a lawyers’ golden rule.
 A lawyer should not incur harm. If a lawyer has a reason to know will cause
substantial injustice to the other party then it that case a lawyer should not agree to a
resolution of a problem in any such transaction.
 Any relevant fact or legal principle should not misrepresent to or conceal from
another person by a lawyer.
 Lawyers serving as third party (arbitrators and mediators) should disclose all reasons
which the parties consider fit in ascertaining if the neutrals have any prejudice, bias or
any ground for not acting fairly and without improper interest in a matter.
 Lawyers should also immediately communicate all substantive proposals for dispute
resolution, including legally based remedies and those that address other needs. Not
only legal based remedies but a lawyers should also consider non-legal concerns.
 Lawyer serving either as third-party neutrals or as client representatives is under an
obligations to explain their clients and parties regarding all procedures that will be
used to facilitate solutions so that parties after fully understanding it can make
decision regarding what procedures should be used.
Constitutional mandate to ADR in India:
 ADR in India was initiated on the constitutional base of Article 14 and 21. It can be
indirectly inferred that there are also constitutional directives to settle the dispute also
through the ADR. In constitution of India under article 39A. The article says that the state
shall make a principle of free legal aid and also state policy relating to equal justices.
In Sheela Barse v. State of Maharashtra the apex court has stressed that legal assistance to a
indigent accused arrested and put in jeopardy of his personal liberty is a constitutional
imperative mandated by article 39A, 14 and 21 of the Constitution because in the absence of
legal assistance, there is a very chance of injustice.
It is important that the people at large and mainly those, who deserve to take benefits of ADR
System and legal aid made knowledge regarding the benefit, which are being made available
to them under several enactments. Lok Adalat and ADR is there to deliver inexpensive justice
and speedy justice to the people.
In Food corporation of India v. Joginder Pal the court also emphasised on Alternative dispute
resolution system of adjudication through arbitration, mediation and conciliation is a modern
innovation into the area of the legal system and it has brought revolutionary changes in the
administration of justice.
The basic object of arbitration is to attain a fair resolution of disputes by an impartial third
party without unnecessary expense and delay. Moreover, the Apex Court, in the case of Olga
Tellis, has enunciated that by any person cannot be waived. To apply this principle to the
Arbitration and Conciliation Act section 4 of the same allows for waiver of a right with the
aim to facilitate arbitration, and any waiver would be considered to a denial of the guarantee
protected in Art. 14.
Identify all methods of Hybrid ADR processes addressed in class, all with the features,
advantages and disadvantages: -
Hybrid mechanisms in ADR means the methods that include more than one dispute
resolution mechanism. Hybrid mechanisms have a different form. For example Singapore
International Mediation Centre, Singapore International Arbitration Centre they jointly
deliver the Arb-Med-Arb Protocol.
Hybrid ADR processes, in these specific elements of the wide variety of ADR methods is
being combined. For example mediation is combined with arbitration and is known as med-
arb. Hybrid ADR processes may also include features seen in court-based adjudication;
another example can be the mini-trial mixes an adjudication which includes not only the
presentation of arguments but it also includes proofs with negotiation.
Hybrid processes
The dispute resolution practitioner plays several roles. For instance, in conciliation
the dispute resolution practitioner may provide discussions and at the same time also gives
advice on the merits of the dispute. In hybrid ADR processes, such as med-arb, the
practitioner first avail one process (mediation) and then a different one (arbitration).
A most commonly known hybrid dispute resolution mechanism is the mediation-arbitration
mechanism commonly known as med-arb, where parties firstly involve in mediation and
afterwards only proceed to arbitration only if the mediation fail. It is assembling momentum
given the comparatively lower time and cost investments, in addition to the better protection
of business relationships linked with mediation over arbitration.
They are chiefly two different forms. Firstly, the mediator, by agreement, works as both the
mediator and the arbitrator pursuant to a compulsory arbitration agreement. Still if after the
mediation if the issues is not resolved, the matter will be resolved by arbitration. Secondly the
process also includes the pre-selection of a different arbitrator that is in that form of med-arb,
another person, who deals with the dispute which is not resolved if mediation is
unsuccessful.  Med-arb can be primarily beneficial where the parties a wish to remain in a
relationship or resolve the matter in a judicious manner: -
Some of the features of med-arb are: -
 It has features of mediation and arbitration as well. Firstly, the parties try to resolve
their disputes by mediation. If that fails to work out, then the process shifts to a
binding arbitration. 
  If the mediation end result is deadlock, or if matters continue to be unresolved, the
parties can then move forward towards arbitration. The mediator can undertake the
role of arbitrator if he is qualified and render a binding decision quickly, or an
arbitrator can take the particular case after consultation has been done with the
mediator.
Some of the notable advantages of MED-ARB are:-
 It is relatively speedy and also it ensures certainty that dispute will be not remain
unresolved.
