This article is written by Aryan Chaudhary, pursuing a Certificate Course in Arbitration: Strategy, Procedure and Drafting from Lawsikho.com. Here he discusses “Challenges for Arbitration in India”. Here he discusses “Role of Courts during Arbitration in India”.
Arbitration in India has been growing recently. But, there has been constant debates and discussions about the powers and involvement of the courts in the process of Arbitration. Arbitration has proved to be a necessary tool in dispute resolution and so, there is a constant need to evolve and grow with the changing times.
A court is any person or institution, often as a government institution, with the authority to adjudicate legal disputes between parties and carry out the administration of justice in civil, criminal, and administrative matters in accordance with the rule of law.
Arbitration and its Process
Arbitration is typically used to resolve disputes between private entities, outside the court machinery. In simple terms, arbitration is a process when two or more parties decide to settle a dispute outside the court. Arbitration in India is defined by the Arbitration and Conciliation Act,1996 which contains four parts. Part I deals with general provisions on domestic arbitration. Part II involves the enforcement and execution of foreign awards. Part I and Part II are most substantial and are based on UNCITRAL Model Law and the New York Convention respectively. A simplified arbitration agreement involves following steps:
- First of all, the parties to a contract/agreement, adds arbitration clause into their agreement/contract and if and when any dispute arises between them, one party informs the other party about the dispute by issuing arbitration notice.
- This is followed by response by the other party and subsequent appointment of an arbitrator, decision on rules and procedures, place of arbitration and language.
- Once the arbitration proceedings commence, there are formal hearings and written proceedings.
- The arbitrator can issue interim relief and also final award which will be applicable on both the parties.
- If either of the party is unhappy or not convinced with the award, they can challenge the award before the court. Challenging the award can be before appellate court or Supreme Court, whichever is competent.
Difference between Arbitration and Court Proceedings
A court proceeding, in other words, is also called the process of Litigation. So, court proceeding or Litigation refers to proceedings initiated between two opposing parties to enforce or defend a legal right.
Litigation is the most common and familiar process to resolve any dispute, and this process involves two aspects: Civil litigation (involves dispute arising between parties) and Criminal litigation. Whereas, the process of arbitration involves two parties who are in dispute regarding some issue, but are willing to work it out, with the help of a third party.
Here are some of the major differences between arbitration proceeding and court proceedings:
Private/Informal and Public/formal
Arbitration is a private process and involves Informal mode of communication.
Court proceedings are a public process and involve Formal mode of communication.
Involvement of Cost
Arbitration process is produced and evolved in such a manner that it is proved to be cost efficient and less expensive than a court proceeding.
Court proceedings usually involve spending a large sum of money
Speed of the Process
The arbitration process starts rather quickly. Once the arbitrator is selected, the case can be heard by the arbitrator or the tribunal, depending on the case.
In court proceeding, the case can only be heard only when the court has time to do so, that is, in the duly appointed time by the court.
In arbitration, the parties can appoint an arbitrator themselves.
In litigation, the judge is appointed by the court and the parties have no say in that matter.
Power of the Parties to Refer to Arbitration
The parties, under arbitration, have many powers. As the arbitration clause can be formulated by the parties themselves, they are allowed to add certain provisions that they deem fit. One such power is the power of the parties to refer to Arbitration. This can be discussed under two heads:
When there is an arbitration clause
Section 8 of the Arbitration and Conciliation Act,1996 clearly states that when a case is filed in the civil court and the right of action of said case emerge from a contract in which the parties had voluntarily and freely agreed to settle the dispute by arbitration, then, if the essentials of section 8 are fulfilled, it is the obligatory duty of the court to refer the parties to arbitration.
When there is no arbitration clause
When there is no express arbitration agreement between the parties as regards to reference of disputes for arbitration, the court does not have the power to refer the parties to arbitration unless and until a written consent is provided by the parties by way of joint application or a joint memo or a joint affidavit. So, a written joint memo is necessary for the reference of dispute to arbitration.
Section 5 of the of the Arbitration and Conciliation Act,1996 provides for the extent of judicial intervention which says that “notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part”.The word “Part” referred to in this Section is Part I of the Act,1996 which shall apply where the place of arbitration is in India and shall not affect any other law for the time being in force by virtue of which certain disputes may not be submitted to arbitration.
Interim Measures by the Court
Section 9 of Arbitration and Conciliation Act,1996 states that a party may before or during the arbitral proceedings or at any time after making of the arbitral award but before it is enforced in accordance with Section 36, may apply to the court for interim measure of protection. Prayers for interim measures of protection may include:
- The preservation, interim custody or sale of any goods, which are the subject matter of the arbitration agreement.
