judicial intervention in arbitration

Arbitration is a process of settling disputes in the commercial sphere and is well known to the Indian system of justice. It is an old practice through which the panchayats in villages would settle disputes between the parties. The main objective of the Arbitration Act is to minimize the supervisory role of courts in the arbitral process and to provide that every final arbitral award is enforced in the same manner as if it were a decree of the Court.
The courts shall not interfere in arbitral proceeding is one of the fundamental theme underlying the Act. Indeed the Act contemplates three situations where judicial authority may intervene in arbitral proceedings. These are:
I.) Appointment of arbitrators, where the parties’ envisaged method for the same fails
II.) Ruling on whether the mandate of the arbitrator stands terminated due to inability to perform his functions or failure to proceed without undue delay
III.) Assist in taking evidence
All the above three situations provide the judiciary (courts) backdoor entry to interfere in arbitration matters. Growth of Arbitration in India:
Litigation in India is generally time-consuming and expensive. Civil courts in India are typically bogged down with delaysAn estimated backlog of 30 million cases and routine delays to dispose of a single case has severely undermined public confidence in the rule of law. In this situation, Arbitrations are becoming increasingly popular & affords parties the hope of avoiding the judicial system. There are other reasons to support recourse to arbitration too. For international transactions, arbitration offers the hope of reducing bias and the prospect of parallel lawsuits in different countries. There may also be the expectation (warranted or not) of confidentiality, speed and expertise.
Just as the proof of the pudding lies in the eating, the efficacy of any legislation must be judged by its implementation. Unfortunately, insofar as the 1996 Act is concerned, the reality has been far removed from the ideals professed by the legislation. The current practice is certainly a far cry from that envisaged by the objectives of the Act.
The general assumption is that arbitral awards should be final and binding, and open to limited challenge before the Court.
But what is the basis of “Limited Challenge”? The Theory behind this is that Arbitration is a manifestation of party autonomy. It is a consensual process, being the subject matter of agreement. When two parties have got together and mutually decided to resolve the dispute outside the Court system then in such a cases the Courts should not interfere in such consensual arrangements. Once two parties have chosen to appoint a third person by consent, an award by such a person should be final and binding and should not be challenged except in very rare circumstances. This is the basis for a limited challenge under the Arbitration and Conciliation Act, 1969. Further the Arbitration & Conciliation Act, 1996 allows appeals against an arbitrator’s decision on jurisdiction only when the arbitrator declines jurisdiction. If the arbitrator assumes jurisdiction, a challenge will be possible only after the arbitral proceedings are over.

Role of Court:
One of the fundamental features of the Act is that the role of the court has been minimized. Accordingly, it is provided that any matter before a judicial authority containing an arbitration agreement shall be referred to arbitration (Sec. 8 provided the non – applicant objects no later than submitting its statement of defense on merits). Further, no judicial authority shall interfere, except as provided for under the Act.
About arbitration proceedings, parties can approach the Court only for two purposes:
1.) For any interim measure of protection or injunction or any appointment of receiver etc.
2.) For the appointment of an arbitrator in the event a party fails to appoint an arbitrator or if two appointed arbitrators fail to agree upon the third arbitrator.
In such an event, in the case of domestic arbitration, the Chief Justice of a High Court may appoint an arbitrator, and in the case of international commercial arbitration, the Chief Justice of the Supreme Court of India may carry out the appointment.
A court of law can also be approached if there is any controversy as to whether an arbitrator has been unable to perform his functions or has failed to act without undue delay or there is a dispute on the same. In such an event, the court may decide to terminate the mandate of the arbitrator and appoint a substitute arbitrator.
The Principle of Non-intervention by the Courts:
The principle that the courts shall not interfere in arbitral proceedings is a fundamental theme underlying the Act. Indeed the Act contemplates of only three situations where judicial authority may intervene in arbitral proceedings. These are:
I.) Appointment of arbitrators, where the parties’ envisaged method for the same fails
II.) Ruling on whether the mandate of the arbitrator stands terminated due to inability to perform his functions or failure to proceed without undue delay
III.) Assist in taking evidence
Two points are noteworthy. The first is that Sec. 5 (departing from the Model Law16) contains a non-obstante clause. Sec. 8 also departs from the Model Law. The corresponding provision (Article 8 of the Model Law) permits the court to entertain an objection to the effect that the arbitration agreement is ‘null and void inoperative or incapable of being performed’. The departures made by the Indian law demonstrate the legislative intent to keep the courts out and let the arbitral stream flow unobstructed.
By and large the Indian courts have well understood the spirit and intent behind the principle of nonintervention. Thus, in CDC Financial Services (Mauritius) Ltd vs. BPL Communications the respondent obtained an anti-arbitration injunction from the High Court on the ground that the pledge of shares which was sought to be enforced through arbitration would enable the claimants to take control of a telecom company which (as it was a foreign company) would be contrary to Indian law. On appeal, the Supreme Court rejected this contention, stating that this was a plea on merits and thus within the sole jurisdiction of the arbitrators. Interestingly, the court not only vacated the injunction, it also restrained the respondent from moving any further applications

