PROFESSIONAL PRACTICE

MODULE V
MODULE V

Arbitration: Principles, Indian Arbitration act, Powers & Duties of

Arbitrators, Revoking Authority, Umpire, and Award

Valuation: Purpose, Value, Factors affecting value, Value classification,

Classification of Ownership, Valuation reports, Methods of valuation.

Easement: Definition, Various types, essential conditions for enjoyment of

Easements, Valuation for Easements.
ARBITERATION
ARBITRATION
• It is the method of settling disputes and differences between 2 or more
parties.( Client , Contractor)
• Appoint one or more parties to decide upon the said disputes.
• Agree to abide by decision of said one or more parties nominated for
purpose of taking a decision.
• Disputes / differences referred to COA .
• Arbitrator appointed by President, COA
• Arbitration conducted as per provisions of Arbitration and Conciliation Act.
1996.
ADVANTAGES OF ARBITRATION
• Experts in stream appointed and as such decision will be fair and defined and
no guess work.
• Legal formalities are cut short.
• Delay is avoided and expenses are reduced.
• Time, date and place of meeting can be arranged so as to suit convenience of
all concerned.
• Arbitrator can view the subject in any convenient time.
• Finality of award.
DISADVANTAGES OF ARBITRATION

• Parties must bear the costs of both arbitrator and venue.

• Sometimes arbitration simply mimics court processes and so you do not get
the advantage of informality and speed.
• Limited powers of compulsion or sanction if one party fails to comply with
directions of arbitrator, which can significantly slow down the process.
• Arbitrator has no power to make interim measures, such as for preservation
of property.
• Limited appeal rights.
ARBITRATORS

• He is the person appointed to decide upon the disputes and difference .

JOINT ARBITRATORS - If more than one arbitrators are appointed.

SOLE ARBITRATORS - If only one arbitrator are appointed.

UMPIRE

• He is person appointed by joint arbitrator to decide upon the disputes in

case of difference between the joint arbitrators.
APPOINTMENT OF ARBITRATOR

• SOLE ARBITRATORS - With agreement of parties , incase of disagreement-

the appointment by court or by association.

• JOINT ARBITRATORS- Each party will appoint arbitrator from their side.

APPOINTMENT OF UMPIRE

• Appointed by arbitrator within one month from date of entering upon

reference.
Indian Arbitration act
THE ARBITRATION ACT, 1940

• An Act to consolidate and amend law relating to Arbitration.

• Come into force on 1st day of July, 1940.
• Based on English Arbitration Act of 1934
• Act repealed Arbitration Act of 1899
• Dealt with only domestic arbitration.
• A framework within which domestic arbitration was concluded
in India
• Act extended to whole of India except the states of J&K
THE ARBITRATION ACT, 1940
• Under the 1940 Act, intervention of court was required in all the three
stages of arbitration.
➢prior to reference of dispute to arbitral tribunal – COURT set the
arbitration proceedings
➢duration of proceedings before arbitral tribunal – INTERVENTION OF
COURT in extension of time for making an award
➢after the award was passed by arbitral tribunal - before the award could
be enforced, required to be made the rule of COURT
• This Act empowered Indian courts :
➢modify award
➢remit award to arbitrators for reconsideration
➢set aside the award on specific grounds
THE ARBITRATION ACT, 1940- CHAPTERS
• CHAPTERS:
1. DEFINITIONS
2. ARBITRATION WITHOUT INTERVENTION OF A
COURT
3. ARBITRATION WITH INTERVENTION OF A COURT scheme of Act
WHERE THERE IS NO SUIT PENDING
4. ARBITRATION IN SUITS
5. GENERAL
6. APPEAL
7. MISCELLANEOUS
8. SCHEDULES
• Shortcomings : law lacked statutory recognition of conciliation as a means of
settling the disputes.
• Act repealed by Arbitration and Conciliation Act, 1996
Arbitration and Conciliation Act, 1996
• An Act to consolidate and amend law relating to Arbitration.
• Come into force on 16th August, 1996
• Act repealed Arbitration act, 1940
• Based on Model law adopted by United Nations Commission on
International Trade Law , 1985
• Aim: Speedy disposal with least court intervention
• Dealt with An Act - domestic arbitration, international commercial
arbitration and enforcement of foreign arbitral awards and also to define
the law relating to conciliation.
➢Inspire confidence in Indian dispute resolution system
➢Attract foreign investments
➢Reassure international investors in the reliability of Indian legal system to
provide an expeditious dispute resolution mechanism.
Arbitration and Conciliation Act, 1996

