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This article is written by Ritika Sharma, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from Lawsikho.com.

 

The object of the Arbitration and Conciliation Act was to “reduce and minimize the supervisory role of courts in the arbitral process”. However, when the Arbitration and Conciliation Act, 1996 came into place instead of promotion of that object, the Indian courts have been time and again given absolute power to interfere in the process. This is one of the biggest reasons why India is not preferred by parties as a hub for arbitration. Instead, even Indians look out for systems with arbitration friendly mechanisms. I strongly agree with the statement that is, “The objective of Arbitration and Conciliation Act was to ensure minimal court intervention, however, various provisions like Section 9 along with some provisions 2015 Amendment Act have proven to be contrary”.

When can courts interfere? 

There are 4 stages where the courts can interfere after the 2015 and 2019 amendments:

  1. Pre-reference
  2. Post reference
  3. Post award
  4. At the stage of enforcement

Pre-Reference Stage

  • Power to refer parties to arbitration under Section 8 (Part I) and 45 (Part II)

The above two sections provide for any judicial authority (which obviously includes courts) to refer the parties to arbitration upon a ‘prima facie satisfaction that a valid agreement exists, and the matter is arbitrable. The 246th law commission report recommended that the same test of judicial intervention which is applicable for section 11 must apply to section 8 and 45. 

Presently, the courts perform a de jure analysis of the existence and validity of the agreement before the matter goes for arbitration as was seen in Oriental Insurance Company Ltd. v. Nabheram Power and Steel Pvt. Ltd. [1]. therefore, the parties cannot proceed beyond the stage of validity of agreements instead of resolving the contractual disputes. 

  • Grant of interim measures under Section 9

Before the 2015 amendment, interim measures taken under Section 17 were not enforceable, so parties had to go under Section 9 to the courts to make them enforceable. 

Section 9(2) which was added through the amendment mandates that the court can only give interim measures, when the tribunal has not been constituted. Section 9(3) which has again been added through the 2015 amendment, says that once the tribunal has been constituted, the court will not entertain an application under 9(1), unless the courts find the circumstances exist which may not render the remedy under Section 17 efficacious. This reduces the court interference and only exceptional cases go to the courts. These exceptional circumstances can be, for example when someone needs police protection, the arbitral tribunal does not have the power to give the same, so the courts may be approached for the same [2]. Scope of this section has been narrowed down, since all measures have to first go through the tribunal.

  • Appointment of arbitrator under Section 11

This section has seen an amendment in 2015 as well as a 2019 amendment. The 2015 amendment introduced section 11(6A) [3] which asked courts to only check the existence of arbitration agreements, thereby narrowing down the power of courts under section 11. There were many contrary views as to the power of the court to examine the existence of arbitration agreement v. examination of validity of the agreement. However, there still prevails confusion on this subject matter due to concurring judgements with benches of same strength. This just extends the time period at the door of the court instead of starting the arbitral proceedings. 

The 2015 amendment gave power to the Supreme Court and High Court to appoint arbitrators in case the parties or the arbitrators are not able to appoint one themselves within the stipulated time frame. The bias of the courts may prevail in this subject, moreover no time period for appointment was provided for, therefore again extending the time period of the process. 

As the position stands today, the Supreme Court and the High Court can designate a graded arbitral tribunal to appoint arbitrators.

This seems to be a novel idea on the minimal interference of the judiciary. However, since it has not been notified yet, the execution of the same can be questionable. Integrity of arbitral institutions will be something to look out for when the section is notified. 

Court assistance in taking evidence under Section 27 (never amended)

Section 27 provides that arbitrator can seek assistance of court for procuring evidence. The courts can issue summons or commissions for production of evidence or witness. Contempt of an arbitral tribunal is again available under section 27(5) as a power to the court. I think this section is justified since the tribunal does not possess the wide powers as the courts in India. 

Post- Reference stage

Appeal can be filed under Section 37(2) against the decision of the tribunal under Section 16(2) and 16(3) that it has no jurisdiction or that it was exceeding its jurisdiction or the grant or refusal to grant an interim order under Section 17. However, this has been criticised by the legal community since the power of deciding jurisdiction must lie with the tribunal based on the principle of Competence Competence.[4]

Similarly, an order passed by a judicial authority under Section 8, which refuses to refer parties to arbitration is now made appealable under Section 37(1)(a) through the 2015 amendment. However, if the judicial authority is referred to arbitration under section 8, such an order is not appealable under Section 37. In my opinion, this does not harm the arbitral process, however the courts must be very careful in terms of refusing the parties to refer to arbitration, especially when the parties have the intention to go for the same.

  • Time limit under Section 29A

The insertion of this section was opposed by the Chairman of the Law Commission, however, it was inserted through an amendment in 2015. This section imposes a time limit of 12 month on proceedings from the date of reference. This limit can be extended by 6 more months if the parties agree. However, if the proceedings are not over in the stipulated time period, the mandate of the arbitrator shall stand terminated unless either parties apply to the court for otherwise. 

This gives the court unfettered powers of discretion. The court also has the option to reduce the fees of the arbitrators under this section and the court can substitute arbitrators (one or all) while extending the period. 

