You are on page 1of 12

INTRODUCTION

One of the main objectives of the 1996 Act was to give more powers to the arbitrators and reduce
the supervisory role of the court in the arbitral process. 1 In effect, judicial intervention is
common under the 1996 Act. Such intervention takes the form of determination in case of
challenge of awards. Such a propensity to exercise their authority to intervene may be
attributable to their skepticism that arbitration is not effective at resolving disputes or the judges
vested concern that their jurisdiction will be adversely eroded. 2 The decision of the Supreme
Court in the Saw Pipes case3 exemplifies this inclination, and threatens to hamper arbitrations
progress toward speed and efficiency. In this case, the Supreme Court expanded the scope of
public policy from the earlier ratio laid down by a three bench judgment in the Renusagar
case39 and that one of the grounds for challenge of an award under the 1996 Act is violation of
public policy. The Renusagar case4, while respecting the opinion that the definition of public
policy ought not to be widened in the greater interest of society, has laid down three conditions
for setting aside an award which are a violation of
a) the fundamental policy of Indian law;
b) the interest of India; and
c) Justice of morality.
In the Saw Pipes case, the scope of public policy was widened to include challenge of award
when such an award is patently illegal. Some arbitrators have viewed the judgment in the Saw
Pipes case with concern. The main attack on the judgment is that it sets the clock back to the
same position that existed before the 1996 Act, and it increases the scope of judicial intervention
in challenging arbitral awards.5 It was also criticized on the grounds that giving a wider meaning
to the term public policy was wrong, when the trend in international arbitrations is to reduce the
1 Arbitration and Conciliation Act, 1996, Statement of Objects and Reasons
2 Pramod Nair, Quo vadis arbitration in India? Business Line, October 19, 2006. Pramod Nair is a Visiting Fellow
at the Lauterpatch Research Centre for International Law, University of Cambridge.

3 2003 (5) SCC 705 and 2005 (8) SCC 618.


4 1969 (2) SCC 554
1

scope and extent of public policy.6 Jurists and experts have opined that unless the courts
themselves decide not to interfere, the Arbitration and Conciliation Act, 1996, would meet the
same fate as the 1940 Act.7 The Parliament, when enacting the 1996 Act and following the
UNICITRAL Model Law, did not introduce patent illegality as a ground for setting aside an
award. The Supreme Court cannot introduce the same through the concept of public policy of
India.8
After the Saw Pipes case, some judicial decisions have tried to reign the effect of Saw Pipes.9
One instance of this is the Supreme Court decision in the case of McDermott International
Inc.vs. Burn Standard Co. Ltd,10 where the court somewhat read down Saw Pipes. In respect of
the Saw Pipes case, the Supreme Court held:
We are not unmindful that the decision of this Court in ONGC case had visited considerable
adverse comments but the correctness or otherwise of the said decision is not in question before
us. It is only for a larger Bench to consider the correctness or otherwise of the said decision. The
said decision is binding on us. The said decision has been followed in a large number of cases.
A few High Court decisions have also sought to give a narrow reading of the Saw Pipes case on
the ground that a literal construction of the judgment would expand judicial review beyond all
limitations contained not only under the 1996 Act, but even under the 1940 Act. 11 In the case of
5 Ashok H Desai, Challenges to an award use and abuse, ICAs Arbitration Quarterly, ICA, 2006, vol. XLI/No.2,
p 4. Ashok H Desai is a Senior Advocate of the Supreme Court of India.

6 Pravin H Parekh, Public Policy as a ground for setting aside the award, ICAs Arbitration Quarterly, ICA, 2005,
vol. XL/No.2, p 19

7 Inaugural address by Justice Santosh N Hedge, Judge, Supreme Court of India, on Indian Council of Arbitrations
National Conference on Arbitrating Commercial and Construction Contracts held at Hotel Inter Continental, New
Delhi, December 6, 2003.

8 supra, note 41 at p19.


9 Sumeet Kachwaha,Enforcement of Arbitration Awards in India, Asian International Arbitration Journal, 2008,
vol. 4, number 1, p 68.

10 2006(11)SCC 181 at p 208.


11 supra, note 45.
2

Indian Oil Corporation Ltd. vs. Langkawi Shipping Ltd, 12 the court held that to accept a literal
construction on Saw Pipes would be to radically alter the statutorily and judicially circumscribed
limits to the courts jurisdiction to interfere with arbitration awards.
Following the aforesaid Bombay High Court decision, the High Court of Gauhati held in Dealim
Industrial Co. vs. Numaligarh Refinery Ltd. 13 held that the ONGC vs. Saw Pipes, Supra, does not
intend to efface the time-tested legal propositions and judicial tenets on arbitration and thus
ought not to be construed away from the well-established trend set by a string of decisions
preceding the same.