 The parties also have a freedom to put a time limit on that in their Med-Arb
agreement. If they use avail mediation, they have a threat of not settling all the issues
in dispute. If they use avail arbitration, they perceive that all the issues will be
resolved but at the same time they deny themselves of the creative methods which
their own negotiated settlement agreement may offer.
 In the mediation stage of these hybrids, any suggestions given by the mediator may
carry more value than in mediation alone and also in Med-Arb the mediator will have
the final say as arbitrator if the dispute is no resolved and in Arb-Med the parties
might take the mediator’s recommendations as providing a foretaste of the already
sealed award, and it may turn out to be very helpful in aiding them to conclude
agreement.
 This process is also helpful as it offers the chance to move from mediation to
arbitration and also it can again go back to mediation as in the arbitration stage the
arbitrator can step back to his or her role of mediators to mediate a specific part of the
award.
 Cost and time efficiencies are there in Med-Arb, when compared to separate
mediation process and then arbitration proceedings.
 There is a fair rate of success, comparatively few cases in Med-Arb
actually need proceedings of arbitration.

Mini-trial
A mini-trial is a procedure that has a shortened trial presented before senior executives of
both the side of the parties who are authorized as principals to enter into an agreement which
will be binding, typically with a third party who is a neutral person moderating the
presentations. Subsequent after the presentation of the parties’ cases, the principals then start
negotiating the issues. The neutral come up or mediates with an evaluative assistance in
compliance with the agreement of the parties.
The benefit of this process is that the principals are brought into the case at an early stage,
getting an occasion to hear issue from both the side and trying to resolve the dispute before
time and money are largely incurred on litigation. The major drawback is that senior level
decision-makers will have to dedicate significant quantity of time to this process, because
they will be hearing the cases of both sides of the parties and involving in the negotiations.
Because there are significant involvement of effort time and costs, mini-trial, if it is used, is
in most cases it is proposed as a backup procedure, to be used only in one case that is when if
a more informal process, like outcome prediction or evaluative mediation turns to fail to
reach a resolution.
Another major advantage is that mini-trials are not binding in nature, as compared to
arbitration wherein the parties surrender their right to a litigation procedure. yet another
advantage is that mini-trials can conclude only one or couple of days, on the other hand
arbitration can take much longer.
One of the disadvantages is that mini-trials are generally set aside for complex matter.
Some of the disadvantages of Med-Arb are: -
 To work effectively as both a mediator and arbitrator the neutral party may not have
the required skills.

The mediation phase could be

used as preparation for a
possible arbitration, making it
more
likely the dispute will go to
arbitration. Waste of time
The mediation phase could be
used as preparation for a
possible arbitration, making it
more
likely the dispute will go to
arbitration. Waste of time
 The mediation stage could be undergone as grounding for a probable arbitration,
making it more probable the dispute will ultimately go to arbitration which is a sheer
waste of time.
 The parties may be reserved in their deliberations with the mediator and tell less
because they very well know that the mediator may be called upon to act as arbitrator
in the very same dispute.
 A neutral party who mediates and afterwards if the same neutral party arbitrates then
in that case the chances are there that it may be perceived as biased and may
conscious of information being conveyed confidentially and informally in mediation.
The next hybrid ADR processes is Arbitration-Mediation
This is the reverse of Med- Arb . It commence with an Arbitration, wherein the arbitral award
will be passed by the arbitrator, which is set aside sealed and later proceeds with
mediation. If the mediation is fruitful then in that case the settlement agreement among the
parties governs the dispute resolution and the arbitral award does not unseal. Nevertheless, if
mediation turns out to be unsuccessful in settling down the matter, then in that case the
arbitral award will be released and given it to the parties to resolve the matter.
One of the notable features of arb-med is that the procedure commences with an arbitration
proceeding, afterwards the arbitration award is issued which is non-binding in nature.
Afterwards, the parties work with a mediator in an effort to resolve their dispute.
Some of the notable Advantages of arb-med are identified as following: -
 It has more time and cost efficiency over separate mediation and arbitration
proceedings.
 The parties have valid grounds to disclose all relevant information to the arbitrator
because the arbitrator’s decision may eventually decide the matter in dispute.
 The finality will be reached as the dispute will be determined by either by mediation
or by arbitration.
The following disadvantages of Arb-Med have been identified:
 A neutral person who takes part in both mediation and arbitration may turns out to be
biased when information has been confidentially told in one process.
 As Compared to Med-Arb, there is high chance that less expedited process because it
often involves both the phase that is arbitration and then mediation phase.
  The time and cost of arbitration participation may be redundant if the disputes settle
down at mediation.

1.2 Law of Contracts

 Explain the doctrine of frustration with the help of relevant cases and provisions
of law. Is it different from a force majeure clause in a contract? If yes then
explain.
Ans. The doctrine of frustration can be traced back to the judgment of Queen’s Bench in
the landmark case of Taylor v Caldwell. The doctrine of frustration is a doctrine of
special case of an impossibility to perform it and hence it results in discharge of contract.
The contract Act of India that is the Indian Contract Act, 1872 does not state the term
frustration.