• Two significant parts :

➢PART I - provides for any arbitration conducted in India and enforcement of
awards thereunder.
➢PART II - provides for enforcement of foreign awards.
• Other parts
PART III - Conciliation
PART IV - Supplementary Provisions
SCHEDULES
PART 1- DOMESTIC ARBITRATION
• CHAPTER I - General provisions
• CHAPTER II -Arbitration agreement
• CHAPTER III- Composition of arbitral tribunal
• CHAPTER IV - Jurisdiction of arbitral tribunals
• CHAPTER V - Conduct of arbitral proceedings
• CHAPTER VI -Making of arbitral award and termination of proceedings
• CHAPTER VII - Recourse against arbitral award
• CHAPTER VIII - Finality and enforcement of arbitral awards
• CHAPTER IX -Appeals
• CHAPTER X -Miscellaneous

PART II : ENFORCEMENT OF CERTAIN FOREIGN AWARDS

• CHAPTER I -New York Convention Awards
• CHAPTER II - Geneva Convention Awards
POWERS AND DUTIES OF ARBITRATORS
POWERS AND DUTIES OF ARBITRATORS
• The arbitrator has to appoint an umpire within one month from the date of
entering upon reference.

• To make the award within 4 months from the date of entering upon
reference.

• To examine persons and witnesses and hear the parties.

• To seek the opinion of court on law points.

• To enlarge time limit for making and declaring the award on application
from the parties or direct the parties to apply to court for necessary
enlargement of time limit.
POWERS AND DUTIES OF ARBITRATORS
• To decide on cost of reference and award and in what proportion the cost
has to be born upon by the parties concerned.

• To correct mistakes of a clerical nature in award.

• To decide upon measurement and valuation of work.

• To decide upon withholding of final certificate by architect.

• To decide upon determination of contract by contractor.

ROLE OF UMPIRE
• Declare award within 2 months from date of entering.

• Arbitrator fails to make award within prescribed time limit, umpire can
enter upon the reference.

• Arbitrator gave notice to umpire that they cannot agree, umpire shall
immediately enter upon the reference.

• Should mention the cost of arbitration as well as umpire’s fees and in what
proportion it is bond to each parties.
AWARD
• It is a decision which is given by arbitrators or by umpire after careful
investigation of case submitted to them.
• It conveys the findings of arbitrators and it is binding on both the parties
• Award can be a reasoned or non reasoned award.

REASONED AWARD

• Decision of arbitrator showing how he has arrived at such a conclusion with

discussions, consideration of facts, evidences and materials before him.
CHARACTERISTICS OF AWARD

• It must be made within 4 months from the date of entering upon reference
or within the extended time limit
• Award as a rule must be in writing.
• Award must be self explanatory without any ambiguity, duly signed and
signatures to be attested.
• Stamping of an award: No stamp paper is necessary when the arbitration is
in suit .But in case of arbitration without the intervention of court the
award must be in stamp paper.
• Due notice should be given to parties about declaration of the award.
PUBLICATIONS OF THE AWARD
• Giving notice to parties of making and signing of award and ready for
delivery.
• Objections to award in proper time.

FILING OF AWARD IN COURT

• Award is very near to a judgment though it is not a judgment.

• It require certain legal formalities to be complied before it become effective
i.e. this particulars has to filed in the court.
TYPES OF AWARD
• Interim Award – This is a temporary award until the tribunal has given its
final decision.

• Partial Award – Some elements of the parties’ claim have been

determined ( important issues) but other issues remain and need to be
resolved before final award .
➢Parties can continue arbitrating the remaining issues.