‘which would have the effect of interfering with the continuance and conclusion of the arbitration proceedings’. In Sukanaya Holdings vs. Jayesh Pandya, however, Hon’ble Supreme Court refused to stay the court action on the ground that the subject matter of the arbitration agreement was not the same as the subject matter of the civil suit. Besides, the parties in the two actions were not identical. The court held that the entire subject matter of the suit should be the subject matter of the arbitration agreement for the mandatory provisions of Sec. 8 to be applied.
Judicial Intervention: Cause of misery
Legislative intent of the new Arbitration and Conciliation Act, 1996 is to reduce excessive judicial intervention due to which the earlier Arbitration Act, 1940 suffered serious infirmities.
The enactment of the 1996 Act was initially met with approbation by the Court in case of Konkan Railway Corporation vs. Mehul Construction Co., which stated clearly that the provisions of the Act indicates that the Act limits intervention of the Court with an arbitral process to the minimum. But subsequent reality however, has been far from ideal. Cases like ONGC vs. SAW Pipes and SBP & Co. vs. Patel Engineering have sharply shown governmental attempts to promote arbitration in India. ONGC case witnessed the challenge of an arbitral award on the ground that it was ‘in conflict with the public policy of India’; instead of taking a narrow interpretation of the phrase ‘public policy’ as being something above a prima facie of Indian law, the Court adopted a very broad understanding of the same. The Court went on to equate ‘patent illegality’ with ‘error of law’ and held that any contravention of an Indian legislation would ipso facto make the award in violation of public policy. The doors were thus open for the judicial review that the Act was put in place to avoid. Case of SBP & Co. further extended the scope of judicial intervention when the Hon’ble Supreme Court ruled that it was within the powers of the Chief Justice of India to adjudicate on the issues like valid arbitration agreements and went on to state that the Chief Justice could even call for evidence to resolve jurisdictional issues while

performing the function of appointing an arbitrator when the parties failed to agree. The Supreme Court went on to say that such decisions would be final and binding upon the parties. This effectively flouted the principle of competence and thus amounted to a situation where the arbitration tribunal’s power to determine its jurisdiction was undermined.
Therefore, Courts endowed themselves with powers that would substantively delay arbitral proceedings (be it by raising specious objections to preliminary issues or by sabotaging the appointment process), which goes against the fundamental reason for enacting Sec. 13 of the Act.
This brings us to what has been called the dispute between high principles (stressing the need for justice) and low principles (an equally insistent to end litigation). The expansion of the Court’s intervention into the judicial sphere has aroused serious issues; ONGC case expansive interpretation of the term ‘public policy’ has been followed in many cases which all reiterate the judiciary’s right to review the arbitral award. Further, in case of Hindustan Zinc Ltd. vs. Friends Coal Carbonisation, Hon’ble Supreme Court has stated that awards could be set aside on grounds like being contrary to the terms of contract. This indeed sets a dangerous precedent since, as stated earlier; the encouragement of ADR was based on a need to avoid the lengthy court process. The Court has statutory power to set aside an award when the arbitrators misconduct themselves or the references. But it also has the unqualified discretion to remit the award to the chosen tribunal.
Judicial Intervention: Justification

In the vast majority of purely domestic arbitrations, where there is no foreign element, the government or its agencies are parties. In many cases the arbitrators appointed by the center are the government employees who are likely to be biased for one or the other reason. Most arbitration Tribunals are not institutional but ad-hoc, and there are no trained arbitrators who can facilitate fast and summary disposal while maintaining the confidence of both parties.
Most Arbitration is ad hoc arbitrations. There are few institutions which can provide arbitration facilities under their Rules. Often, retired judges are appointed as arbitrators who have gotten accustomed to tedious rules about procedure and evidence by virtue of long tenures behind the Bench. As a result, arbitrations become a battle of pleadings and procedures, with each party trying to stall if it works to their favor. And, there may be a temptation for arbitrators to prolong the arbitration to earn higher “sitting fees”. Whispers also abound of arbitrators being vulnerable to `being procured’ and those with deep pockets being able to purchase justice. Many arbitrators are not familiar with the practice of arbitration or how to effectively conduct the arbitral process. They all have forgotten the object, the aim, the mission behind incorporating the Act.
Lawyers too, are often not trained in the law and practice of arbitration and there is a tendency among them to prolong arbitrations, seek unnecessary adjournments, sandwich arbitrations between their regular court appearances, etc., all of which add up to a lack of standards in conducting arbitration in India. Therefore, many arbitrations end up being conducted as if they are mini trials, with pleadings, issues, admission and denial, oral and documentary evidence, cross-examination etc. Thus, where there is no connection between the theory and the practice of arbitration, not unnaturally the Courts would wish to intervene when they are faced with injustice and the people would definitely knock the door of the court for Justice.

In reality, judicial intervention is justified if current Indian situation is taken into consideration. Where the arbitrators appointed by the center are the government employees who are likely to be biased for one or the other reason & where often, retired judges are appointed as arbitrators who, by virtue of long tenures behind the Bench, have got accustomed to tedious rules pertaining to procedure and evidence.
On the other hand, if we look at the aim and purpose of the Act than we find that the intervention of judiciary diminishes it. Therefore it becomes apparent to adopt a middle approach to sort this dilemma.
The aims and objectives of the Act could be met with adequate availability of skilled, trained and honest arbitrators as well as well-equipped arbitration institution. The need of such arbitrators is also very imp. Because if there is an emergent opinion that by choosing arbitration over litigation, parties have substantially diminished their chances of getting good quality of justice, it will obviously darken the future of arbitration. And what is needed is inculcation of a culture of arbitration among the key stakeholders — the bar, the Bench, the arbitrators and the consumers of arbitration.

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