Service of Notice on Parties to an Indian Arbitration

In
Benarsi Krishna v Karmayogi
Shelters
, the Supreme Court has decided that the word “party” in
section 34 of the Arbitration and Conciliation Act, 1996, does not include a
party’s agent. This, it is respectfully submitted, is incorrect or, at best, too
widely stated. The important practical consequence of this proposition is that
the period of limitation does not begin to run from the date of service on
counsel. Since it is well-known that a Court has no power to condone a delay
beyond the limit imposed by section 34 and its proviso, the exact date on which
the period of limitation begins to run is of immense significance in
arbitration law.


First,
the facts: the claimant in the arbitration instituted proceedings for the
breach of a collaboration agreement and obtained a successful award from a
single arbitrator. This award was served on counsel for the respondent
on 13 May, 2004. An application was filed to set aside this award on 3
February, 2005—plainly time-barred, if the date of receipt of the award was the
13th of May. Accordingly, a single judge of the Delhi High Court
dismissed the petition. The Division Bench set aside this order, relying on the
judgment of the Supreme Court in Union of India v Tecco Trichy
Engineers
, on the basis that service of the award had not been properly
effected.


In
considering this problem, it is important to carefully distinguish between two
arguments: first, that the word “party” in section 34 excludes agents; and
second, counsel has neither actual
nor apparent authority to accept service. The first is a point of statutory
construction, but the second calls for the application of well-known (if contentious)
principles of the law of agency. The Supreme Court has, with respect
unfortunately, accepted the first submission. In other words, it has held that the
word “party” is defined as one who is party to an arbitration agreement and, as
a matter of construction
, does not include counsel. The following observations
of the Court should be studied closely:
The expression
“party” has been amply dealt with in Tecco Trechy Engineer’s case
(supra) and also in ARK Builders Pvt. Ltd.’s case (supra), referred to
hereinabove. It is one thing for an Advocate to act and plead on behalf of a
party in a proceeding and it is another for an Advocate to act as the party
himself
. The expression “party”, as defined in Section 2(h) of
the 1996 Act, clearly indicates a person who is a party to an arbitration
agreement. The said definition is not qualified in any way so as to include
the agent of the party to such agreement
. Any reference, therefore, made in
Section 31(5) and Section 34(2) of the 1996 Act can only
mean the party himself and not his or her agent, or Advocate empowered to act
on the basis of a Vakalatnama.
[emphasis mine]
With
respect, it is submitted that this conclusion contains two errors. The first is
the contrast between an Advocate acting “for” the party and an Advocate acting “as”
the party. This is a distinction without a difference unless one concludes that
the word “party” in section 34 contemplates personal service—which was the
issue before the Court. In other words, the first reason cannot be a reason for
the conclusion that the word “party” excludes agents: it begs the question. The
second reason given is that the word “party” is not qualified by Parliament to
exclude agents. This, with respect, is a questionable proposition of law: the
general rule of law is that a principal is bound by the acts of an agent and,
with in relation to notice requirements, has been codified in the Companies Act
and the Code of Civil Procedure. It is difficult to imagine that the Court
intended every use of the word “party” in the Arbitration Act to refer to the
party excluding its agents and yet the language in which its conclusion is
expressed makes it difficult to resist this inference. Nor is this a surprising
rule: when banks, for example, pay our electricity bill in accordance with a
standing instruction, our debt to the Electricity Department is discharged
because the law of agency treats the bank as our agent in relation to third
parties, although it is our debtor with respect to the money it holds. For the
same reason, a payment to our bank discharges a debt owed by any third party to
us: the bank is our collecting agent. If a statute used the word “party” or “person”
and defined certain legal consequences, it is therefore difficult to suppose
that the word was intended to exclude agents.


In
addition, one is bound to ask: what of legal entities? It is well-established
law that a company acts through the deeds of human beings some of which are
treated, by primary or secondary or other rules of attribution, as the acts of
the company. In an outstanding judgment in Meridian Global, Lord Hoffmann explained that it is
therefore misleading to talk of the company in anthropomorphic terms: the
correct analysis is that the acts of certain persons are treated as the acts of
the company by virtue of rules of law. These rules of law include rules of
attribution and rules of agency. It is, in other words, impossible for a
company to act (in the eyes of law) except through the acts of human beings
whose acts are, by virtue of applicable rules of law, treated as its acts. It
is difficult to reconcile this with the Supreme Court’s conclusion that service
on the “party” excludes service on its agents. No doubt it will be suggested
that there is a difference between “external agents” (like lawyers) and the company’s own agents (like the legal
manager or CEO). That suggestion would be incorrect, because there is no
difference at all in the eye of the law between external agents and internal
agents: both are agents, albeit constituted differently and with different
levels of authority.


The
question, ultimately, is not whether the
word “party” can include agents, for it plainly does, but whether the agent had
authority to accept service. The
authority of solicitors and counsel has always proved troublesome, generally in
the context of settlement: in Waugh v HB
Clifford and Sons
[1982] 1 Ch 374, the defendant builder, who had
instructed solicitors to settle a dispute with his customers by purchasing their
houses, withdrew those instructions and told them not to settle. Unfortunately,
this information did not reach the solicitor handling the case until after he
had (subject to the question of authority) concluded a binding contract of
settlement. Brightman LJ held that a solicitor have apparent authority to settle
a dispute provided the terms of the settlement do not involve anything “collateral”
to the dispute for which he was instructed. This, with one exception, echoes
the analysis of a leading Indian decision: Surendra
Nath v Tarubala Basi
AIR 1930 PC 158, where the Privy Council held that a
counsel has implied and apparent authority (arising from knowledge of implied
authority) to compromise suits, but expressly declined to rule on whether this is
the case where the agency is created by a written instrument, such as a
vakalatnama.


The
important question in this case—which was unfortunately not decided—was the
scope of a counsel’s authority to accept service of an award. The question falls
to be decided by asking the two usual questions: was there actual
express/implied authority? If so, the matter ends there. If not, was there
apparent authority? This would ordinarily arise from the existence of implied
authority but would exist even if the implied authority did not exist in the
particular case (for example, because of a prohibition not communicated to a
third party). The added complication is the question of whether the claimant in
the arbitration is entitled to ostensible authority with respect to an award
sent to the defendant’s counsel by the arbitral tribunal, and whether
authority, if any, exists after the arbitration is concluded. The Court records
that one of these contentions was raised, but did not, in the result, have to
rule on any because of the view it took on the meaning of the language of
section 34(4).


The
final point that should be made is about the reliance on Tecco Trichy: that was a case in which Lahoti CJ held that service
on an unknown clerk in a large Government office does not constitute effective
service. This conclusion can be ascribed to the traditional authority-based reasoning:
such an employee is unlikely to have actual or ostensible authority to accept
service. It should not be treated as authority for the general proposition that
service excludes all agents, whatever their authority.

About the author

V. Niranjan

Add comment

Subscribe to Blog via Email

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Recent Posts

Topics

Recent Comments

Archives

web analytics