• Consent Award – Usually parties reached a settlement and agreed terms

which are then incorporated into an award which can be enforced.
(similar to a Judgment by consent).

• Draft Award -This is not binding on parties until it has been confirmed by
tribunal.
TYPES OF AWARD
• Final Award – “Last” award that disposes of all or all remaining issues
raised in the arbitration
➢Should be in writing and signed by all the arbitrators.
➢Must contain reasons and state where the arbitration took place.
➢It must also be dated.
➢Once the final award is made this ends proceedings.

• Additional Award – Usually once the final award it made, tribunal has no
further authority.
➢However, parties can request an additional award be made on an
undecided issue still in dispute.
REVOKING AUTHORITY
REVOKING AUTHORITY
• Removal of Arbitrator and revoking his authority
• Authority of Arbitrator cannot be revoked – General rule
• Exceptional rule: Authority can be revoked
➢If there is provision of revocation in agreement or
➢By the leave of court
REVOCATION PROCEDURE
• Notice to Arbitrator
• Application to court
• Application before award is delivered

CIRCUMSTANCES WHERE THE COURT REVOKES:

• Partiality
• Negligence
• Compromise between parties
• Indebted to one party.
• Death of any party by whom he was appointed. Etc.
VALUATION
VALUATION
• Process of determining the current worth of an asset or a company.
• Balances the value of money against value received by him in form of
commodity.
• Value will differ with different purposes.

• Purchase • Speculation
• Sale • Insurance
• Mortgage • Wealth tax
PURPOSE OF • Rent fixation
• Capital gain tax
VALUATION • Land acquisition
• Estate duty
• Betterment charges
• Gift tax
• Auction bids
• General court purpose
• Probate
VALUE
• Value is the worth of an asset , goods or services.
• It varies from time to time

ESSENTIAL CHARACTERISTICS FOR VALUE

• For a commodity to have value , it should possess 3 essential

characteristics
➢ It must possess utility.
➢ It must be scarce.
➢ It must be transferable or marketable.
COST
• Expenditure to produce a commodity having a value.
• Depreciation : reduction in value of an asset over time, due in particular to
wear and tear.
• Depreciation is usually worked out on cost of a commodity rather than on
its value.
PRICE
• Price is cost of the commodity plus an addition of a reward to producer for his
labor and capital.
• It is special form of value
• It is fixed depending upon demand from consumer .
• It depends on utility , durability, satisfaction and extent to which a commodity
is scarce.

Note : Value , price & cost do not come into existence unless and until an
exchange commodities or services takes place.
FACTORS AFFECTING VALUE
• Supply and demand:
➢Few buyers and same rent fetching properties-result in low price.
➢Rise in population - heavy demand in housing and land- increase demand and
value.
• Cost of reproduction:
➢Built up property in sale - purchaser will consider cost of reproduction of building
at present.
➢Depreciation considered.
• Occupational value:
➢Property for purpose of occupation ( personal use) - price paid is more than
market value.
➢Built up and part vacant-fetch good price.
FACTORS AFFECTING VALUE
• Interest on guilt edge securities:
➢Use of capital- carries interest.
➢If security of capital is more - interest less.
➢But if less, interest rate will be more.

• Rent restriction act:

➢Old building let out prior to 1-9-1940-value not increased as per rental act

• Abnormal conditions:
➢wars, riots etc.- value go down

• Town planning act:

➢As per town planning scheme in a particular area- provided all civic amenities-then value
will increase.
VALUE CLASSIFICATION
• Assessed value:
➢Value of property in the register of a local authority.
➢Used for purpose of determining property taxes -from owner of property.

• Book value / book cost :

➢Original investment on its assets minus total depreciation for period passed.

• Salvaged value:
➢Value of built up building at end of its useful span of life but it has not
become useless.
VALUE CLASSIFICATION
• Scrap value: Value of a dismantled material of a property at the end of the
utility period - becomes absolutely useless except for sale as junk.