In Boothalinga Agencies v VTC Poriaswami Nadar it was held that the doctrine of
frustration comes under the purview of section 56 of the Indian Contract Act, 1872 as it
discharges the contract by cause of supervening impossibility or illegality of the act
which was agreed be done. Section 56 of the applies when parties absolved of their
obligations and contracts are dissolved because of subsequent impossibility due to
external forces and external factors.
The typical example for the doctrine of frustration can be Krell v Henry, the case is
commonly known as coronation cases wherein it was held that the contract foundation
had been frustrated because of the cancellation of the coronation procession which was
the very object of the agreement and hence performance of the defendant was excused.
The frustration of contract is not to be done frivolously in order to dissolve the contract. It
should be applied judiciously within very narrow ambits. In an landmark english case,
Tsakiroglou v Noblee Thorl GmbH, in spite of the fact and circumstances that the
customary route for shipping, that is Suez canal, was shut, the court held that because of
this fact contract will not be considered to be frustrated. The court additionally ordered
the said party to perform the contract by an alternate route which was considerably more
expensive, as a mere upsurge in price of the freight cannot be the ground to discharge its
duty under the contract.
It was held in Sharda Mahajan v Maple Leaf Trading International Pvt Ltd There exist
three basic conditions that are needed to satisfy the doctrine under section 56 which are
firstly there subsisting contract must be there, secondly performance of some part of
contract is still to be performed and thirdly it has become impossible to perform the
contract after the contract is entered into.
Some of the factors of doctrine of frustration are:-
  Object of the contract is lost: It may be possible to perform contract and carry out
physically but if it has become superfluous with regard to the purpose and object of
the parties, by an unfortunate event or may be due to change in situations, then in that
case it must be held that the contract is frustrated. In the landmark case of Krell v
Henry it was held that even though the room could be hired still the court held the
contract frustrated because the intention of taking the room that is to watch coronation
procession was no longer there. Hence, the object of the contract can also be lost
because of the occurrence of an expected event was no longer there.
 Subsequent Illegality due to legal changes: It must be presumed that the parties are
having intention to contract with position to the law as it should be in existence at the
time when the contract is made. Any legislation passed by the Government which
essentially changes the legal situation will be deemed that the performance is illegal.
Moreover, the war declaration also changes the countries legal relations and as a
result contracts are affected because the party is now an alien enemy. In the landmark
case of Cricklewood Property and Investment Trust Ltd v Leighton’s Investment
Trust Ltd
a temporary restraint was imposed due the war, it was held that according to the terms
of the contract it may not result in contract frustration, because in the case of
restriction imposed during the war lease agreement of 99 years may not lead to
frustration of contract.
 Delay, Death or Incapacity to Perform: In Balwinder Singh v State of Punjab the
delay also amounts to frustration of contract but at the same time the delay has to be
so inordinate and of such a nature that it completely led to upset of the and
commercial object and basis of the bargain which the parties had in sight.
Furthermore, incapacity of a party or death, whose personal performance was
obligatory as per the contract, is also an enough ground for the frustration of a
contract.
 Subject Matter of the Contract is destroyed physically: If there is destruction of the
specific subject matter vital for the performance of the contract then in that case it will
render the contract frustrated and in circumstances where the subject matter is not
wholly destroyed, but immensely, then in that case there is no frustration of contract.
In Asfar and Co v Blundell it was held in a case that even though the cargo of dates
was traded in the market for different purposes, yet it lost its character of mercantile
when it descended and was affected by sewage and water. Consequently, the cargo
owner’s liability to pay the freight was rendered as discharged.
In India, the concepts of Frustrations of Contract and Force Majeure can be very evidently
seen in the Indian Contract Act, 1872. While Frustration of a Contract which leads to total
cancellation or annulment of the contract is dealt by Section 56, Section 32 deals with Force
Majeure events as mentioned in Indian Contract Act, 1872 by a positive law which is an
agreement to do an act which is impossible is rendered as void
For example, a comprehensive force majeure clause may read includes event such as fire,
strikes, floods, and any other natural calamities or an act of God that substantially disturb the
performance of the parties to contract.
In the case of Satyabrata Ghose v. Mugneeram Bangur & Co It was held that the word
impossible has not been used in section 48 and in section 56, in the sense of literal or physical
impossibility but the performance may also be unrealistic from the point of view of the object
and purpose of the parties. When the frustration comes as a ground for discharge from
performance of a contract, there will be rigour of proof will be even harder than in the case of
Force Majeure, as it may lead to total annulment, resultant in complete loss to the counter
parties.
Even though Section 32 of the Contract Act, does not explicitly call it as a force majeure
clause but it very similar to the force majeure clause of a contract.
QUES 2: As per Section 27 of the Indian Contract Act an agreement in restraint of trade is
void. What are the reasons for enacting such a provision? Furthermore, when is a restraint
upon trade permissible in India and what factors are taken into consideration by a court so to
decide whether a restriction is permissible?
