This article is written by Gauri Gupta. It aims to provide for an in-depth understanding of Article 5 of the Arbitration and Conciliation Act, 1996 highlighting the key developments in the landscape. It highlights the basics of Section 5 of the Act, the circumstances in which judicial intervention is permissible and the scope of judicial intervention through their writ jurisdiction along with landmark case laws. 

Introduction 

The Arbitration and Conciliation Act, 1996 (“Act”) is an important legislation when it comes to coordinating domestic and international arbitration practices in India in consonance with the globally laid down norms and standards. These include the United Nations Commission on International Trade Law (“UNCITRAL”) Model Rules of 1985, the New York Convention of 1958, and the Geneva Conventions of 1949. The Act was enacted with the object of consolidating and amending the laws with respect to arbitration and conciliation laws in India. 

The Act is based on the principle of fairness and efficiency. The Act is a significant legislation as it provides for Alternative Dispute Resolution (ADR) mechanisms to ensure speedy and efficient mechanisms for ensuring dispute resolution in India. The Act has undergone certain amendments to ensure that they are in consonance with the best practices laid down across the globe. These amendments were enacted with the sole objective of ensuring minimal intervention by the judiciary, for promoting alternative mechanisms for dispute resolution, and to employ alternative methods such as arbitration and medication for speedy dispute resolution. 

Arbitration is considered to be one of the most efficient methods of dispute resolution and stands on the rock of party autonomy and minimal intervention by the judiciary. This principle of minimal interference by the judiciary is embedded in Section 5 of the Act and is primarily focused on ensuring the autonomy of the parties to the dispute. The principle ensures not only minimal judicial interference, but is also crucial as it safeguards the inherent integrity of the arbitration process. 

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The aim of the article is to provide an understanding of the key essentials of Section 5 of the legislation by highlighting the key developments and landmark judgements in the domain. 

Section 5 of Arbitration and Conciliation Act, 1996

Section 5 of the Arbitration and Conciliation Act provides, “Extent of Judicial Intervention: 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.”

Section 5 of the Act stipulates the extent of interference by the judiciary in arbitration  proceedings. It provides for restricting the judicial intervention to certain specific scenarios. The objective and purpose behind the provision is to ensure that the object of the Act is upheld which provides for ensuring speedy and efficient dispute resolution mechanism by promoting alternative mechanisms such as arbitration and conciliation instead of the traditional methods of resolution. 

It is often considered that Section 5 of the Act is restrictive in nature. However, it is to be considered as a provision limiting and not restricting the scope of intervention by the courts of law in matters related to arbitral proceedings and arbitral awards. The objective behind the provision is to ensure that the parties to the dispute do not approach the courts in every case where they are dissatisfied with the awards that have been passed which in turn defeats the purpose of the law. 

Concept of no judicial intervention in arbitration

The 1996 Act was enforced by the Indian Legislature with a clear intention of providing an alternative mechanism for the resolution of disputes in India to reduce the burden on the traditional courts. Furthermore, the Parliament’s objective behind enacting the provision was to minimise judicial intervention in arbitration to ensure that the process is final and expeditious. 

The concept of minimal or no judicial intervention in arbitration is based on the idea that when then the disputing parties agree to settle their disputes amicably through an arbitration process, they should have the autonomy to do so without any unnecessary interference from the traditional court system. The principle enshrined under Section 5 of the Act provides for non-interference by the judiciary to ensure efficient arbitral processes. 

The limitation on the courts is crucial not to ensure that the process of arbitration is not undermined by the conflicting parties but also to promote their confidence in the process of arbitration which is crucial for the establishment of a viable alternative to traditional litigation.

Meaning of the term “judicial authority”

The term “judicial authority” and “court” are interchangeably used in legal parlance. However, the term “judicial authority” has a wider connotation than the term “court.” The difference between both the terms is crucial for interpreting Section 5 of the Arbitration and Conciliation Act, 1996.