The minimum time for deciding an award in most cases is 2 years, therefore the 18 months’ time period is too less for giving an award. The words used in the section ‘may’ and ‘sufficient cause’ hands over great discretionary and arbitrary powers to the courts. This will again adjourn the proceedings, which can now be left halfway. Moreover, this section can impact the relationship between the court and the tribunal and bite back the efficiency of arbitration as a whole. 

arbitration

Post award stage

  • For setting aside domestic award under Section 34

Out of all these stages of intervention, this section is considered to be the ‘villain of the pieces’. Section 34 was a cause for worry for the 220th Law Commission when they prepared the 246th report. There was a lot of hue and worry about what the court can do and what the court cannot do. Section 34 lays down 7 conditions paving roads for judicial interference: 

  1. Party under some incapacity;
  2. Arbitration Agreement not valid under the law to which the parties have subjected it;
  3. Party not given proper notice of appointment of arbitrator or of arbitral proceedings or otherwise unable to present his case: this in particular has been misused a lot in India. A lot of finance and car manufacturing companies get into arbitration agreements with their customers. The clauses of the arbitration clearly say that the proceedings will be conducted in one of the branch offices of the company which may not even be the place of the transaction. Due to the distance between the place of transaction and the venue of arbitration, the party (customer) is not able to present his case;
  4. Arbitral award deals with a dispute beyond the terms of submission or matters beyond the scope of submission to arbitration;
  5. The composition of the tribunal or procedure not in accordance with the agreement of the parties;
  6. Subject matter of dispute not capable of getting settled through arbitration:

The Supreme Court has held in Booz Allen v. SBI Home Finance [5] that he following were non-arbitrable: 

(i) disputes relating to rights and liabilities which give rise to arise out of criminal offences;

(ii) Matrimonial disputes relating to divorce, judicial separation, RCR and child custody, guardianship, insolvency, testamentary matters, eviction and tenancy matters governed by special statutes.

  1. Award in conflict with public policy.

The major problem that arose was with respect to the last point that is public policy. Before the 2015 amendment, the explanation under section 34(b)(ii) indicated that an award, induced by fraud or corruption or violative of section 75 (breach of confidentiality) or 81 (non-admissibility in evidence of certain matters in course of conciliation) will be in conflict with the public policy of India. But it was only clarificatory and inclusive and not restrictive and exhaustive.

In Renusagar Power Co. v. General Electric Co. [6] the Supreme Court pointed out two conflicting positions, one referred to as the narrow view and the other being the broad view. The Supreme Court said that in the context of international commercial disputes must be given a very narrow interpretation. ONGC Ltd v. Saw Pipes Ltd. [7] impliedly overruled Renusagar’s judgement and the Supreme Court said a broader interpretation was the need. The court talked about (i) Fundamental policy of Indian law (ii)Interest of India (iii)Justice or morality (iv) Patent illegality and (v) Award being so unfair and unreasonable that it shocks the conscience of the court. ONGC received a flak and the same was recognised by the Supreme Court in Mcdermott International Inc v. Burn Standard Co. Ltd. [8]

The 2015 amendment finally gave a restricted meaning to public policy by saying it would be violated ONLY IF the criterias of explanation 1[9] were met. 

My argument here being her that the 2015 amendment tried to limit judicial intervention but the terms it brought in are very vague and subjective to interpretation. Morality, Justice, Fundamental Policy (as mentioned in explanation 1) are all very ambiguous words, which does not really solve the problem of judicial interference, because for the interpretation of these words, one has to run to the courts. 

At the stage of enforcement [10]

The courts can interfere in the following matters:

  • Since a domestic arbitration award is to be enforced under Section 36(1) in accordance with the procedure prescribed by the Civil Procedure Code, all weapons in the armoury of an award-debtor become available under the various rules of Order XXI and Section 47, which have always proved to a be a nightmare for decree-holders. There are n number of provisions to nullify the award – Rule 58, Rule 89, Rule 90, Rule 91 – the 2015 and 2019 amendments have not taken note of this. 
  • Refusing to enforce New York convention foreign award under Section 48.
  • Refusing to enforce a Geneva Convention foreign award under Section 57.

Conclusion

It has been 24 years since the Arbitration and Conciliation Act, 1996 was enacted in the country, and throughout all these years, the Act has been bashed for having provisions promoting judicial interference. Though the Act provides for an alternative to litigation, it cannot depart completely from the judicial machinery but instead a co-existing harmony is to be created, where courts only interfere in rare circumstances. A balanced approach is required to bring in the true essence of the Act.

References

[1] Civil Appeal No. 2268 of 2018.

[2] Pradeep K.N v. The Station House Officer. Perumbavoor Police Station, 2016 SCC OnLine Ker 8995.

[3] Sub-section (6A) was omitted by Act 33 of 2019. Note: However, still the Supreme Court has stuck to Section 11(6A) in Mayavati Trading Pvt. Ltd. v. Pradyuat Deb Burman (AIR 2019 SC 4284) and overruled United India Insurance v. Hyundai Engineering (2018 17 SCC 607) however, the strength of the benches were same in both. 

[4] Note: This section has not been amended and has been added just to highlight the interference of the court.

[5] (2011) 5 SCC 532.

[6] 1994 Supp (1) SCC 644.

[7] 2003 (5) SCC 705.

[8] 2006 (11) SCC 181.

[9]Subs. By Act 3 of 2016, sec. 18(I). 

[10] The provisions under this heading have not been amended but have been added to highlight the interference of court at this stage.


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