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
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.
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
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.
Importance Of Arbitration In India: Possible Justification To Judicial Intervention
- When the parties’ envisaged method for appointment of arbitrators fails,
the court intervenes and appoints arbitrators for the proceedings. (S11)
- Assistance in acquiring evidence. (S.27)
- 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).
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.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. 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.
An Attempt To Preserve The Public Policy
-Leading To Increasing Judicial Intervention?
- 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.
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.
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.  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:
- fundamental policy of Indian law; or
- the interests of India; or
- 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
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 case of
Associate Builders v. Delhi Development Authority
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.
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. 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.
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
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
- D.S.Chopra, “Supreme Court’s Role Vis A Vis Indian Arbitration And
Conciliation Act, 1996”
- Halsbury’s Law of England, 4th edition, butterworths
- Kachwaha Sumeet and Rautray Dharmendra (2006).’The International
Comparative Legal Guide to International Arbitration’ http://www.kaplegal.com/articles/International-Arbitration.pdf
- Promod Nair, “Quo vadis Arbitration in India?” http://www.thehindubusinessline.com/2006/10/19/stories/2006101900101100.htm
- Is Judicial Intervention in arbitration justified? http://indiacorplaw.blogspot.com/2009/04/nlsir-symposium-is-Judicial.html
- Renusagar Power Plant Co. v. General Electric Co AIR 1994 SC 860; 1994
Supp (1) 644
- Associate Builders v. Delhi Development Authority2014 (4) ARBLR 307
- National Insurance Co. Ltd v. Boghara Polyfab Pvt. Ltd., (2009) 1 SCC
- SBP v Patel Engineering,(2005) 8 SCC 618