In the landmark judgement of the Management Committee of Montfort Sr Sec School v Vijay Kumar 2005, the Supreme Court of India upheld the decision of the Delhi High Court which clarified the scope of the term “judicial authority” under Section 8(1) of the Arbitration and Conciliation Act, 196. In this case, the Delhi High Court explained that the term “judicial authority” under Section 8(1) of the 1966 Act encompasses all such authorities and agencies conferred with judicial powers under various legislations. In other words, the term “judicial authority” is inclusive of not only the law courts but also of authorities responsible for discharging functions and exercising authority which is similar to those of the traditional courts.

The distinction is important as it expands the scope of the bodies that are subject to the restriction stipulated under Section 5 of the Act. 

Meaning of “except where so provided in this Part”

The phrase “except where so provided in this Part” is indicative of the nature of Section 5 of the 1996 Act. The provision does not provide for a blanket prohibition on judicial intervention but rather stipulates certain specified circumstances wherein such interference is permissible. In other words, Part I of the Act provides for certain instances wherein minimal judicial intervention in cases of domestic arbitration is allowed to maintain the integrity of the proceedings and to ensure that courts can provide necessary support for an efficient arbitration process. 

Judicial interference is allowed under the Act in the following cases:

  1. Section 8: Court can refer the disputing parties to arbitration if there is an arbitration agreement between them.
  2. Section 9: Courts have the power to issue interim orders.
  3. Section 11: The Supreme Court of India and High Courts have the power to appoint arbitrators.
  4. Section 14(2): Discretion of either of the disputing parties to apply to the court to terminate the mandate of the arbitrator.
  5. Section 27: Arbitral tribunals can seek the assistance of the courts in taking evidence. 
  6. Section 34: Courts have the power to set aside an arbitral award on certain specified grounds stipulated in the provision.
  7. Section 36: Enforcement of an arbitral award
  8. Section 37: Parties can approach the court to file an appeal against certain orders at various stages provided for in the provision. 

Judicial intervention in arbitral proceedings

The judiciary can interfere in arbitration proceedings in certain specified circumstances mentioned above. Let us dive deeper into the concept of judicial intervention by dividing the same into the following stages:

Judicial intervention before the commencement of arbitration proceedings

The Arbitration and Conciliation Act, 1996 was enacted with the objective of facilitating speedy dispute resolution outside of the traditional courts. Section 5 of the Act plays a crucial role in this by restricting the intervention of the judiciary in arbitration proceedings. This principle is similar to a rule laid down in the UNCITRAL Model law and is further inspired from the English Arbitration Act.

The intention of the Parliament behind Section 5 was to minimise judiciary involvement in arbitration. The provision was drafted with the intention of achieving the dual objective of accelerating justice and establishing a cost-effective alternative dispute resolution mechanism. The inclusion of the non-obstante clause in Section 5 further solidifies that judiciary’s interference is not permissible. 

While judicial interference is permissible to some extent, it is limited to initiating the arbitral process. 

Section 8 of the Act empowers the judicial authority to refer the disputing parties to arbitration. However, the same is subject to an arbitration agreement between them. An application for the same can be made by either of the parties to the dispute at any time before his first statement on the substance of the dispute. Further, such an application has to be accompanied with the original arbitration agreement and a duly certified copy. The provision is mandatory in nature and the same has been affirmed by the Supreme Court in the case of Hindustan Petroleum Corporation Ltd. v. Pinkcity Midway Petroleums 2003. In this case, the court observed that where there is a clause for arbitration in an agreement between the parties to the dispute, it is mandatory for the court to refer the dispute to the arbitrator.

Section 8(3) of the Act states that the pendency of an application for referring the disputing parties to arbitration does not prevent the commencement, continuation, or passing of an arbitral award. It implies that judicial intervention under Section 8 does not hamper the disposal of dispute through ADR mechanism. 

