This article is written by Rishika Sharma and Avdhesh Parashar.
Taking cognizance of the United Nations Commission on International Trade Law Model Law (1985 (hereinafter referred to as “UNCITRAL Model Law”) on International Commercial Arbitration, the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”) was formed to adopt the Arbitration method to resolve the disputes arising between the parties. Before the UNCITRAL Model Law, the Arbitration proceedings were governed by the Arbitration Act, 1940.
Arbitration is one of the types of Alternative Dispute Resolution by which the parties resolve their dispute by appointing a third party, known as an Arbitrator, without going to the Courts. The decision of the Arbitration Tribunal shall be final and binding until and unless it is set aside by the Court by way of intervention. An Arbitration Agreement is an essential instrument to refer the dispute to the Arbitral Tribunal. There are crores of pending cases in Indian Courts. The Arbitration was adopted to remove pressure on the courts. Arbitration is a speedy, money-saving, time-saving method to resolve the dispute.
Although arbitration is a whole different process/method to resolve the dispute, the Courts can intervene in the proceedings as mentioned under the Act, 1996 itself. According to Section 5 of the Act, 1996 the Courts have very limited scope to intervene in between the arbitration proceedings in very circumstances i.e., to appoint an arbitrator, where the arbitration agreement is not valid under the eyes of the law, the arbitration procedure was not in accordance with the agreement, etc. Judicial Intervention in arbitral proceedings is just to ensure fairness and protect the rights of the parties.
Scope of judicial intervention
The issue of judicial intervention in arbitration is swamped with conundrums which makes it easy to sink into the technicalities of the definition and limitations. The ever-changing and evolving state of Arbitration in India contributes to the diversity of this topic. The key question in this regard comes down to the intervention of the judiciary in Arbitration proceedings and to what extent its intervention is acceptable. The Act, 1996 along with the amendments done in 2015 and 2019, was enacted to lessen the overburdened court and use arbitration as a means to dispute resolution. The Act aimed to divert the traffic of cases from the traditional route of litigation to arbitration, so the legislators made sure to include provisions that could limit judicial interference which would be a time-consuming process that would inhibit the speedy disposition that Alternate Dispute Resolution offers.
As mentioned above, the Courts or Judicial Intervention has very limited scope in the Arbitration proceedings. This article discusses the scope of intervention by the Judiciary in three parts. Part 1 talks about the interference done before the arbitration proceedings start. Part 2 deals with the intervention during the proceedings and Part 3 is about arbitral awards i.e., intervention after the proceedings.
Judicial Intervention before Arbitration Proceedings:
When taking the term “Judicial Authority” into consideration, it can be seen that the courts have widened the scope of this term when required in order to increase the scope of application of the law. The Supreme Court in Fair Air Engineers Pvt Ltd., v. NK Modi, held that the State Commission and the National Commission under the Consumer Protection Act, 1986 are to be treated as “Judicial Authority”. It was also said that a commission under the Monopolies and Restrictive Trade practices act, 1969 is also judicial authority. In the case of Canara Bank v. Nuclear Power Corporation of India Ltd, the Apex Court held that the Company Law Board can be considered a judicial authority.
However, the possibility of advancing criminal proceedings exists if the prima facie case constitutes a criminal offence. It was held in the A. Ayyasamy v. A. Paramasivam & Ors. that when the court is satisfied that the allegations, made by one party over another, are serious and complicated that it would be appropriate for the court to deal with the subject matter rather than relegating parties to arbitration, then alone the application under section 8 should be rejected.
Judicial Intervention during Proceedings:
There are many sections involved where the judiciary steps in during the proceedings. Section 9 of the act deals with the interim measures that can be granted by the court. While section 17 empowers the arbitral tribunals to make orders according to the section. While section 9 has the same power as Judiciary, but the purpose of both sections is entirely different.
The power given in Section 9 is not subject to the autonomy of the parties in dispute and is mandatory in nature. The interim measures are not substantive relief. An application under section 9 is not a civil suit and the relief under it does not arise from a contract. The court’s duty is limited to ensuring that the rights to adjudication before an arbitral panel are not violated.
When taking Section 17 into consideration, one of the challenges that we come across is the lack of a suitable legislative mechanism in the Act itself for the execution of interim orders of the arbitral tribunal. In the case of Shri Krishan v. Anand, Delhi HC suggested amendments to section 17 which would provide more authority and security to the interim measures granted by the court, so that the parties don’t have to go through the process of showing up at the court to challenge the same.