- Securing the amount in dispute in the arbitration.
- The detention, preservation or inspection of any property or thing which is the subject matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence.
- Interim injunction or the appointment of a receiver.
- Such other interim measures of protection may appear to the Court to be just and convenient. And the court shall have the same power for making orders as it has for the purpose of and in relation to, any proceedings before it.
Appointment of Arbitrator
The Parties can mutually determine the procedure for appointment of the arbitrator prior to the commencement of the arbitration proceedings. Nonetheless, if for some reason, the parties failed to appoint an arbitrator for conducting arbitration proceedings then the court has the power to appoint the arbitrator in such cases.
Termination of Mandate of an Arbitrator
According to Sec. 14, an arbitrator’s mandate will be terminated if:
- the arbitrator becomes de jure or de facto unable to perform their functions or fails to act without delay for another reason and withdraws from their office; or
- the parties to the arbitration agree to terminate the arbitrator’s mandate.
Moreover, sec. 15 states some additional circumstances which will terminate the mandate of an arbitrator, that are:
- If he withdraws from office from any reason;
- By or in accordance to the agreement of the parties.
Furthermore, section 15 deals with substitution of arbitrator and states:
- After the termination of mandate of an arbitrator, a substitute arbitrator should be appointed according to the rules previously put to use.
- Any hearing that took place under the previous arbitrator can be repeated at the discretion of the arbitral tribunal, except otherwise stated by the parties.
- Moreover, an order or ruling made prior to the termination of an arbitrator, will not be invalid solely because the structure of the arbitral tribunal has changed.
Setting aside the Arbitral Award
Setting aside the arbitral award in simple terms is called challenging the arbitral award. Sec. 34 of the Arbitration and conciliation Act, 1996 lays down the grounds for setting aside the arbitral award, which are as follow:
- The party was under some form of incapacity;
- The arbitration agreement is not valid under the law in force, for which the agreement has been subjected to;
- The party was not given proper notice of appointment of arbitrator or the arbitral proceedings;
- The award falls beyond the scope of submission to arbitration;
- The due procedure was not followed, while appointment of arbitrator or the tribunal;
- The award is in violation of public policy of India;
- The subject matter of dispute is not capable of being settled by the arbitration.
If an arbitral award falls within the limits of above mentioned grounds, the party can file a petition u/s 34 to challenge such award, before the competent court.
Enforcement of the Award
Section 36 of Arbitration and Conciliation Act, 1996 deals with the enforcement of the award. It states that:
Once an award is made, the concerned party has to wait 90 days, before he can file for execution of such award, before the competent court/forum.
After the 2015 amendment, sec. 34 application does not put an automatic stay on the enforcement of execution of award. Rather, the party wanting to set aside the award under sec. 34 shall file a separate application before the court, asking for stay on execution proceedings.
Sec. 35 of the act states that an award is final and binding. Hence, it becomes enforceable unless it is challenged under sec. 34 application. Moreover, if only a part of an award is challenged under sec. 34 application, then the unchallenged part becomes enforceable under sec. 36 of the act.
Section 37 of Arbitration and Conciliation Act,1996 deals with provision relating to appealable orders. Section 37 deals with processes involved in PART I and Domestic arbitration. Appealable orders relevant to procedures of PART II and foreign arbitration are dealt in Section 50 of the Act.
Provisions under section 37(1) which deals with appealable order of the Court, are briefly mentioned hereon:
- Refusing the parties to refer them to arbitration under section 8.
- Granting or refusing to grant any measures under section 9.
- Setting aside or refusing to set aside an arbitral award under section 34.
Who can Appeal?
In general, parties who are not satisfied with the result of court or tribunal can appeal. However, a new precedent arising out of arbitration proceedings is that, can a third party appeal to the order of an arbitrator?
On september 11, 2018, the BOMBAY HIGH COURT passed a gradual judgement. In the case of Prabhat Steel Traders Pvt. Ltd. v. Excel Metal Processors Pvt. Ltd., the high court held that a third party can appeal to the order u/s 37 of the Act, if they are affected by such order directly or indirectly passed by the tribunal under section 17 of the Act.
So, according to this landmark judgement, a third party can also appeal under section 37, if affected under section 17 of the Act.
With a proper study of scope of Arbitration in India and the involvement of Courts in its process, we can conclude that although the law-makers have tried to make Arbitration process simple and straightforward, so that a layman can also grasp the basics of the procedure, it is yet necessary to make changes time to time so that the main objective of the arbitration, that is, dispute resolution doesn’t fail. Moreover, the involvement of the courts must be kept to the basic minimum, so that the Courts don’t create hindrance to the arbitration process.
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