Judicial Intervention during the arbitration proceedings

Section 9 of the Act empowers the courts to grant interim relief in arbitration proceedings. Section 9(1) of the Act provides for certain conditions pursuant to which one can approach the Court for interim measures. This power of the Court can be exercised before, during, and after the arbitration procedure or immediately after the arbitral award has been passed. As per sub-section (1), an individual may file an application to appoint a guardian for a minor individual or a person of unsound mind. 

Furthermore, the provision provides for a list of conditions under which the Court may provide an interim relief. This includes interim relief to preserve, interim custody or sale of goods which are a subject matter of the arbitration agreement, interim relief to secure the amount in the dispute and interim relief in case of property related disputes wherein a person enters the building or land in possession of other parties. Apart from these, the Court has the discretion to provide interim protections as it may deem fit.

Section 11 of the Act provides for the appointment of arbitrators in an arbitration proceeding. It empowers the parties to choose the arbitrators themselves by agreeing upon the procedure for their appointment. In case the parties are not able to agree upon the appointment of the arbitrators, Section 11 through sub-section (4), (5) and (6) to approach the Supreme Court or the High Court for such appointments. It is pertinent to note that the provision does not prescribe for any limitation period within which an application for the appointment of an arbitrator has to be filed.

Section 14 of the Act provides for a mandate stating that an arbitrator shall terminate and be substituted by another arbitrator if he is not able to perform his functions or for some reason fails to act without undue delay and withdraws from this office or the parties agree to the termination of his mandate. Section 14(2) of the Act provides that if there is a conversing regarding these grounds, the party is empowered to apply to the Court to decide on the termination of the matter.

As per Section 27 of the Act, the arbitrators are empowered to make an interim order unless there is a different intention in the arbitration agreement. 

This power under Section 9 of the Act is similar to the power of the arbitrator to grant interim measures for protecting the rights of the party under Section 17 of the Act. In order to avail the benefit of interim protection, a party has to show that a prima facie case and present strong arguments as to how they will suffer irreparable harm in case the relief is not granted. The court has to adjudicate and strike a balance of convenience by measuring how the relief would affect both the disputing parties. 

In simpler words, Section 9 of the act grants the power to provide temporary relief to the courts. An application under Section of the Act is completely different from a lawsuit and does not arise from a contract between the disputing parties. In the case of M/s Sundaram Finance Ltd. v. M/s N.E.P.C. India Ltd (1999), the Supreme Court of India clarified the objective behind the provision and held that Section 9 was enacted to ensure uninterrupted progress in an arbitral proceeding. The provision should not be misused by the disputing parties for their benefit.

Judicial intervention after the arbitration proceedings

Judicial interference also occurs after the conclusion of arbitration proceedings. Parties in an arbitration proceeding can challenge an arbitral award by filing an application under Section 34 of the 1996 Act to set aside the arbitral award passed by the arbitrator. The provision provides for specific grounds on the basis on which an award can be challenged. It is pertinent to note that the provision does not provide for an appeal against the decision of an arbitrator, but is a way to ensure that the courts stay within their role as has been defined by the court.

Section 34(2)(a) of the Act lays down certain grounds which are to be established to set aside an arbitral award. These include:

  • Incapacity of either of the parties to the dispute.
  • The arbitration agreement is invalid as per the law for the time being in force to which the parties to the agreement is subject to.
  • A proper notice with respect to the appointment of the arbitrator or the arbitration proceedings was not issued to the party applying for setting aside the arbitral award.
  • The arbitral award addresses a dispute which was not a part of the arbitration agreement or goes beyond the scope of the submission to arbitration.
  • The arbitral tribunal was not composed in accordance with the agreement between the parties.

An application to set aside an arbitral award under Section 34 of the Act does not lie on any other ground except as has been mentioned in the provision itself. It is also crucial to note that an arbitral award is considered to be final and binding on the parties who are claiming under it, as per Section 35 of the Act.