In M/s. Sundaram Finance Ltd., v. M/s. N.E.P.C. India Limited, The N.E.C.P. could not have sought relief from the Civil Court in order to prolong the proceedings pending adjudication by the arbitrator. The court went on to explain the provisions under section 9 have been laid down to make the arbitral proceedings easy. Parties involved should not be misusing it to hamper the proceedings. In the case of ITI Ltd v. Siemens Public Communications Network Ltd, it was decided that provisions of the Code of Civil Procedure, 1908 had to be taken into consideration while deciding an application under section 9.
Judicial Intervention after Proceedings:
Section 34 of the Act states the Application for setting aside the arbitral award. It specifies that Judicial intervention is prohibited but also provides the special circumstances where an arbitral award can be set aside by a court i.e., the exceptions to it. Section 34(2)(a) provides certain grounds on which the courts can set aside an arbitral award, conditions being that:
- The party was under some incapacity;
- The arbitration agreement is not valid in accordance with the law to which it was subjected by the parties to the agreement;
- Proper notice of the arbitrator’s appointment or the proceedings was not given;
- The dispute did not fall within the terms of those which could be submitted to arbitration or the award contains a decision beyond the scope of the arbitration; or
- The tribunal was not composed in accordance with the parties’ agreement.
The Apex Court in Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd. has held that the courts should not interfere with an award merely because an alternative view on facts and interpretation of contract exists. The Courts need to be cautious and should defer to the view taken by the arbitral tribunal even if the reasoning provided in the award is implied unless such award portrays perversity unpardonable under Section 34 of the Act, 1996.
The Apex Court has also held that the Court’s intervention in the Arbitration Proceedings should be limited because when the parties opt for a mechanism of Alternative Dispute Resolution like Arbitration, they choose to exclude the jurisdiction of the Courts because they prefer the convenience and finally it provides.
In McDermott International Inc. v. Burn Standards Co. Ltd. The Apex Court held that the Courts have supervisory power to set aside the arbitral award in the specific circumstances mentioned in section 34 of the Act, 1996. The Court can’t correct the errors made in the award but it can only set aside the arbitral award.
Under Section 34(2)(b) of the Act, the courts may also set aside an award if:
- The subject matter of the dispute cannot be settled by means of arbitration; or
- The arbitral award conflicts with the public policy of India.
The grounds are given in section 34(2)(a) are so precise that the courts cannot widen their scope to meddle with the arbitral awards. The only ambiguous phrase in this section is ‘public policy of India’. It leaves itself out to interpretation which has caused it to become the subject of judicial intervention.
What goes against ‘public policy’ and the grounds to set aside an award has raised hurdles for jurists. The term is not defined in the Act or any other law which gives the scope of various interpretations and judicial scrutiny. In 1824, Justice Burrough said, “Public Policy is a very unruly horse and once you get it and ride it you never know where it will carry you.” Indian judiciary has also dubbed it an ‘unruly horse’ which implies that it can never be defined. However, some judges have tried to give structure to this concept with respect to setting aside an award. For that reason, it is important to analyze the Supreme Court’s landmark decisions in Renusagar Power Co. Ltd. v. General Electric Co and ONGC Ltd. v. Saw Pipes Ltd.
In Renusagar Power Co. Ltd. v. General Electric Co., the apex court held that an award against public policy would be an award that was passed in contravention of-
- The fundamental policy of Indian law;
- The interests of India;
- Justice and morality.
In 2003, the scope of public policy was enlarged by the apex in ONGC Ltd. v. Saw Pipes Ltd. The court explained that the term “public policy” refers to an issue involving the public good and public interest that changes over time, and so added a new ground of “patent illegality” to the grounds listed in Renusagar’s case.
This triggered a deluge of litigation under section 34, as any award including a statutory provision error could now be challenged. The court then analyzed the meaning of “fundamental policy of Indian law” in ONGC v. Western GECO International Ltd. The court went on to interpret “fundamental policy of Indian law” to include three distinct heads:
- Duty of the tribunal to adopt a judicial approach
- Adhering to the principles of natural justice.
- The tribunal’s ruling should not be twisted or unreasonable to the point where no reasonable person would reach the same conclusion.