• Replacement value : Indicates value of a building or portions thereof if these

have to be replaced in the form of acceptable substitutes at the current
market rates.

• Earning value: Present value of a property which will start yielding an income
in future.

• Potential value: Inherent value of land - increasing due to passage of time or

due to some alternative use fetching more return.
VALUE CLASSIFICATION

• Distress value : When a property is sold at a lower price than that which can be
obtained for it in an open market .

• Monopoly value: Number of available plots in a locality goes on decreasing the

value of the land goes on increasing and a time comes when very few plots remain
in the market .
➢The fancy price demanded by the vendor for those few remaining plots will be
known as monopoly value
CLASSIFICATION OF OWNERSHIP
 CLASSIFICATION OF OWNERSHIP
• Generally there are two forms of ownership:

➢Freehold tenure
➢Leasehold tenure
FREEHOLD TENURE

• Highest form of ownership of land.

• Land owned without any restrictions.
• No ground rents but must follow rules and regulations of local
authority or government.
• Period of ownership - indefinite duration .
• Owner can develop it ,transfer it as he wants.
• Freehold land will be subject to ‘law of easements
LEASEHOLD TENURE

• Involves lessor and lessee .

• Transfer rights of leased out property for a certain time and for a
premium or a rent .
• Subjected to agreed terms and conditions .
LEASE
• A registered instrument which transfers rights of property proposed to be
leased out for a certain time and for a premium or a rent and subject to
agreed terms and conditions .

TYPES OF LEASES
• Building lease
• Occupation lease
LESSOR
• Lessor : Superior owner of property or freeholder who surrenders the right
to use and occupancy for the term and rental stated in the lease, retaining the
right of reversion .
• Reversion: it indicates the right to repossess the property at the end of the
lease term.

LESSEE
• He is the person who acquires the right of use and occupancy in a property for
a specified period in exchange for rentals or premium or a combination of
both and subject to other terms and conditions of the lease
VALUATION REPORT
• A Valuation Report is an inspection and report of a property that will
determine its value.

Characteristics
• Shall be a comprehensive and lucid documents
• Should be well reasoned and based on facts
• Should withstand test of appeal if contested by other party
• Ambiguity and unrealistic assumptions should be avoided
GUIDELINES FOR REPORT WRITING
• State purpose of valuation and date of valuation
• Name of client and intended users to be given
• Address of property to be given for identification
• State clearly the assumptions made and describe the method of approach to
valuation
• Valuer should be properly qualified as regards category and qualification
• Valuer should follow all the ethics applicable to his profession and conduct
Methods of valuation
Different methods of valuation

• Rental method
• Profit basis method
• Development method
• Land and building basis method
Rental method-NET INCOME

• Method applicable when rent is known or probable rent is determined by

enquiries.
• In this method net income found out by deducting all outgoings from the
gross rent.
Net income= Gross income- outgoings
Gross income: profit of landlord for the capital invested in land and building.
Outgoings: all taxes, repairs etc.
Sinking Fund
• Fund built up for replacement or reconstruction of a property when
it loses its utility.
• Sinking fund is also required for payment of loan
• Fund deposited in bank or insurance – for getting sufficient amount
for replacement.
• Depends on: life of building and rate of interest
• Sc = { R/ ( 1 +R )n -1}
Sc – coefficient of annual sinking fund
R- Rate of interest
n- life of property
Year’s Purchase
• Capitalized value required to receive a net annual income of Re.1 at a fixed
interest rate for a fixed number of years.
Suppose rate of interest is 5% per annum. One has to deposit Rs.200 to get Rs.10
per annum.
Now, to get Rs.1 he has to deposit 100/5 =Rs.20 per annum.
Therefore , YP= 100/rate of interest = 1/ R
# Year’s purchase = 1/ R
# Year’s purchase ( in sinking fund allowance) = 1/( R + Sc)
Sc – coefficient of annual sinking fund
R- Rate of interest
Sc = { R/ ( 1 +R )n -1} , Sc – coefficient of annual sinking fund, R- Rate of interest, n-
life of property
Year’s Purchase-Problem
• Calculate value of years purchase for a property if its life is 20 years
and rate of interest is 5%. For sinking fund the rate of interest is 4.5%.