Agreement which restrains trade is considered void. It means that a contract can't be entered
into by the parties where one party restricts the other from carrying out trade or business of
his choice. Such contract is deemed to be void and hence not enforceable. Void doesn't
necessarily mean that the contract is illegal. It merely implies that the same is not recognised
by law. Since agreement in restraint of trade is void,it has been given statutory guarantee by
way of section 27 of Indian Contract Act 1872.
The issue of restraint came up before the court for the first time in the case of Madhub
Chander v. Raj Coomar. In this case, the agreement between plaintiff and defendant that the
latter would pay the former a sum of money if the former would close his shop in the locality,
was held to be void. Conclusion was drawn with the help of the word “absolute” used in
Section 28. Further,The Constitution of India under Part XIII (Article/s 301-307) provides
freedom to carry out trade, commerce and intercourse. Since Constitution is considered to be
supreme law of land therefore, Section 27 also draws inspiration from Constitutional
provisions and holds utmost importance. There can be many reasons for enactment of Section
27 which includes that Section 27 can be considered as an attempt to prevent monopoly and
cartelization and thereby promote fair market competition. If such a provision doesn't exist
it will be difficult to ensure proper behavior among business competitors, Further, it will
create imbalance in accumulation of wealth, as only one person or group of persons would be
in possession of most of the wealth, coming out of a particular business type. This is also in
consonance with the provisions of Competition Commission of India’s guidelines and
Competition Act, 2002.

Section 27 of the Indian Contract Act 1872 says that every agreement by which anyone is
restrained from exercising his lawful profession or restrained from doing trade or business of
any kind, is to that extent will be void.
Also Article 19(g) of the Constitution of India gives the freedom of trade and commerce as a
fundamental right of every citizen.
In the case of Gujrat Bottling Co ltd v. Coca Cola Co. for grant of franchise by Coca Cola Co.
to Gujrat Bottling Co. an agreement was made for the manufacturing, bottle, selling and for
distributing the beverages under trademarks held by the franchiser contained the negative
stipulation restraining the franchise to “manufacture, bottle, sell, deal or otherwise be
concerned with the products, beverages of any other brands or trademarks during subsistence
of this agreement including the period of one-year notice.” It was held that the negative
proviso was made with the intention to facilitate the trade. Furthermore, only to subsistence
of the agreement and not after termination thereof operation of the stipulation was confined.
So that stipulation could not be said as restraint of trade.
However, rreasonable restrictions can be made in the following manner firstly on the basis of
distance, needful restrictions can be put upon the employee to not practice the same profession
within a specified distance, the specified distance should be reasonable secondly reasonable
restriction can be made by the time limit, so if in the clause with reasonable time is provided then it
will come under the purview of reasonable restrictions, thirdly reasonable restrictions can be made
if with concern to trade secrets. The reasonable restrictions can be put on employer for the letting
out of trade secrets So, it can be ascertained that reasonableness of restraint has various aspects,
and the restraint to prevent disclosure of trade secrets or business connections has to be reasonable
so that the interest of the parties in order to ensure adequate protection to the covenantee is not
hampered, and lastly exception is made for distribution of goodwill under section 27 of the Indian
Contract Act.

However, upon deep analysis, it is found that agreements in restraint of trade being void
under Section 27 are not absolute in nature, as there are certain exceptions associated with it.
Therefore, there are certain permissible restrictions, provided for under the Section itself.
Q1 It is a settled law that a stranger to a contract cannot enforce it. This may result in
injustice in some situations. Explain the rationale behind the doctrine of privity of contract
and discuss the exceptions to the doctrine under the Indian law with the help of important
judicial decisions.
The significance of the doctrine of privity is the notion that only those person have the rights
or liabilities who are parties to the contract.
Some of the exceptions to Privity of Contract are as follows:
Acknowledgement and Estoppel: The terms of a contract is essential for making a payment
to a third person and when the third person acknowledges the same then that results into a
binding obligation acquired towards him. Acknowledgement can be the in the form either
express or it can even be implied.
In Waltons Stores (Interstate) Ltd v Maher it was held that additionally, a third party might
able to get relief against a promisor with regard promissory estoppel principles and in order
to the third party would need to prove promissory estoppels elements.
Agency: The contract among the principle and the third party is established if an agent enters
into a contract with a third party. It should be on behalf of the principle and in case where the
agent comes in a contract with a third party on behalf of his respective principle then in that
case that contract is observed by law as that it has been made by the principle. So, the
respective principle can sue on it and at the same time he can be sued on it.
Furthermore according to Section of the Indian Contract Act, 1872 that is Section 230 (1),(2),
(3) where there is any contract or by any provisional of law in operation, a third part can also
sue the agent and also the agent can also himself/herself carry out the contract against the
third party.
Beneficiaries under charge or any other arrangements: This is the important statutory
exception of the doctrine of privity. Section 56 of the Indian Trust Act, 1882 says that if the
beneficiary is eligible to keep the intent of the author of the trust, performed to the limit of
the beneficiary’s interest. In the landmark case of Klans Miltelbachert vs. East India Hotels
Ltd wherein a beneficiary was permitted to take direct action against the keeper of the hotel
who was badly injured by the negligent upkeep of the hotel premises.