The Supreme Court in the landmark case of Dyna Technologies Private Limited v. Crompton Greaves Limited 2009 observed that courts should not intervene with an arbitral award on the ground that an alternative view on certain aspects of a contract exists. Further, in the case of McDermott International Inc. v. Burn Standards Co. Ltd. 2006, the Supreme Court held that the court does not have the authority to correct the errors in the arbitral award. However, they do have the authority to set aside the arbitral award. This implies that the courts can exercise supervisory powers under the specific circumstances stipulated under Section 34 of the Act. The court has the power to set aside the arbitral award under Section 34(2)(b) of the Act if:

  • The subject matter of the dispute is not capable of settlement through arbitration, or
  • The arbitral award is in conflict with the public policy of the country.

An explanation was inserted to Section 34 by way of an amendment in 2015 which provides clarity of when an arbitral award is considered to be in conflict with the public policy of India. It is said to be in conflict with the public policy of India in case:

  • An award is induced or affected by fraud or corruption or is in violation of Section 75 and Section 81 or;
  • An award is opposed to the fundamental policy of the laws of India; or
  • An award is in conflict with the notions of morality or justice.

Although the term ‘Public Policy’ is not defined under the Act, the Supreme Court of India has laid down the scope of the term in the case of Renusagar Power Co. Ltd. v. General Electric Co. (1993) and ONGC Ltd. v. Saw Pipes Ltd. (2016). In the case of Renusagar Power Co. Ltd. v. General Electric Co. (1993), the Apex Court observed that an award is considered to be contrary to public policy if it is opposed to:

  1. Fundamental Policy of India;
  2. Interests of India; or
  3. Justice and Morality.

Furthermore, in the case of ONGC Ltd. v. Saw Pipes Ltd. (2016), the Supreme Court described the scope of public policy and defined it as an issue pertaining to public good and public interest which is subject to various changes over time. 

Judicial intervention in appealable orders

arbitration

Section 37 of the Act provides that there are certain orders under the Act against which an appeal lies before the courts. Appeals can lie in the following two cases:

Appeals from the orders of the court

As per Section 37(1) of the Act, an appeal shall lie to a court authorised by law for the time being in force to hear appeals from original decrees of a court that passed the order in the following cases:

  • Refusal to refer parties to arbitration under Section 8;
  • Granting or refusing to grant any interim measures under Section 9; or
  • Setting aside or refusing to set aside an award under Section 34.

Appeals from the orders of the arbitral tribunal

Section 37(1) of the Act provides that an appeal can be filed against certain specific orders passed by the arbitral tribunal. These orders include:

Furthermore, as per Section 37(3) of the Act, a second appeal cannot be preferred against an order passed in an appeal.

Writ jurisdiction and judicial intervention in arbitral proceedings by the High Courts

The authority to issue writs under Article 226 of the Indian Constitution is broad in nature and is not restricted by the provisions of any law. The Supreme Court in the landmark case of L.Chandra Kumar v. Union of India (1994) observed that the power of judicial review under the Indian Constitution is a part of the basic structure doctrine and cannot be eliminated by any law for the time being in force. However, the courts have evolved certain restraints on themselves, including the rule of exclusion as per which the courts would refrain from exercising their power under Article 226 of the Constitution if an alternative and effective remedy is available under a statute.

In the case of Bisra Lime Stone Co. Ltd. and Anr. v. Orissa State Electricity Board and Anr (1975), the Supreme Court observed where an arbitration agreement exists between the disputing parties, it is the duty of the arbitrator to decide and adjudicate upon the disputes and issues between the contracting parties. The rationale behind the same is that the court has the discretion under Section 34 of the Arbitration Act and Article 226 of the Indian Constitution and is better equipped to decide the same.