Rate of Interest (R) = 5%

Rate of interest (sinking fund-R2) = 4.5%
Years purchase= 1/(R +SC )
Sc- Coefficient of sinking fund = { R/ ( 1 +R )n -1} =
{ 0.045/ ( 1 +0.045 )20 -1} = 0.0319
YP = 1/(R +SC )= 1/(.05 +0.0319 )= 12.21
Rental method- CAPITALIZED VALUE
• Net income multiplied by years purchase gives capitalized value or
valuation of property
Capitalized value= net income x years purchase
Capitalized value: Capital amount required to be paid to receive a periodic
payment in form of net return for a specific period.
# Year’s purchase = 1/ R
# Year’s purchase ( in sinking fund allowance) = 1/( R + Sc)
Sc = { R/ ( 1 +R )n -1} , Sc – coefficient of annual sinking fund, R- Rate of interest, n- life of
property
# Method applicable when rent is known or probable rent is determined by enquiries.
Example 1 : Rental method
Let annual rent= Rs. 3500
Highest rate of interest =8%
Find Capitalized value

Capitalized value= net income x years purchase

Year’s purchase = 1/ R
Capitalized value= 3500 * 1/( 8/100)= Rs. 43750
Example 2: Rental method
2. a. A building in an A class city is let out @ Rs.5000 per month . The total outgoings of the
property is estimated to be 15% of the gross income, calculate the capitalized value of
property if the present rate of interest is 6% and life of the property is 50 years.
b. Calculate the capitalized value of property For sinking fund the rate of interest is 6%.

CASE A
Gross rent = 5000 * 12= Rs.60000 Per year CASE B
Outgoings = 15% of gross rent In case sinking fund allowance considered:
=60000 * 15\100 = Rs. 9000 per
year
Sc ={ R/ ( 1 +R )n -1} = {0.06/ (1 + 0.06) 50 -1} =
Net rent =Gross income- outgoings 0.0034
60000 -9000= Rs. 51000 Y.P. = 1/( R + Sc) = 1 / ( 0.06 + 0.0034 ) =15.77
Year’s purchase = 1\R= 1/0.06= 16.67 Capitalized value = 51000 * 15.77= Rs.
Capitalized value= 51000 * 1/0.06= Rs. 804270
850000
Profit basis method

• Suitable for buildings like hotels, cinema theatre etc.

• Capitalized value depends on profit.
• Net annual income calculated by deducting outgoings, remuneration
for labors, interest on capital invested etc. from gross income
Net annual income= gross income- outgoings
• Net profit is multiplied by year’s purchase to get capitalized value
Capitalized value= net profit x years purchase
Residual or Development method
• Method of valuation for vacant land or underdeveloped or partly developed plot
of land
• Method estimates final future value of the property, when it´s fully developed.
• It is used when there are no comparable market prices available.
• Estimation starts with GDV- Gross development value- notional value from
similar projects
• From GDV, deduct development costs and also profit of developer.
➢Development cost- for amenities like roads, gardens, parks, water facility etc.
• In existing building , if some improvements are to be made, development method
of valuation may be used.
• USE
Builders to purchase an underdeveloped or partly developed plot of land, for land
acquisition proceedings, to workout unsecured ground rent.
Residual or Development method

• Purchase price of Land/ property = GDV –( construction + fees + profit)

GDV- Gross development value- notional value from similar projects
Construction - Building and construction costs
Fees - Fees and transaction costs
Profit - Developers profit required
Land and building basis method

• When rent cannot be ascertained for buildings like schools, clubs etc.
• Valuation done on cost of land to which depreciation cost of building added.
Capitalized value= cost of land + depreciation cost of building
• Cost of land is approximately determined by taking the average of sale deeds
of near past.
• Depreciated cost of building : by knowing its life and its age.
• Sinking fund deposited taken as depreciation for the purpose of calculation
of net value of property.
Example 1: Land and building basis method
• Area of land: 1000sqm
• Neighborhood plot values: Rs. 60 per sqm Sc = { R/ ( 1 +R )n -1} , Sc – coefficient of
• Period ( building) : 30years annual sinking fund, R- Rate of interest,
• Total cubic content of building: 1200cu.m n- life of property