Contract of Insurance: A person is allowed to take an insurance policy for the benefit of
another person. In the landmark case of Tattersall v Drysdale the court held that the motor
vehicle driver is eligible to claim the benefit of a policy made with an insurance company by
the owner of the vehicle and which purports to cover the driver. Hence, it can be infered that
insurance is one more exception to the Privity of contract.
Marriage settlements or any other arrangements of a family: Cases where contract is
made regarding the marriage, or regarding partition or any other arrangement of family and a
provision has been made for the person benefit, then such person are allowed to take the
benefit of the agreement even though she is not the party to the contract.
In the landmark case of Daropti v Jaspat Rai the wife of the defendant’s was held to be
entitled to get the benefit because of the promise being made between her father and her
husband.
Contractual Right’s :The assignment of contractual rights to a stranger is also one of the
important exceptions to rule of privity. In the case where contractual rights can be assigned,
the assignee also acquires all the rights which was of assignor or deceased party. So the
assignee is, certainly, a stranger to the contract however, he is still entitled that he can sue the
other party of the contract.
Contractual Liabilities: The universal rule is that contractual liabilities assignment cant be
done of the contractual liabilities by the promisor to the third person without taking consent
of the promise but in some certain circumstances such assignment may be done. For example,
according to section 40, The Indian Contract Act, 1872 where a contract is of impersonal type
then in that case the promisor can employ a third person to perform his part of promise.

Q4 An irrevocable commitment either in the form of confirmed bank guarantee or

irrevocable letter of credit is the life blood of international commerce hence must be
honored. Explain their nature and the obligation of the bank to honor them. When can
a bank refuse payment of the above mentioned guarantee or letter of credit? Discuss the
factors a court take into account (i.e. how it decides) before granting an injunction
restraining the enforcement of the above mentioned irrevocable commitments.
A letter of credit is utmost means of flexible payment devices acknowledged by the
world of business. Credits are often used to make payment in international contracts
for sales and are every so often the means of financing production under the contracts.
Ans. An irrevocable letter of credit is an official correspondence from a bank which
guarantees payment for goods or services being purchased by the individual or purchased by
an entity, referred to as the applicant, that needs the letter of credit from an issuing bank.
Cancellation can’t be done of an irrevocable letter of credit, modification of it also can’t be
made. Cancellation or modification can only be done with the clear agreement of all the
concerned parties which are involved that is the buyer also the seller, and lastly the issuing
bank. For illustration, the issuing bank don’t have the authority by itself to alter any of the
terms of an irrevocable letter of credit as soon as it is issued.
Irrevocable letter of credit has a nature of international dealings and it has several factors
such as distance, difficulty in knowing each party personally and differing laws in each
country so the usage of letters of credit has become a very major role in international trade.
Nature and the obligation of the bank to honor them:-
Irrevocable letter of credit they are irrevocable, independent and documentary in nature. It
plays an important role in various business transactions. They comprmise 3 independent
contracts.
The foremost contract every so often arises out of the sale of goods or by render of services.
The seller necessitates the buyer that he should obtain a letter of credit in favour of the seller.
The second contract is among the bank and the applicant, where the bank approves to issue a
letter of credit.
Seller is insured by an irrevocable letter of credit from the issuing bank that if the all essential
documents are presented and if all the terms and conditions are being complied with then it
that case payment will be made.
Irrevocable Letters of credit built up international trade by facilitating a secure instrument for
payment after the fulfillment of all the contractual obligations.
Bank has an obligation of the bank to honour irrevocable letter of credit. At the time of
determining whether to make a payment at that time the issuing bank is has only prime
concern with the terms of the irrevocable letter of credit and along with that the documents
produced by the beneficiary. If the beneficiary is successful in producing all the documents
that fulfil with the terms of the irrevocable letter of credit then in that case the issuing bank
should honor the drawing request and must be paid to the concerned beneficiary. The issuing
bank however does not need to see outside the face of the relevant documents. It can also not
determine inessential matters for example the contract between the applicant for the
irrevocable letter of credit and the beneficiary, or any modification to it.
Even if the dispute arises between the applicant and the beneficiary regarding the
performance of beneficiary's performance then that is also not important decision for the
issuing bank's. The only exemption to the independence principle is that where there is
cogent evidence of fraud on the face of the presented documents is there then can the issuing
bank can refuse to make payment after conforming documents. If the bank simply suspects
fraud and feels the needs to conduct an investigation to uncover fraud, it cannot refuse to
make payment.
A irrevocable letter of credit every now and then bear a resemblance to and is very similar to
a contract of guarantee the same has been held in Elian v. Matsas at the time of refusing to
grant an injunction specified that a bank guarantee is very similar to a letter of credit. The
courts will take utmost care to enforce it conferring to its terms. In the ordinary course of
things they will not hinder by way of injunction for the implementation of the same.