Instances where High Courts can exercise writ jurisdiction in arbitration agreements

There are certain exceptions to the above laid down rule wherein the courts are empowered to exercise writ jurisdiction under Article 226 of the Indian Constitution even in circumstances where an arbitration agreement exists between the disputing parties. In extraordinary circumstances wherein the constitutionality of a statutory provision is under scrutiny, the existence of an arbitration agreement between the parties will not be a bar to deciding the issue in writ proceedings.

In the case of Union of India & Ors. v. Tantia Constructions (P) Ltd. 2011, the Supreme Court observed that even in case a contract with an arbitration clause exists between the parties, there would not be an absolute bar to invoke an alternative remedy of writ proceedings before the High Courts or Supreme Court. The power of the Supreme Court or various High Courts cannot be fettered due to the existence of an alternative remedy. The courts are empowered to exercise their writ jurisdiction in case of violation of principles of natural justice and rule of law.

Similarly, in the case of U.P. Power Transmission Corporation Ltd. v. CG Power and Industrial Solutions Ltd. 2020, the Supreme Court clarified that the existence of an arbitration clause in an agreement between the disputing parties does not prohibit the courts of law from exercising the writ jurisdiction.

Doctrine of separability and instances of judicial intervention

The doctrine of separability was evolved to present challenges to an arbitral award on the ground that the contract between the disputing parties was invalid. The doctrine stipulates that an arbitration clause in a contract is separate and independent from the parent contract. This implies that the arbitration clause is considered on a different footing than that of the contract.

Recognised under Section 16 of the Act, the doctrine of separability supports that the challenges pertaining to the validity of the main contract do not invalidate the arbitration agreement. The Delhi High Court in the case of Union of India v. Alcon Builders and Engineers Pvt. Ltd (2023) set aside an arbitral award based on the doctrine of separability and observed that this approach is in consonance with the principle of minimal judicial interference as provided under Section 5 of the Arbitration and Conciliation Act, 1996.

The doctrine of separability allows the arbitral tribunal to independently examine the challenges to its own jurisdiction. This plays a vital role in supporting the legislative intent behind Section 5 of the Act, which provides for limiting judicial intervention in arbitration proceedings.

However, this doctrine has not been consistently applied in India. One such instance was the case of Union of India v. Jagdish Kaur 2004 wherein the Supreme Court observed that the contract between the disputing parties was void, therefore, rendering the arbitration clause void as well.

Recently, there has been a shift with respect to the doctrine and the courts are seen favouring it. In the case of Vidya Drolia & Ors. v. Durga Trading Corporation 2019, the Supreme Court observed that as per the arbitration clause in the landlord tenant agreement, the dispute would be referred to an arbitrator. The Supreme Court made reference to Section 8 and 11 of the Arbitration and Conciliation Act, 1996 highlighting its power to refer the disputes to an arbitration and the power of the Courts to refer a matter to arbitration for speedy and efficient redressal of the disputes. The Court also observed that the same cannot be possible in case the disputing parties establish the absence of an arbitration agreement. Furthermore, the Supreme Court also observed that the Courts should refer the matter to arbitration even in cases where the validity of the arbitration agreement cannot be determined prima facie. In such cases, it is the duty of the Court to consider its legality. Hence,  If the Court cannot rule on the invalidity of the arbitration agreement on a prima facie basis, then the Court should stop any further analysis and simply refer all the issues to arbitration to be settled.

Judgements surrounding Section 5 of Arbitration and Conciliation Act, 1996

Rex v. London County Council (1931)

In the case of Rex v London County Council (1931), it was observed that the term “judicial authority” does not necessarily refer to a Court of law. Rather, it includes every authority which is exercising judicial functions after evaluating the evidence.

Parsam Homes v. Mr. Anil Sahai (2014)

In the case of Parsam Homes v. Mr. Anil Sahai (MANU/AP/1248/2014), it was observed that the use of the term “judicial authority” under Section 5 of the Act does not in any way refer to arbitrations conducted outside India. In other words, the term is not a recognition of the application of Part I of the Act to international arbitrations held outside India.

