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Judicial Intervention In Arbitration: An Over-Step In Arbitral Proceedings?

At all events, arbitration is more rationale, just and humane than the resort to the sword- Richard Cobden

Looking around the world today, all one can see is globalization, expansion of extra-territorial trade, basically the world coming together and growing together cooperating with each other. Such circumstance would inevitably have to witness conflicts arising between parties involved in business, and such conflicts are better resolved through ADR than other civil procedures as an attempt to preserve and save the diplomatic trade relations between both the parties.

Arbitration being one of the most developed and popular ADR mode, is a process of settling disputes in the commercial field and has a long history in the Indian justice system. As a matter of fact, resolution of dispute through mode of arbitration was historically observed in village panchayats.

The Panchayats have now got a constitutional recognition under the Constitution (Seventy Third Amendment Act 1992) which was inserted as Part IX of the Constitution of India It consists of Articles 243 to 243 O. The British during their regime had
introduced various laws relating to arbitration, which were applicable either to a part of the country or subsequently to the whole nation.[1]

The United Nations Commission on International Trade law (UNCITRAL) Produced a Model Law on International Commercial Arbitration in 1985 which later, on recommendation of Departmental Advisory Committee on Arbitration, became the source of Indian Arbitration Law i.e. Arbitration & Conciliation Act, 1996[2]

What is mostly considered as one of the biggest perks of Arbitration proceedings is the minimal intervention of courts and the ability to enforce arbitral awards in same manner as it were a degree of the court.

The Arbitration & Conciliation Act puts out three situations where the judicial authority is given the power to intervene in arbitral proceedings.
  1. When the parties’ envisaged method for appointment of arbitrators fails, the court intervenes and appoints arbitrators for the proceedings. (S11)
  2. Assistance in acquiring evidence. (S.27)
  3. Ruling on whether the mandate of the arbitrator stands terminated due to inability to perform his functions or failure to proceed without undue delay (S 14 (2).

Importance Of Arbitration In India: Possible Justification To Judicial Intervention
Statistics throw scary and unappealing numbers relating to case pendency in Litigation in India. Litigation in India is extremely extortionate financially and time consuming. Civil courts in India are typically bogged down with delays.[3]An estimated backlog of 30 million cases and routine delays to dispose off a single case has severely undermined public confidence in the rule of law.[4] Such a scenario attracts attention to Arbitration as it saves parties from the tedious and hectic litigation proceedings.

Arbitration also assumes importance when considering the nature of cases. Conflicts arising out of international trade and transactions are best sorted in a neutral forum, confidential and speedy manner with procedural flexibility, which is ensured by Arbitral proceedings. It is also necessary to consider the prospects of lawsuits in different countries. International transactions mostly involve foreign parties, and arbitration becomes more reliable by providing them complete party autonomy.

The efficiency of the legislation must be analyzed through its implementation and in case of the arbitration and conciliation act, the reality is far different from what has been promised by the ideals of the legislation.

Arbitration proceedings, leads to the parties knocking on the doors of courts of justice or the courts being forced to intervene amidst the proceedings due various drawbacks it faces in the country.
  • Ad-Hoc Arbitration Tribunals – Lack of Institutional Arbitration
    The lack of institutional arbitration tribunals and of experienced and well-trained arbitrators with the ability to dispose of conflicts fast and effectively by upholding the core values of Arbitration. In most of the cases, Arbitrators appointed by the courts are government employees who are likely to be biased for one reason or another.[5]

    The lack of institutions to provide arbitration facilities under their rules is a major reason for arbitration proceedings resulting in judicial intervention. Most scenarios, retired judges are appointed as arbitration tribunals, them being experienced with the long litigation procedures involving procedure and evidence, this leads to arbitration procedures being prolonged resulting in battle of pleadings with the parties attempting to stall the process until it works in their favour.

An Attempt To Preserve The Public Policy -Leading To Increasing Judicial Intervention?
The Arbitration and Conciliation Act under section 34(Domestic Arbitration) and Section 48 (Foreign Arbitration) allows the courts to set aside arbitral awards if it is found to be in contravention of the public policy of the state.

Interpretation of the term Public Policy in context with foreign awards was first discussed in the case of Renusagar Power Co. Ltd. V. General Electric Co. [6] This case primarily analyzed whether the term ‘Public Policy’ in context of foreign arbitration must be defined in narrow aspect or whether the there must be a wider concept of public policy in the International law similar to the one adopted in Municipal Law.

The Hon'ble Supreme Court finally held that the term public policy was to be interpreted in the narrow sense and stated that contravention of an Indian law would alone not attract the bar of public policy and something more than contravention of law is required. Applying this it was held that the enforcement of a foreign award would be refused on the ground that it is contrary to public policy if such enforcement would be contrary to:
  1. fundamental policy of Indian law; or
  2. the interests of India; or
  3. justice or morality.

The interpretation of the term was later widened in the case of Oil and Natural gas Corporation Ltd v. SAW pipes Ltd, wherein the court made a remark that the role of court was deemed to be that of an appellate or revision court which enhanced the power. Additionally, this case added Patent Illegality a checkbox to the grounds elaborated in the case of Renusagar Power.

The interpretation of public policy in this case resulted in the opening of a floodgate of litigation under section 34 thereby dulling the virtue of Arbitration.

The 246th Law Commission report severely criticized the judgements that opened floodgates of litigation and emphasized that section 34 sets out an exhaustive list of grounds to challenge an arbitral award and these relate to the procedural issue only without going into substantive problems. The law commission previously stated by the law commission that mere mistake of law by the tribunal cannot be an acceptable ground to set aside an arbitral award. A different interpretation of the evidence by the court also provided no grounds for an arbitral award to be rejected.

