The Kerala High Court on Tuesday, 15 January 2019 in S. Dinesh Babu v. C. Venugopalan has held that "in the name of equity, the arbitrator shall not disregard the law and take decisions on notions of fairness and good conscience, unless expressly authorised by the parties to do so."
A bench comprising of Justice V. Chitambaresh and Justice R. Narayana Pisharady observed that "Section 28(1)(a) of the Arbitration and Conciliation Act, 1996 states that the arbitral tribunal shall decide the dispute in accordance with the substantive law for the time being in force in India."
Section 28 of the Act contains the rules applicable to the substance of the dispute and not rules regarding procedure, the bench said.
Question of Law
What is meant by the expressions “ex aequo et bono” and “amiable compositeur” in the context of Section 28(2) of the Arbitration and Conciliation Act, 1996?
According to the bench answer to this question is essential for the proper disposal of this appeal. The bench finds that the Latin phrase "ex aecquo et bono" means according to equity and conscience. In the context of arbitration, it refers to the power of arbitrator to dispense with consideration of the law and to take decisions on notions of fairness and equity. 'Amiable compositeur' is a French term which refers to an unbiased third party who is not bound to apply strict rules of law and who may decide a dispute according to justice and fairness. According to Black's Law Dictionary (eighth edition), the expression ''amiable compositor'', which is also termed as ''amiable compositeur'', means an unbiased third party, who suggests a solution.
"Section 28 of the Act contains the rules applicable to the substance of the dispute and not rules regarding procedure. Section 28(1)(a) of the Act states that the arbitral tribunal shall decide the dispute in accordance with the substantive law for the time being in force in India. All that is intended by the provision contained in Section 28(2) of the Act is that, in the name of equity, the arbitrator shall not disregard the law and take decisions on notions of fairness and good conscience, unless expressly authorised by the parties to do so." Court said.
Facts of the Case
The appellant is a chartered engineer and contractor. The first respondent is an officer of a bank. He wanted to construct a residential building. He entered into an agreement with the appellant on 02.05.1996 for construction of the building. The proposed building had a plinth area of 1443 sq.ft. The rate agreed upon between the parties was Rs.315/- per sq.ft. The construction of the building had to be completed within a period of eight months from the date of approval of the plan by the local authority. The appellant could not complete the work within the stipulated period due to various reasons. Then, disputes arose between the parties with regard to the amount to be paid to each other on breach/termination of the agreement. As per the order dated 17.03.1999 in A.R.No.12/1998 filed by the first respondent, this Court appointed a retired District Judge as the sole arbitrator to decide the dispute between the parties.
"The learned Additional District Judge has considered the merits of the application filed by the appellant under Section 34(1) of the Act in the correct perspective. We do not find any reason to interfere with the impugned judgment passed by the learned Additional District Judge. Consequently, we dismiss the appeal. No costs." the bench concluded.