ABSTRACT1

India has an effective Arbitration law in place. It is a mechanism used by the parties to resolve
disputes in their commercial as well as non-commercial transactions. In Arbitrations, disputes are
resolved with binding effect, by a person or persons acting in a judicial manner in private, rather
than by a national court of law. The decision of the arbitral tribunal is usually called an Award.

This Article discusses some issues relating to the intervention of Judiciary in Arbitration Law. Part
I of the article addresses the Growth of Arbitration and introductory content followed by Part II
which depicts the Area of Conflict in the judicial intervention into Arbitration.

The author concludes the paper with certain suggestions which can act as an instrument of change.

1
By, Nikhil Jain & Harshit Dusad (students ITMU Law School, Gurgaon)
INTRODUCTION

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 parties2. 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 proceedings3. These are:

I.) Appointment of arbitrators, where the parties’ envisaged method for the same fails4
II.) Ruling on whether the mandate of the arbitrator stands terminated due to inability to
perform his functions or failure to proceed without undue delay5
III.) Provide assistance in taking evidence6

All the above three situations provide the backdoor entry to the judiciary (courts) to interfere into
the 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 delays7. An estimated backlog of 30 million cases and routine delays to dispose

2
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
3
Sumeet Kachwaha. ‘The Arbitration Law of India: A Critical Analysis’ http://www.kaplegal.com/articles/aiaj.html
4
Sec.11 of Arbitration and Conciliation Act, 1996
5
Sec. 14 (2) of Arbitration and Conciliation Act, 1996
6
Sec. 27 of Arbitration and Conciliation Act, 1996
7
Kachwaha Sumeet and Rautray Dharmendra (2006).’The International Comparative Legal Guide to International
Arbitration’ http://www.kaplegal.com/articles/International-Arbitration.pdf
of a single case has severely undermined public confidence in the rule of law8. 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, 19969. 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.

8
Promod Nair, “Quo vadis Arbitration in India?”
http://www.thehindubusinessline.com/2006/10/19/stories/2006101900101100.htm
9
“Is Judicial Intervention in arbitration justified?” http://indiacorplaw.blogspot.com/2009/04/nlsir-symposium-is-
Judicial.html
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 Act10.

In relation to arbitration proceedings, parties can approach the Court only for two purposes:

1.) For any interim measure of protection or injunction or for any appointment of receiver etc.11

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 appointment12.

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:

10
Sec. 5 of Arbitration and Conciliation Act, 1996
11
This can be even prior to the institution of arbitration proceedings, provided that it is clear that the applicant
intends to take the dispute to arbitration.
12
Sec. 11 of Arbitration and Conciliation Act, 1996
 I.) Appointment of arbitrators, where the parties’ envisaged method for the same fails13
II.) Ruling on whether the mandate of the arbitrator stands terminated due to inability to
perform his functions or failure to proceed without undue delay14
III.) Provide assistance in taking evidence15

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 Law17) 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 Communications18
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

13
Sec.11 of Arbitration and Conciliation Act, 1996
14
Sec. 14 (2) of Arbitration and Conciliation Act, 1996
15
Sec. 27 of Arbitration and Conciliation Act, 1996
16
The United Nations Commission on International Trade law (UNCITRAL) produced a Model Law on International
Commercial Arbitration in 1985
17
Article 8. Arbitration agreement and substantive claim before court
(1) A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a
party so requests not later than when submitting his first statement on the substance of the dispute, refer the
parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being
performed.
(2) Where an action referred to in paragraph (1) of this article has been brought, arbitral proceedings may
nevertheless be commenced or continued, and an award may be made, while the issue is pending before the
court.
18
2003 (12) SCC 140
‘which would have the effect of interfering with the continuance and conclusion of the arbitration
proceedings’. In Sukanaya Holdings vs. Jayesh Pandya19, 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 in order 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.20, 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
Pipes21 and SBP & Co. vs. Patel Engineering22 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 in excess of 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

19
2003 (5) SCC 531
20
2000 (7) SCC 201
21
(2003) 5 SCC 705
22
(2005) 8 SCC 618
performing the function of appointing an arbitrator when the parties failed to come to an
agreement. 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.

Effectively therefore, Courts endowed themselves with powers which 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,23 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 reason24. Most

23
(2006) 4 SCC 445
24
“Is Judicial Intervention in arbitration justified?” http://indiacorplaw.blogspot.com/2009/04/nlsir-symposium-is-
Judicial.html
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, by virtue of long
tenures behind the Bench, have got accustomed to tedious rules pertaining to procedure and
evidence. As a result, arbitrations become a battle of pleadings and procedures, with each party
trying to stall if it works to their favor25. 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 process26.
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 India27. 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.

25
Promod Nair, “Quo vadis Arbitration in India?”
http://www.thehindubusinessline.com/2006/10/19/stories/2006101900101100.htm
26
“Is Judicial Intervention in arbitration justified?” http://indiacorplaw.blogspot.com/2009/04/nlsir-symposium-is-
Judicial.html
27
Promod Nair, “Quo vadis Arbitration in India?”
http://www.thehindubusinessline.com/2006/10/19/stories/2006101900101100.htm
CONCLUSION

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.

Sir LJ Earl Warren once correctly said that “It is the spirit and not the form of law that keeps the
justice alive”.