This article is written by Govind Saini.

Introduction

Arbitration in India has been distressed by many of the same troubles as litigation and subsequently these arbitral proceedings turn out to be time consuming and expensive. It is believed by the author that A & C Act, 1996, perceives a role for the court at numerous stages and thus, is imperfect and therefore, similarity of arbitration with litigation is the concern of the author. So, while making this statement, it is better if we rethink and ponder again over the notion which is common that arbitration, (considering it to be alternative to litigation), is free from the rebuffs that litigation is associated with it.

The A & C Act, 19961 was basically devised to provide speedy adjudication of disputes between the parties, with minimal interference and to provide for efficacious and expeditious enforcement of arbitral awards, the trappings of a cumbersome litigation process. This above-mentioned object of the legislation gave rise to the notion that arbitration in India: (i) consumes less time and is comparatively speedier in nature, (ii) inexpensive as compared to litigation and (iii) is a specialised field of practice as opposed to litigation. But the reality is different as this above-mentioned perception is far from true, and the following analysis will seek to demonstrate.

How speedy an arbitration process is?

Appointment of the arbitral tribunal

When there is no agreement regarding arbitration between the parties, and the party is desirous of initiating arbitration process (considering the fact that lack of consensus is common) is required to file a petition before the Chief Justice of the jurisdictional High Court or his nominee under section 11 of the A & C Act, 1996, for the appointment of the arbitral tribunal and high court pass the order on appointment after hearing the other side. A seven-judge bench of Supreme court of India, in case of SBP & Co. v. Patel Engineering Ltd., after interpreting exhaustively the case of Konkan P to Konkan II, has settled the position that under Section 11 requires the court to be satisfied as to the valid arbitration clause, live claims, and if needed evidence in such proceedings could be sought. Thus, an order under Section 11 is judicial in nature and not as just administrative.

Furthermore, if one wants to challenge the orders with regard to appointment, passed by the Chief Justice or his nominee, he has to file Special Leave under Article 136 of the Constitution before Supreme Court of India for challenging the order, unless the order is that of the Chief Justice of India or his nominee, in the case of an international commercial arbitration. So, it cannot be denied that the appointment of the arbitral tribunal in itself is a court ordained process, and can take a substantial amount of time. And the harsh reality is that in some cases, appointment of the tribunal itself has taken a few years.

Procedure before arbitral tribunal

Section 24 of A & C Act, 1996, states that if the agreement so provides, the tribunal can decide the case on the basis of documents and also evidence is usually placed before the arbitral tribunal and it is noteworthy that most competent arbitrators try their best to ensure that the entire process of pleadings, affidavit in lieu of evidence cross-examination of witnesses and passing of the arbitral award is completed within reasonable period of time, it is quite common for arbitrations to be delayed due to indecisive tribunals, multiple interim applications, cooperation of parties, witnesses being located in other cities or countries and court interventions pending arbitral proceedings (notwithstanding Section 5). In the absence of a cooperative approach to arbitral proceedings, it is not an uphill task for a counsel to delay the proceedings, if that is desired by the client.

Enforceability of arbitral awards

When an arbitral award is passed, one would expect the dispute/ proceedings to come to an end, and will desire the award to be enforceable straightaway. But this is the stage where real litigation begins practically. The legislators of the Act, for reasons best known to them, made provisions for challenging the arbitral awards before the trial court and even the arbitral award passed by a panel of three retired Supreme Court Chief Justices as arbitrators was scrutinized by a single Trial Judge. The use of unclear terminology such as “opposed to public policy” under Section 34 of the Act has sought to confine its ambit.

However, in the case of ONGC v. Saw Pipes, the court ruled that an arbitral award, if being opposed to substantive provisions of any law, Act or to the terms of the contract, the same can be challenged as being ‘patently illegal’. And this ruling in the case, further amplified the review under Section 34 and allowed testing an award on the touchstone of compliance with substantive law, the Act and the terms of the contract, to determine whether the award violates public policy or not. And subsequently enlarging the role of courts under Section 34, thereby, making it similar to that of an appellate court.

So, the process of challenging an arbitral award before the court is a full- fledged hearing of the original arbitral proceedings. In some states, for example, Karnataka, the proceedings under Section 34 are to be tried as an original suit under the rules which are applicable in Karnataka and the same rules further give rise to the possibility of evidence being led in the said proceedings as well.

Moreover, once this exhaustive process of challenging before the trial court gets finished, then there is provision in the Act, for appeal which lies to the High Court under Section 37 thereby leading to the occurrence of another round of litigation and followed by a SLP by the aggrieved party to the Supreme Court against the order of the Court. As per Section 36 of the Act, the mere pendency of an application challenging an award before the trial court makes the award unenforceable, but this position is changed after the several amendments in the A & C Act.