A bank which gives a guarantee for the performance and it must honour that guarantee
conferring to its terms.
In the case of R.D. Harbottle Ltd. v. National Westminster Bank Ltd. This position was
considered herein it was held that only in extraordinary cases that the courts will hinder with
the irrevocable obligations taken by banks because they are very vital part international
commerce. Such duties are considered as collateral to the fundamental rights and its
obligations among the merchants at also end of the chain of banking. It only has one
exception that is in clear fraud case, the courts in these cases will leave upon the merchants
for settling their disputes under the contracts by arbitration or litigation as stipulated to them
in the contracts. The courts do not concern with their problems to enforce the claims these are
threats which the merchant’s yield. In R.D. Harbottle Ltd. v. National Westminster Bank Ltd.
the plaintiffs had taken the risk of the absolute language of the guarantees. It was further held
that it must be be honoured, and there should be no interference by the courts or else, faith in
international commerce will be badly destroyed.
It is very important that injunctions against the negotiating banks in order to make payments
to the beneficiary must be done carefully as continuous interference by the judiciary in the
regular practices of market can lead to devastating results as it will miserably affects the
reliability of the markets and also the Indian banks.
Just because there is a clash among the buyer and the seller with respect to the contract done
supply of goods or service that cannot be the reason for intruding with the irrevocable letter
of credit. So, the courts have made only two exceptions till now to the said principle wherein
the injunction can be passed with regard to the payments under irrevocable letter of credit, in
cases of irretrievable injustice and egregious fraud. It has been time and again held by the
courts that fraud should be egregious in nature and fraud should be of such kind which that
goes to the very origin of the matter.
1.3
Discuss and analyse the powers and duties of an arbitrator under the Indian
Arbitration and Conciliation Act, 1996.
Ans. – Incipiently, Section 11 of the Act lays down the procedure for the appointment of
arbitrators. While the first right of appointment rests with the parties, if they fail to act or
appoint the arbitrator(s) as per due procedure, the court(s) can be approached for the same
purpose. The right of appointment of the arbitrator, then, resides with the court/s or the
person designated by it.
The arbitrator is the one who will give the arbitral award, therefore, The Arbitration and
Conciliation Act, 1996 provides several powers to him in order to decide the award.
According to Section 17 of this Act, when any party during the arbitration proceeding or at
any time after making of the arbitral award, may seek the interim measure before the
arbitration tribunal.
The court, however, doesn’t proceed ex-parte against any party without giving him the notice
regarding the court’s intention to proceed ex parte on a specific date, time and place. In any
arbitration proceeding, the arbitrator has the power to proceed to ex-parte i.e in the favor of
one party if another party contravenes any provision of this Act.
In the case of Shri Ram Ram Niranjan v. Union of India it was held that as per terms of the
arbitration agreement, both the parties were required to nominate their respective arbitrators.
Delay occurred on the part of one party to nominate its arbitrator. Thereupon, the nominee-
arbitrator of the other party started conducting arbitration proceedings ex parte in a tearing
haste without waiting for other party. He not only proceeded ex parte on same date but also
recorded statement of witness and heard arguments. It was held that the procedure adopted by
the arbitrator was in violation of the principles of natural justice and the award rendered by
him was set aside.
According to Section 26 of the Act, the arbitrator has the power to appoint one or more
experts to report to him on a specific issue, if he finds it necessary in any case. The arbitrator
also has the power to give the expert any relevant information or documents or property for
the purpose of his inspection. If necessary the arbitrator also has the power to appoint the
expert as a participant in a hearing but in order to appoint an expert, the expert must have to
show the parties that he has expertise in matters related to this case.
 Power to make awards is the most important power as well as the duty of arbitrators which is
given under The Arbitration and Conciliation Act, 1996.
Duties of an arbitrator
Section 12 and Section 18 of The Arbitration and Conciliation Act, 1996 imposed an
important duty on the arbitrator that in any arbitration proceeding that he must have to be
independent and impartial. By being independent it means that there is no such personal or
professional relationship between the arbitrator or parties which may affect the final
judgment, however, by impartial, it means that the arbitrator should neither favor nor oppose
any party and should give equal treatment to both parties. In the arbitration hearings he must
not show or exhibit favour towards one party more than towards the other and must refrain
from doing for one party which he cannot do for the other.
According to Section 20 of this Act, it is the duty of the arbitrator to appoint the time and
place of arbitration if the parties have failed to decide it amongst themselves. But at the time
of determination, the arbitrator must keep in mind the circumstances including the
convenience of the parties.
According to Section 12 of this Act, there is an obligation on an arbitrator to disclose all the
relevant facts which are required to be known by both parties at the time of his first encounter
with them.
In the case of Steel Authority of India v. British Marine , the Court said that the arbitrator
must have to disclose all such facts which are likely to affect impartiality or which might
create an appearance of partiality or bias.
The arbitrator should have to make effective decisions without doing any misconduct.