• Present cost: Re.80\cu.m

• Annual sinking fund for the redemption of Re.1 @ 4% in 60 years ( total life) : 0.0042
• Amount of Re.1 per annum @ 4% in 30 years ( age) : 56.085

Soln:
STEP 1: Value of 1000sqm plot @ Rs. 60 per sqm= 1000 x 60= 60000Rs.
STEP 2:
Present cost of building: 1200 x 80= 96000Rs.
Depreciation rate of building = Coefficient of annual sinking fund x amount per annum= 0.0042 x
56.085= 23.55%
Depreciation cost of building= 96000- 23.55 % of 96000= 73392Rs.
STEP 3: Capitalized value= cost of land + depreciation cost of building = 73392 + 60000= 133392Rs.
EASEMENT
EASEMENT
• It is a right in connection with immovable
property.
• Right to use another’s property legally.
• Dominant Heritage : Land on which
beneficial enjoyment has been created.
• Dominant owner: Owner of dominant
heritage
• Servient heritage: Land on which
easement is created
• Servient Owner: Owner of servient
heritage
• Beneficial enjoyments includes roads,
water supply, drainage lines, electric cables
etc.
EASEMENT TYPES

• Continuous easement
• Discontinuous easement
• Apparent easement
• Permanent easement
Continuous easement
• Easements - enjoyed by the person continuously and without any kind of
obstruction by anyone.
Examples
Right to discharge rain water
Easement of light and air- Light and air from neighbour’s plot.
Laying of drain line
Layout of services like electric or telephone cables.

Prevention of easement of light and air

Discontinuous easement
• A right of way acquired by A over B property .
• Right of way – Right to pass through someone else’s plot .
• A walks in B property- but not continuous process- few times a day.
• If A construct a pucca road through B property without knowledge and
consent , it becomes a continuous easement.
Apparent easement
• Apparent: Existence of which can be clearly seen with ease
• Examples:
[Link] of light and air is apparent- light and air is visible
[Link] of rainwater from A roof to B property is an apparent easement –
visually see the rainwater falling into other B property.
[Link] of tar road over B property –apparent but just pathway is non
apparent
[Link] open drain passing through B land –apparent but under ground drain or
service – non apparent
Permanent easement

• Easement enjoyed by owner permanently without interruption from

servient owner.

• Examples:

Right to fetch water from natural source of well.

Right to perform ritual activities.
ESSENTIAL CONDITIONS FOR ENJOYMENT OF EASEMENTS

[Link] should get imposed upon some corporeal property.

[Link] should be open
[Link] is a right merely to use and enjoy the land .
[Link] must be an existence of a servient tenement and dominant tenement
[Link] persons should be in the ownership of both the dominant and servient
tenement
[Link] subject matter of grant ( deed ) should be formed by virtue of such an
easement.
[Link] obstruction , physical violence or quarrel between the person claiming
easement and the owner of property during the period of 20 years.
VALUATION FOR EASEMENTS
• Value of an easement is measured by what the property owner has lost from the
bundle of rights, not by what the grantee has gained.
• Value of easement is based on difference between value of whole property before
taking and its value after taking .
Summation Method
Value of Whole Property –Rs.2,00,000@ 10 cents= Rs. 20,00,000
Value of Part Acquired – Rs.2,00,000 @ 2 cents = Rs. 4,00,000
Value of Remainder before Acquisition Rs. 20,00,000 - Rs. 4,00,000 = Rs. 16,00,000
Value of Remainder after Acquisition - Rs.1,50,000 @ 10 cents = Rs.15,00,000
Damages :Rs. 100000
Part Acquired : Rs. 4,00,000
Total Compensation : Rs. 5,00,000