One can only imagine the difficulty which a successful claimant in arbitration faces while even after getting an award, not being able to enjoy the award until all those above mentioned challenge procedures are exhausted and it can take several years and the worst part is the enjoyment of the unsuccessful party enjoying the unconditional stay of execution. Thereby, questioning the notion that arbitral proceedings and enforcement of awards are speedy under Indian laws. Therefore, the arbitration experience particularly for the successful claimant can prove rather stressful and protracted. 

Is arbitration inexpensive?

No doubt that in order to make the arbitral process affordable and convenient, ad valorem court fee payable on an arbitrable claim is not charged from the parties but even if the amount is saved on court fee, the same is expended in terms of arbitrators’ fees, administrative expenses, counsels’ fees and stamp duty on arbitral awards. Moreover, since no court fees is payable, frivolous counterclaims are common practice where multi-crore claims for damages, most of the time exceed the value of the principal contract, and even larger counter have made the entire arbitration process ridiculous. These high counter claims are treated as ‘high stakes’ matters and in consequence of which the fees payable arbitrators and lawyers also increases proportionally. In many of the arbitrations which involves retired Supreme Court judges, or judges from other countries in the international commercial arbitrations, hefty amount of fee is payable to the arbitrators as ‘reading charges’, ‘sitting fees’, ‘award writing fees’ and ‘expenses’, along with fee payable to counsel and all these expenses can sometimes run into crores.

Also, there are additional costs which involve an arbitration such as costs in arranging sittings which usually take place at luxury hotels, and travelling expenses of the parties, witness, counsels and arbitrators, in cases where the venue is not common for both parties. Such costs are different to what is expected in arbitral proceedings. We know that costs can be factored into the award to be passed, but the fact remains that arbitral proceedings are costly.

So basically, if the cooperative approach by both sides is absent, arbitral proceedings can prove to be very expensive and fruitless in cases where the quantum and strength of the claim cannot afford such expenditures and subsequently undermines the role of arbitration in resolution of moderately-sized commercial disputes, family disputes, etc, which were meant to benefit from the ADR revolution.

How ‘non-litigious’ is arbitration?

The A & C Act in many provisions provides for judicial intervention at different stages in an arbitral proceeding some of those interventions are already discussed earlier. But major and important areas of court intervention is granting interim reliefs to the party.

The A & C Act under Section 9 provides for interim measures either by the court and under section 17 by the arbitral tribunal. Section 9 is relevant for this discussion as Section 9 of the Act states that a party may seek interim orders during or after arbitral proceedings, but before enforcement of the award, for preservation of the property or amount in dispute, injunction, appointment of receiver or a guardian.

Under Section 9, the court has the same power for interim measures as would in respect of ordinary civil suits where court exercises powers to grant injunction under Order XXXIX of the CPC in case of suits in addition having the jurisdiction to make equitable orders for facilitation of arbitral proceedings.

Moreover, there is provision for appeal in the high court, empowered to hear appeals from decrees, against orders passed under Section 9. Even though a second appeal is not permissible but still the right of an aggrieved party to move the Supreme Court is well-preserved.

Apart from the Court, Section 17 of A & C Act allows the arbitral tribunal to take appropriate interim measures for the protection of property that is subject matter of arbitration and the same orders are appealable in the civil court, which orders in turn are revisable under Section 115 of the CPC. Even where such orders cease to be revisable owing to the amended CPC, the right to challenge the orders by way of a writ petition before the High Court under Article 227 of the Constitution is always available. Such orders could also be carried to the Supreme Court by way of Special Leave Petitions.

Also, for the purpose of enforcement as Section 36 of the A & C Act treats final domestic arbitral awards as decrees of the court, so the enforcement of a final domestic arbitral award is done through the courts by following the execution proceedings under the Civil Procedure Code. But in case of foreign awards which are sought to be enforced in India, the court cannot execute such awards unless and until it is satisfied that the award is not violating any of the conditions/provisions laid down under the A & C Act. Moreover, the defendant is required to file an application under Section 8 of the Act, for the court to refer the parties to arbitration.

So, we can say that the role of the courts in arbitration is very distinctive – ranging from the appointment of the arbitral tribunal to the enforcement of an arbitral award and presence of reasonable avenues for challenge against unjust and perverse arbitral awards, delay and expenditure are inevitable.

Conclusion

As the intervention of the courts is inherent in arbitration law in India, in order for one to be a successful arbitration practitioner, litigation skills are imperative. We need to think again if someone proclaims arbitration in India as being inexpensive and out of court. Undoubtedly, arbitration still remains a popular option as a means of dispute resolution, there are evident lacunae in the law that need to be resolved in order to make the process speedy and affordable in practice.

References

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• Vikas Goel, Highlights of Amendment to the Arbitration and Conciliation Act, 1996 via the Arbitration Ordinance 2015, Mondaq, (Dec. 2, 2015)
• Vikas Goel, Insight into the Arbitration and Conciliation (Amendment) Act, 2019, Singhania & Partners, (Aug. 27, 2019)

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