In this blog post, Aditi Sampat, Advocate at Nabco Enterprises Pvt Ltd and a student of the Diploma in Entrepreneurship Administration and Business Laws by NUJS, discusses the stages wherein court intervention is possible during the process of arbitration. 

Brief History of Arbitration Law in India

Arbitration has a long considerable history in India. In ancient times, people often voluntarily submitted their disputes to a group of wise men of a community—called the panchayat—for binding a resolution. Modern arbitration law in India was created by the Bengal Regulations in 1772, during the British rule which provided for reference by a court to arbitration, with the consent of the parties, in lawsuits for accounts, partnership deeds, and breach of contract. Until 1996, the law governing arbitration in India consisted mainly of three statutes:

1. The 1937 Arbitration (Protocol and Convention) Act,
2. The 1940 Indian Arbitration Act, and
3. The 1961 Foreign Awards (Recognition and Enforcement) Act.

The provisions and the processes followed under the Arbitration Act of 1940 could not be relied upon since it afforded multiple opportunities to approach the Court for intervention.

The Government of India, in an attempt to modernize the outdated 1940 Act, enacted the Arbitration and Conciliation Act 1996. The 1996 Act is a comprehensive piece of legislation on the lines of UNCITRAL Model Law. The primary purpose of the Arbitration Act 1996 was to encourage arbitration as a cost-effective and quick mechanism for the settlement of commercial disputes both on the domestic as well as international front.

The primary objective of the 1996 Act as set out in the Statement of Objects and Reasons are:

1. To minimize the supervisory role of courts in the arbitral process.
2. To provide that every final arbitral award is enforced in the same manner as if it were a decree of the Court. 

UNCITRAL Model Law and Arbitration and Conciliation Act, 1996

The United Nations Conference on International Trade Law (UNCITRAL) – Model Law is perhaps the most important step in the development of the supportive, modern approach which has now been adopted in some form or another in over 60 countries.

Article 5 of the Model Law significantly limits the occasions for Court intervention in arbitral matters as mentioned below:

“In matters governed by this law, no Court shall intervene except where so provided in this law.”

The Parliament enacted the new law on arbitration and conciliation in the year 1996 which is based on the UNCITRAL Model Law and Rules.

The 1996 Act, which repealed the 1940 Act, expressly mentions that foreign awards shall be passed based on the Geneva Protocol and Convention and the New York Convention. The 1996 Act is unique in its nature since it contains comprehensive provisions on domestic arbitration, conciliation, international commercial arbitration, conciliation and recognition and enforcement of foreign awards basing on the Geneva and New York Conventions.

The main objectives of making this legislation are:

• To comprehensively cover international and commercial arbitration and conciliation as also domestic arbitration and conciliation;
• To make provision for an arbitral procedure which is fair, efficient and capable of meeting the needs of the specific arbitration;
• To provide that the arbitral tribunal gives reasons for its arbitral award;
• To ensure that the arbitral tribunal remains within the limits of its jurisdiction;
• To minimize the supervisory role of courts in the arbitral process;
• To permit an arbitral tribunal to use mediation, conciliation or other procedures during the arbitral proceedings to encourage settlement of disputes;
• To provide that every final arbitral award is enforced in the same manner as if it were a decree of the court;
• To provide that a settlement agreement reached by the parties as a result of conciliation proceedings will have the same status and effect as an arbitral award on agreed terms on the substance of the dispute rendered by an arbitral tribunal; and
• To provide that, for purposes of enforcement of foreign awards, every arbitral award made in a country to which one of the two International Conventions relating to foreign arbitral awards to which India is a party applies, will be treated as a foreign award.

Provisions of the Arbitration and Conciliation Act, 1996

The Arbitration and Conciliation Act 1996, is a composite piece of legislation. Part I dealing with the provisions regarding Domestic and International Commercial Arbitration and Part II dealing with provisions regarding enforcement of foreign awards are the most significant provisions of the Act.

Hence, all arbitrations conducted in India would be governed by Part I irrespective of the nationalities of the parties. Thus, it can be held that Part I is more comprehensive and contains extensive provisions based on Model Law.

Pertinent provisions of Part I are:

1. Process for arbitration of disputes.
2. Non-intervention by Courts.
3. The composition of the arbitral tribunal.
4. Conduct of arbitration proceedings.
5. Recourse against Arbitral Awards.
6. Enforcement.

Part II of the Act is mainly concerned with the Enforcement of Foreign Awards which is governed by the New York Convention or the Geneva Convention. Due to its very nature, Part II is not a complete code.

The Supreme Court of India creatively interpreted the Act in the case of Bhatia International vs. Bulk Trading¹ and held that the general provisions of Part I would apply to off-shore arbitrations unless the party expressly or impliedly excluded the applicability of the same. This judgment was premised on the assumption that the Indian Courts would otherwise have jurisdiction over the matter in an international sense.

Subsequently, the Supreme Court of India in the case of Shreejee Traco (I) Pvt Ltd vs. Paperline International Inc², where the Court declined to exercise jurisdiction relating to appointment of an arbitrator in an offshore arbitration. A direct effect of the decision was that Indian Courts would have first to determine whether they have jurisdiction in the International sense.

Stages at which Court Intervention is possible during Arbitration

The following are the stages wherein Court intervention is possible during Arbitration –

• Making reference to a pending suit – Section 8 of the Act refers to the power of the judicial authority to refer the parties to arbitration where there is an arbitration agreement. This provision encourages parties to resort to arbitration instead of settling the dispute through the Court. If one of the parties approaches the Court in spite of the existence of the arbitration agreement, the other party can make an application, and the court can pass an order to refer the parties to arbitration. Hence, there are four conditions to be satisfied namely:
  • There should be arbitration agreement,
  • A party to the agreement brings an action before the court against the other party;
  • The subject matter of action is the same as the subject matter of the arbitration agreement
  • The other party moves the court for referring the parties to arbitration it submits its first written statement on the substance of the dispute.

• Passing of interim orders – Section 9 of the 1996 Act pertains to the interim relief which may be sought by a party before or during an arbitral proceeding or at any time after making the award, but before enforcement of the award. The provisions of Section 9 are in agreement with Article 9 of the UNCITRAL Model Law. 

The purpose for which interim relief may be sort by the Court are:

• For the appointment of a guardian for a minor or a person of unsound mind for Arbitral Proceedings
• For an Interim measure of protection in respect of any of the following matters, namely:-
  • the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement
  • Securing the amount in dispute in Arbitration.
  • The detention, preservation or inspection of any property or thing which is the subject-matter of dispute in arbitration.
  • Any question which may arise therein and authorizing for any of the purposes above, any person to enter upon land or building in possession of any party.
  • Authorizing 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 measure of protection as may appear to the court to be just and convenient.

The Court has the power to issue interim orders in the same manner as it issues orders in a civil suit, barring the staying or suspending the arbitration proceeding during the period when the application for interim reliefs is pending. Noteworthy is the fact that, the application for interim relief can be made even before the commencement of the arbitration proceedings subject to the satisfaction of the Court that there exists a valid arbitration agreement and that the applicant intends to settle the dispute through arbitration. Also, the Court can also order Interim reliefs and measures in the case of International Commercial Arbitration where the place of arbitration is outside India.

References:

¹(2002) 4 SCC 105

²(2003) 9 SCC 79

Sources

1. http://www.kaplegal.com/upload/pdf/arbitration-law-india-critical-analysis.pdf
2. http://ijsard.org/index.php/role-of-court-before-and-during-arbitration/
3. https://ipba.org/media/fck/files/Arbitration%20in%20India.pdf