In addition, the court ruled that the award was a “miscarriage of justice” that might be overturned or modified.
The court further clarified the extent of interpretation of “most basic norms of justice and morality” in Associate Builders vs. Delhi Development Authority . When an award is such that it would shock the court’s conscience, it can be set aside on the same grounds.
Courts have recently refrained from assigning wide interpretations to the term “public policy” following the 2015 amendment. “The award of an arbitral tribunal can be set aside only on the grounds enumerated in section 34 of the AAC Act and no other ground,” the court stated in Venture Global Engineering LLC and Ors. v. Tech Mahindra Ltd. and Ors. . Sutlej Construction v. The Union Territory of Chandigarh , for example, took a similar stance.
As a result, the term “public policy” under section 34 of the Act was undoubtedly ambiguous, as the supreme court read it. In 2018, the Supreme Court held that “the expression “public policy” under section 34 refers to both, central as well as state laws.” However, allowing for more involvement than is necessary will destroy the objective of arbitration, and every other award will be challenged in court as a result.
Is judicial intervention in arbitration justified
The Act, 1996 gives autonomous power to the parties to appoint the arbitrator or arbitrators of their choice by entering into an arbitration agreement. The court will refer the parties to the arbitrator panel/bench before intervening in the dispute if any. The Judicial Intervention was included in the Act just to protect the rights of the party, keep an eye on the action of arbitrators, and fairness in delivering justice.
Domestic arbitrations are the most common in India. As a result, any foreign element is in short supply. The government and similar agencies merely become adversarial parties. The arbitrators designated by the center are government workers who may be prejudiced in favor of one party or the other for a variety of reasons. Politics, power, and money can all be used to buy justice. It’s also simpler in arbitration proceedings because they’re more informal in nature, and arbitrators are frequently unfamiliar with how to efficiently handle arbitration proceedings. The idea of arbitration law does not match the reality of the legal system. As a result, its objective is defeated.
Many times, the representatives of the parties also do not well versed with the procedure of the arbitration proceedings and they follow it the same way as litigation and it defeats the aim and object of the Act. The Majority of Arbitrators appointed by the Courts under section 11 of the Act are retired judges, and they rely on long-standing procedures and submissions based on their experience behind the bench, resulting in a long and arduous process similar to court proceedings. Thus, arbitration ends up involving issues, oral and documentary evidence, chief and cross-examination, and so on.
Thus, when the aim and object of the Act itself would not be protected or followed by its followers then injustice will occur to the common man and he will knock on the door of the Court to seek Justice. Hence, the intervention done by Courts to protect the right of a party, in delivering justice and achieving the aim or object of the Act is JUSTIFIED.
Alternative Dispute Resolution is a whole new concept in the Indian legal system and in the present time it is popularizing day by day to overcome the burden of pending cases in Indian courts. The Arbitration method gives liberty to the parties to choose an arbitrator, according to their choice, to resolve the dispute.
Although arbitration is a wholly independent dispute resolution system, the courts can intervene in the arbitration proceedings but in a very limited scope, as mentioned in Arbitration Act, 1996. The courts play a supervisory role to regulate a fair and equitable way to provide justice to aggrieved parties. The court’s intervention can be justified by saying that it protects the rights of the parties or it puts eyes on the arbitration proceedings to prevent any injustice.
In actuality, if the current Indian scenario is taken into account, judicial intervention is appropriate. Where the arbitrators appointed by the center are government workers who are likely to be biased for one reason or another, and where retired judges are frequently appointed as arbitrators who, due to extended tenures on the Bench, have become accustomed to onerous procedural and evidence standards. However, judicial interference dilutes the core goal and objective of arbitration, making it necessary to choose a middle-ground approach, which is attainable with sufficient numbers of qualified, trained, and honest arbitrators as well as well-equipped arbitral institutions. For the future success of arbitration in India, the availability of qualified, trained, and honest arbitrators, as well as well-equipped arbitral institutions, is critical. If there is a growing belief that by opting for arbitration over litigation, parties have significantly reduced their odds of receiving high-quality justice, arbitration’s future is doomed.
The inculcation of arbitration among the key players i.e., the bar, the Bench, the arbitrators, arbitral institutions, and consumers of arbitration is necessary to display the honest commitment towards arbitration and to prevent it from becoming ‘banal’. An honest and more attractive arbitration mechanism has to be developed.
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