However, there is no guideline of misconduct that is given under the Act, its scope is to
develop by case to case.
Section 14(1)(a) of the Act provides that the mandate of an arbitrator shall terminate if he
becomes de jure or de facto unable to perform his functions or for other reasons fails to act
without undue delay.
In the case of Kifayatullah Haji Gulam Rasool v. Bilkish Ismail Mehsania it was held that
where the parties stipulated by consent that if the arbitrator does not complete the arbitral
proceedings on or before a particular date his mandate shall stand terminated, then the
mandate automatically terminates on the expiry of that date. Consent order is nothing but an
agreement between the parties with super imposed seal of the court.
According to Section 19, the arbitration procedure is not bound by any code of procedure.
Earlier parties are free to agree on the procedure that may be followed by the arbitration
tribunal, It always depends upon the will of the parties but if they do not have any prior
agreement on this, then the arbitrator has all the power to decide the procedure for such a
case. this power includes the power to determine the admissibility, relevance, materiality or
weight of any evidence.
According to Section 33 of this Act, it is a duty of the arbitrator to correct or interpret the
award passed by himself within 30 days from the date of receipt.

Critically examine the application of the public policy defence by the Indian Courts so as to
refuse the enforcement of arbitral awards with the aid of relevant cases and provisions of law.
Ans. While some countries consider public policy to mean international public policy,
Indian courts have held that there is no workable definition of international public
policy, thus, it should be construed to be the doctrine of public policy as applied by
courts in India. Within the definition of public policy, India has statutorily included the
grounds of fraud, corruption, fundamental policy of Indian law and basic notions of
justice and morality. While public policy has no definition and its elements have been
identified statutorily in Section 48(2)(b)(ii), additional elements have been sufficiently
postulated by judicial interpretation. In light of the above analysis, the following
practical deductions can be made about public policy. These will be helpful while
assessing an application resisting enforcement of a foreign award.
Renusagar Power Co. Ltd. v. General Electric Co. was the first case in which
interpretation of public policy with regards to foreign arbitration came up. The
Supreme Court deliberated on whether a narrow or wide interpretation should be
applied to the exception of public policy. It was decided that the exception of public
policy must be interpreted narrowly and that mere contravention of the law cannot
attract the bar of public policy. Only on three grounds the exception of public policy
could be invoked:-
Contrary to fundamental policy of Indian law
Contrary to the interests of India
Contrary to justice and morality
However, with time, the meaning of ‘public policy’ has evolved significantly over the years
and across different jurisdictions. In Central Inland Water Transport Corpn. Ltd. v. Brojo
Nath Ganguly, the Court held, “public policy connotes some matter which concerns the
public good and the public interest. The concept of what is for the public good or in the
public interest or what would be injurious or harmful to the public good or the public interest
has varied from time to time.”
Before the recommendations of the 246th LCR were incorporated into the A&C Act, the
Supreme Court expanded the scope of public policy in ONGC v. Western Geco International
Ltd. in a case involving challenge to domestic awards. The Court held that ‘fundamental
policy of law’ included three fundamental juristic principles, namely, (i) duty to adopt
judicial approach, i.e., to not act in an arbitrary, capricious or whimsical manner. Judicial
approach requires courts to act in a fair, reasonable and objective manner and its decision
should not be actuated by any extraneous consideration; (ii) compliance with principles of
natural justice, including audi alterum partem and application of mind to the facts and
circumstances; and (iii) ‘Wednesbury principle’ i.e., an award may be set aside if it is
perverse and so irrational that no reasonable person would have arrived at the same. The
Supreme Court held that a court could set aside a domestic award under the umbrella of
fundamental policy of Indian law if the award is perverse or irrationality such as to fall foul
of the touchstone of the aforesaid principles.
In light of decision in Western Geco, the Law Commission issued a Supplementary Report to
the 246th Law Commission Report specifically on the topic of “Public Policy” in February
2015. The Law Commission suggested that such a power to review an award on merits is
contrary to the objectives of the A&C Act and international practice, and would increase
judicial interference in awards. It proposed that another explanation be added to Section 34 of
the A&C Act, viz., “For the avoidance of doubt the test as to whether there is a contravention
with the fundamental policy of Indian law shall not entail a review on the merits of the
dispute.
In light of the proposed amendments, the A&C Act was amended through the Arbitration and
Conciliation (Amendment) Act, 2015. As prescribed by the Law Commission Report, the
ground of ‘patent illegality’ is now restricted only to domestic arbitrations by way of
insertion of Section 34(2A). Patent illegality is not available as a ground for international
commercial arbitrations. Additionally, Section 48 of the A&C Act was amended to include
the following explanations:
“Explanation 1. —For the avoidance of any doubt, it is clarified that an award is in conflict
with the public policy of India, only if, — (i) the making of the award was induced or
affected by fraud or corruption or was in violation of section 75 or section 81; or (ii) it is in
contravention with the fundamental policy of Indian law; or (iii) it is in conflict with the most
basic notions of morality or justice.