These major changes were incorporated through the 2015 Amendment to section 34 of the Arbitration act. These were the changes that focused on restricting Courts from interfering with arbitral awards on the ground of public policy. Thus, the amendment was added, Explanation 2 to section 34(2) as well as Section 2A. Explanation 2 of section 34(2) states:
For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian Law shall not entail a review on the merits of the dispute.

The case of Associate Builders v. Delhi Development Authority
[7]further brought about major changes when the Supreme Court clarified the interpretation of the notion of morality and justice. The court stated that for an arbitral award to be set aside on the grounds of morality and justice it must be one that ‘shocks the conscience of the court’ and one against the mores of the day.

The amendment and the interpretation of the terms moral and justice in the above case ensured that the Courts are no longer permitted to reappraise evidence or set aside awards merely because the Arbitral Tribunal has made errors when dealing with it. These changes were incorporated with an aim of decreasing or minimizing the chances of judicial intervention in arbitration proceedings upholding the purpose and virtue put forth by arbitration.

Yet an important aspect that still acquires importance here would be the subjective nature of the ‘courts conscience’ which acts as a decisive feature in the capability of judicial intervention in arbitration proceedings.

Appointment Of Arbitrator - Judicial Or Administrative In Nature?
Prior to the 2015 amendment to the Indian Arbitration and Conciliation Act, 1996 if the parties failed in appointing arbitrators for the proceeding, the Chief Justices were assigned the responsibility of appointing an arbitrator in pursuance of an arbitration agreement for arbitrations seated in India.[8]

The Chief Justice in such a circumstance was capable of holding a detailed trial of the case at hand examining the existence of the arbitration clause.[9] Such a power fell under the titles of Judicial power rather than an administrative one making it an intervention of the judiciary to the arbitral proceeding innately killing the virtue of alternate dispute resolution.

The consequence of such intervention becomes extreme delays in appointment of arbitrators and consequently the arbitral award being awarded extremely late. One of the most essential featured of Arbitration or any ADR procedure would be the time efficiency associated with it. A delayed award fails parties that opted for arbitration over litigation for the time efficiency sake.

The 246th Law Commission Report classified the appointment of arbitrators as administrative in nature and recommended that this be done by the Supreme Court or the High Court or be delegated to an Arbitral Institution. Essentially the amended Section 11 of the act explicitly made such a delegation possible. Moreover, the amended act also prescribed a time limit of sixty days from the date of service of notice on the opposite party within which the court should endeavour to dispose the application requesting appointment of arbitrators. Such a system of assigning arbitrators is approved by the UNCITRAL Model law which suggests any suitable authority prescribed by the legislature perform the function and it need not necessarily be the courts.

Central Arbitral institutions International Centre for Alternative Dispute Resolution, Regional institutions such as MCIA Mumbai, Nani Palkhivala Arbitration Centre Chennai etc. can be relied on by the courts to effectively systemize the process of appointment of Arbitrators. Despite such provisions, such delegation of power is very rarely exercised by the courts resulting in great underutilization of such facilities and unnecessary intervention of the courts in arbitral proceedings.

Notwithstanding the high pendency of litigation cases, the courts still to a great extend acts as an intermediary in arbitral proceedings rather than promoting arbitral institutions to actively involve and help efficiently dispose off cases.

Conclusion
It is a well-settled fact that the Indian Courts play an extensive role in resolving disputes however, its intervention in Arbitration proceedings appears as over-step to its own pending duties and to the arbitration laws. Despite the amends brought about by the 2015 Amendment Act, loopholes and ambiguities still persist lowering the perks and virtue of arbitral proceedings.

The main purpose of Arbitration rather, ADR was the minimal intervention of the judiciary making it reliable in terms of time conservation and its efficiency in resolving disputes that are more about saving the diplomatic relations between international parties. Intervention of the judiciary instead leads to a more chaotic situation.

The intervention that is discussed could be of a positive nature if proper amendments are incorporated making judiciary a support system to the Indian Arbitration system, i.e. timely delegation of responsibilities to Arbitration institutes, minimal intervention and scrutinizing of cases.

Finally, fixing of the persisting lacunas and loopholes can lead to Arbitration gaining utmost importance in a country like India that is one of the major players in the contemporary global market that values its diplomatic trade relations.

End-Notes:
  1. D.S.Chopra, “Supreme Court’s Role Vis A Vis Indian Arbitration And Conciliation Act, 1996” http://works.bepress.com/cgi/viewcontent.cgi?article=1000&context=dev_chopra
  2. Halsbury’s Law of England, 4th edition, butterworths
  3. Kachwaha Sumeet and Rautray Dharmendra (2006).’The International Comparative Legal Guide to International Arbitration’ http://www.kaplegal.com/articles/International-Arbitration.pdf
  4. Promod Nair, “Quo vadis Arbitration in India?” http://www.thehindubusinessline.com/2006/10/19/stories/2006101900101100.htm
  5. Is Judicial Intervention in arbitration justified? http://indiacorplaw.blogspot.com/2009/04/nlsir-symposium-is-Judicial.html
  6. Renusagar Power Plant Co. v. General Electric Co AIR 1994 SC 860; 1994 Supp (1) 644
  7. Associate Builders v. Delhi Development Authority2014 (4) ARBLR 307
  8. National Insurance Co. Ltd v. Boghara Polyfab Pvt. Ltd., (2009) 1 SCC 267
  9. SBP v Patel Engineering,(2005) 8 SCC 618

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