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A Critical Analysis Of Party Autonomy In Arbitration

September 20, 2016
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In this blog post, Sayan Mukherjee, a student of the University of Calcutta, who is currently pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, analyzes the importance of party autonomy in arbitration. 

 

The modern day society has embraced alternative dispute settlement system with both hands. Standing out amongst all is the process of arbitration. You can ask- why this different approach? Is it not an encumbrance to the legal system? The rationale working behind this popularity is the flexibility of the process of arbitration. This could only be secured due to the working principle of party autonomy.

As we are to go into the working of this principle, we first need to know the definition of a party. Under Indian Arbitration and Conciliation Act, 1996– Section 2 (1) (h) sums up an etymological definition of the word Party about arbitration. But most lucidly this indicates a party to a dispute which has to be resolved through the process of arbitration is logically a party in the arbitration.

Now the focus turns on to how the parties in arbitration enjoy freedom or independence in such dispute resolution process. Party autonomy proclaims that parties to the arbitration agreement are independent not only to choose laws but also to conduct the arbitration process.

 

Analysis of Party Autonomy

Here in India, the autonomy of parties has been incorporated in the central legislature itself. To go into the depths of this principle, we’ll excerpt parts of the arbitration process and analyze the party autonomy indicated through it.

Arbitration Agreement (Section 7-9): The arbitration agreement is core element which reflects the autonomy of the parties. Essentially, the parties skip jurisdiction of the court by an arbitration agreement. Furthermore, the conduct of the arbitration process is decided using this agreement. Therefore, an arbitration agreement, either in the form of an arbitration clause or the form of a submission agreement, reflects the will and intention of the parties in all stages of arbitration.

Arbitration Tribunal (Section 10-15): Party autonomy can be an exercise in the appointment and organization of arbitral tribunal. The principle enables the parties to determine any people who have relevant expertise as arbitrators. The will of the parties is envisaged in the form of an agreement which further agrees on the number and appointment procedure of the arbitrators. Moreover, the powers and duties of the arbitrators are attributed from the principles of party autonomy in arbitration.

Place Of Arbitration (Section 20): Parties to an arbitration are free to choose the place of arbitration. There is intervention by the courts, hearings and interim measures which affect an arbitration process. Thus parties are free to choose a neutral place to minimize interference. For example, Indian courts cannot offer interim relief in an arbitration seated outside India. Furthermore in similar instances, the Part I of the Indian Arbitration and Conciliation Act, 1996 will not apply even if, the hearing was held in India for convenience.

However, the extent of party autonomy can be visualized in regards of lex arbitri (i.e., law of the place of arbitration). The Party autonomy works here indirectly. Parties choose the lex arbitri by choosing the place of arbitration.

It’s just impossible to go into every single detail of the principle of party autonomy hovering over different sections of the Arbitration and Conciliation Act, 1996. A rightful claim is that the essence of the principle is integrated into each and every section of the legislature with some minor restrictions.

Despite the essence, the working of this principle is far from estimation. India has witnessed heavy confusion in dealing with cases and failed to establish this globally accepted principle. Thus consequentially, India is not at par with the global standards of arbitration as a discipline. Must work regions in this sector are put forward in recent times, and a precise framework with clarification is expected in near future.

 

Controversy In India

The concept of party autonomy was enunciated in the central legislature itself. However, this was subject to specific restrictions. The Supreme Court itself has acknowledged that the Indian Arbitration Act, 1996 envisages party autonomy[1]. But there is a dearth of Indian Case Laws dealing with this issue. This led the courts to fall back to English jurisprudence to decide on the point of law[2].

Furthermore, in the recent Bombay HC decision[3] By Justice R.D. Dhanuka, the court disregarded the principle of party autonomy which is the de facto globally recognized norm in arbitration. The explicit decision of the court was that domestic parties cannot have a foreign seated arbitration and Indian parties must abide by Indian laws.

Thus the decision is now subject to the scrutiny by the Supreme Court. The contradiction now can be analyzed with the earlier most celebrated decision made by a panel of five judges of the Supreme Court in the case of Bharat Aluminium V Kaiser Aluminium[4] (from now on BALCO). The court adopted a ‘seat-centric approach’ and held that the only relevant distinction under the Act was between ‘domestic arbitrations’ (i.e. arbitrations with a seat in India) and ‘foreign arbitrations’ (i.e. arbitrations with a seat outside India): Part I applies to domestic arbitrations – even if both parties involved are non-Indian; and Part I does not apply to foreign arbitrations – seemingly even if both parties involved are Indian.

The court expressly that part of the ‘party autonomy approach’ which was inconsistent with the ‘seat-centric approach.’ Thus, for instance, Indian Courts will not be empowered to order interim relief in support of foreign seated arbitrations irrespective of any contrary intention or agreement.

Now it will be interesting to observe how the globally acceptable BALCO rulings repudiate the J. Dhanuka’s precedent in subsequent days.

 

Conclusion

The new Narendra Modi government has passed a lesser-known, yet significant amendment, in accordance with the recommendations of the Law Commission in the 246th report. It is the Arbitration Amendment Bill, 2015, which is to clarify certain ambiguous provisions and codify the pro-arbitration stance that Supreme Court delivered in BALCO.

This will surely slash down the time and costs involved in arbitration process so as to bring India at par with the Intercontinental standards.

 


References: 

[1] SVG Molasses Co BV v Mysore Mercantile Co Ltd 2007 (9) SCALE 89.

[2] Andhra Bank Ltd. v. R. Srinivasan AIR 1962 SC 232.

[3]M/s. Addhar Mercantile Pvt. Ltd. v. Shree Jagdamba Agrico Exports Pvt. Ltd- Arbitration Application No 197 of 2014 along with Arbitration Petition No 910 of 2013.

[4] (2012) 9 SCC 552.

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