Following the observation of Lord Denning M.R. in Enderby Town Football Club Ltd v. The
Football Association Ltd., that: “[w]ith a good man in the saddle, the unruly horse can be
kept in control”, it may still be possible to keep the unruly horse of public policy in control in
the future cases on enforcement of foreign arbitral awards in India.
How should one define the principles of competence and competence and separability?
Why are those principles often analysed and considered in conjunction with each other?
Critically examine the application of both the principles in relation to India?
The competence-competence doctrine, which recognizes the power of an arbitrator to
determine his or her own jurisdiction under an arbitration clause or submission agreement, is
widely recognized in most jurisdictions around the world as an inherent power. The doctrine
of competence-competence is one of the most fundamental pillars sustaining international
arbitration. The history of this doctrine can be traced to Federal Constitutional Court of
Germany where it is known as Kompetenz Kompetenz .
In Olympus Supertructures Pvt. Ltd. v. Meena Vijay Khetan & Ors, it was ruled that the
arbitral tribunal has the power to decide upon matters of its own jurisdiction as per Section
16(1) of the Arbitration and Conciliation Act, 1996. The major aim behind the establishment
of the arbitration mechanism was to reduce the burden on courts and settle disputes without
court intervention. Section 16 of the Arbitration and Conciliation Act, 1996, i.e., jurisdiction
of an arbitral tribunal, acts as the backbone for the Act.
Section 16 of the Arbitration and Conciliation Act, 1996 ("A&C Act") has been framed in
accordance with Article 16 of the UNCITRAL Model law, which embodies elemental
jurisprudential doctrine i.e., "Kompetenze - Kompetenze". This doctrine empowers the court
or an arbitral tribunal to rule upon its 'own' jurisdiction, brought forth by one of the parties to
the dispute. Section 16 (1) of the A&C Act states that an arbitral tribunal may rule on its own
jurisdiction, including ruling on any objection with respect to the existence or validity of the
arbitration agreement.
Based on the recommendations of the Law Commission in the 246th Report, Section 11 was
substantially amended by the 2015 Amendment Act, to reduce the judicial intervention while
appointing an arbitrator by non-obstante sub-section, and to reinforce the “Kompetenz-
kompetenz”,principle enshrined under Section 16 of the Act.
The doctrine of separability is widely recognized. It means in particular that an arbitration
agreement that forms part of a contract shall be treated as an agreement independent of the
other terms of the contract. A decision by a court, tribunal or panel that the contract is null
shall not entail automatically the invalidity of the arbitration agreement. The decision of the
Bermuda Court of Appeal in considering an enforcement application for a USSR arbitral
award in which the jurisdiction of the Tribunal was questioned because the contract was
void ab initio is instructive.
in the case of National Agricultural Co-op Marketing Federation of India Ltd. v. Gains
Trading ltd. while considering the validity of contract, arbitration clause should be treated
independently from the main contract. Moreover is a contract becomes null or void, the
arbitration clause shall not be understood in the same context as void.
Mulheim Pipecoatings GmbH v. Welspun Fintrade Ltd. In this case, the Bombay High Court
framed the rule of doctrine of separability and held that “for an arbitration agreement to be
null and void, requires a direct impeachment of the arbitration agreement and not simply a
parasitical impeachment based on a challenge to the validity or enforceability of the main
agreement”.
The doctrines of “separability” and “competence-competence” are often called the
cornerstones of international commercial arbitration. Distinct, but very much related, these
two doctrines serve, hand in glove, to maximize the effectiveness of arbitration as an efficient
means of resolving international commercial disputes and to minimize the temptation and
effect of delay tactics.
“Competence-competence” provides an arbitral tribunal with the power to rule on its own
jurisdiction,1 thus avoiding any need to wait for a court determination of the issue and
allowing the tribunal to move expeditiously to decide the merits of the parties’ broader
contract dispute. “Separability” provides that certain defects in the container agreement do
not affect the arbitration agreement within it, unless those defects relate specifically to the
arbitration agreement.
Two related doctrine have developed that maintain the integrity of the arbitration process: the
doctrine of separability (or severability) and the doctrine of competence – competence Both
doctrine are closely related but distinguishable Both are well respected under the rules of two
important arbitral organizations that is in The Court of Arbitration of the ICC and in United
Nations Commission on International Trade Law (UNCITRAL) While the separability
doctrine provides for autonomy of arbitration clause, the competence – competence provides
that the arbitrator has the competence to judge his own jurisdiction Competence –
competence is a corollary to the doctrine of separability.
The difference between competence-competence and separability. The former allows the
Tribunal to determine its jurisdiction. The latter has an impact on the outcome of that
determination. Without separability, a tribunal employing competence-competence to
determine its own jurisdiction may be required to deny jurisdiction of the substantive merits,
because the arbitration clause could potentially be affected by the invalidity of the main
contract.
Competence-competence and severability are both doctrines that address the question of
‘Who Decides’ in different ways.