Re: Interplay between arbitration agreements under the Arbitration and Conciliation Act 1996

In the landmark case of Re: Interplay between arbitration agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1889 (2023) the issue before the Supreme Court was whether an arbitration agreement be considered unenforceable or invalid if the underlying contact is not stamped. The seven judge bench of the Apex Court observed that the primary objective of the Arbitration Act was to minimise judicial intervention in arbitral proceedings. Moreover, Section 5 of the Act provides for limiting the role of the courts from dealing with the rights of the parties unless the same has been expressly provided for in the Act. Thus, if the court mandates the issue of stamping, the same will render the legislative intent behind the provision void.

Conclusion

The rationale behind enacting the infamous Arbitration and Conciliation Act, 1996 was to ensure speedy and efficient mechanisms for dispute resolution, thereby minimising the interference by the courts of law. However, the reality to the same is the intervention by the traditional court system by minimising the intervention by the traditional courts. Therefore, there is a significant amount of judicial activism in the domain. 

Section 5 of the 1996 Act aims to minimise the interference by the judiciary in arbitration proceedings. The objective behind the provision is to promote effective and efficient dispute resolution through alternative dispute resolution mechanisms. Often viewed as a restrictive provision, Section 5 enhances the autonomy of the parties to the dispute. Aligned with the best international practices of arbitration, Section 5 plays a pivotal role in not only reducing the burden of the courts but also in establishing a framework for speedy and efficient dispute resolution mechanism. 

Thus, the courts are responsible to act as the administrator and should not extend their role beyond the same. Doing so not only defeats the purpose of the provision, but also the objective of the Act itself. 

Frequently Asked Questions (FAQ’s)

Why is Section 5 of the Arbitration and Conciliation Act, 1996 important?

The 1996 Act, especially Section 5 of the Act is of great importance. This is because the provision is based on the principle of limiting the interference by the judiciary in the arbitral processes. This is important since it upholds the principles of party autonomy, thereby ensuring speedy and efficient resolution of disputes, which in turn upholds the objective of the 1996 Act.

Is there an absolute prohibition on judicial intervention?

No, there is no absolute restriction on the interference by the judiciary when it comes to arbitral processes and proceedings. The same is evident from certain specific circumstances wherein the courts of law can intervene in the proceedings. These include referring the disputing parties to arbitration (Section 8), granting them interim measures (Section 9), appointing the arbitrators (Section 11) and setting aside the awards passed by the arbitrator (Section 34).

Can a court set aside an arbitral award?

A.3. Yes, the courts have the power to set aside an award passed by the arbitrator under Section 34 of the Act on certain specified grounds including incapacity of the party, invalidity of the arbitration agreement, or if the arbitral award is opposed to public policy.

Can the disputing parties challenge an arbitral award if they are dissatisfied with the same?

A.4. Yes, the disputing parties are empowered to challenge an arbitral award if they are dissatisfied with the same. They can do so by enforcing Section 34 of the Act. There are certain specific cases wherein it can be challenged. This includes incapacity, invalidity of the agreement, or if the award is beyond the scope of the agreement between the parties

Why is the doctrine of separability crucial in case of an arbitration?  

A.5. The doctrine of separability is crucial in the case of arbitration. It provides that an arbitration clause in a contract is considered to be separate and independent from the main parent contract. The doctrine is crucial in cases where the contract is considered to be invalid, since in those cases the arbitration clause, being independent from the contract, cannot be invalidated. The doctrine is crucial to uphold the object of the Arbitration and Conciliation Act, 1996.

Can the disputing parties approach the High Courts under Article 226 of the Indian Constitution in matters pertaining to arbitration?

Yes, the disputing parties are empowered to approach the High Courts in exercise of their writ jurisdiction under Article 226 of the Constitution of India. However, the same is permitted in certain exceptional matters wherein the constitutionality of the statute or provision is under judicial scrutiny.

References

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