EXTEND DEFINED
Section 5 Extent of judicial intervention. Notwithstanding anything contained in any other law
for the time being in force, in matter governed by this Part, no judicial authority shall intervene
except where so provided in this Part.
In the case of this section the courts have tried to protect the sanctity of the section and in a
judgement in 2007 the Supreme Court held that Superior Courts power of judicial review has
wide amplitude but the same should not be exercised when there exists an arbitration clause.14
The Supreme Court in another case held the High Court justified in holding that photo copies of
lease agreements could be taken on record for ascertaining the existence of arbitration clause.
The Court should exercise power under Article 142 to meet the situations which cannot be
effectively and appropriately tackled by existing provisions of law15.

12 2004 (3) Arb LR 568.


13 Arbitration Appeal No. 1 of 2002 (August 24, 2006).
14 The Empire Jute Co. Ltd. and Ors. Vs. The Jute Corporation of India Ltd. and Anr.2007 (4) ARBLR
74 (SC).
15 Bharat Sewa Sansthan Vs. U.P. Electronics Corporation Limited. AIR 2007 SC 2961
3

The Apex Court however seems to have gone against the principle of sanctity of the arbitration
agreement when it held that "no party can be allowed to take advantage of inartistic drafting of
arbitration clause in any agreement as long as clear intention of parties to go for arbitration in
case of any future disputes is evident from the agreement and material on record including
surrounding circumstances."16

WHY THE NEED FOR ARBITRATION?


The act of 1996 has defined arbitration in the following, manner Arbitration means any
arbitration whether or not administered by permanent arbitral institution.17
A fair, just and quick process of resolution of disputes is indispensable in any democratic society
becoming increasingly aware of their human and legal rights. The human and material resources
in Courts are inadequate to meet the ever growing demands, resulting in backlog of cases and
delay in the administration of justice. Our justice delivery system is bursting at the seams and
unless timely measures are adopted, for the quick disposal of cases, particularly at the grass-roots
it will lead to very dire consequences.
In certain disputes like financial matters involving the individuals, firms and even multinational
companies, they do not want to submit to the jurisdiction of the courts of obvious reasons of
delay, rigid procedural rules and provisions of appeals and revisions. The simple logic is that
both the parties are not interested in getting a proposition of law on any point laid down but they
are interested to settle their money matters and for that purpose they can even give up certain
claims which they are otherwise entitled to. One such method of dispute resolution is arbitration
governed in India by the Arbitration and Conciliation Act 1996.
MAIN OBJECTIVES OF ARBITRATION AND CONCILIATION ACT, 1996

16 VISA International Ltd. Vs. Continental Resources (USA) Ltd. AIR 2009 SC 1366
17 Section 2(a)
4

1. To-cover within its fold International commercial arbitration and conciliation as also the
domestic arbitration and conciliation.
2. To make provision for an efficient and effective procedure to meet the requirements and
needs of specific arbitration.
3. To ensure that arbitral tribunals functions within the framework of the Act.
4. To minimize supervisory role of courts in the arbitral process and thus ensure minimal
judicial intervention.
5. To encourage amicable settlement of disputes between parties using arbitration as an
alternative disputes resolution mechanism.
6. To ensure making of an award on settled terms of the parties.
7. To provide that every final award is enforced in the same manner as if it were a decree of
the Court and thus eliminate the necessity of approaching a law court to make a decree of
the Court.
8. Last but not least, to provide conditions and procedure for the purpose of enforcement of
foreign awards under New York and Geneva Conventions.
CHOICE OF JUDGES
Arbitration offers parties a unique opportunity to designate persons of their choice as arbitrators,
which is not possible in case of courts. This enables the parties to have their disputes resolved by
people who have specialized competence and expertise in the relevant field. Another important
factor is the lack of specialized judges and Courts; this can be an impediment both in terms of
time taken and also in terms of injustice being done due to lacunae in knowledge.18
FASTER & LESS EXPENSIVE
Arbitration is faster and less expensive than litigation in courts. Where the arbitral proceedings
can often score over judicial methods is in the duration of time taken- the latter tends to be
lengthy for a variety of reasons which includes the enormous pendency of existing caseloads as
well as the various levels of original and appellate jurisdiction which need to be completed
before a final solution is arrived at.
CONFIDENTIAL

18Imhoos Christophe, Verbist Herman, Kwatra G.K., International Trade Centre, Arbitration and
Alternative Dispute Resolution, (New Delhi: LexisNexis Butterworths, 2004), 48.
5

The element of confidentiality, which is wanting in judicial proceedings in an attribute of


arbitration system. Arbitration hearings are not public and only the parties receive the copies of
the arbitral award.

JUDICIAL INTERVENTION THE BANE?


Major thrust and 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. Section 8(1) of the New Act, therefore, makes it mandatory duty for the judicial
authority i.e. court to stay legal proceedings if started, where the subject matter has been referred
to an arbitral tribunal. Similar provisions are made in connection with the New York and Geneva
The enactment of the 1996 Act was initially met with approbation by the Court in cases like
KONKAN19, (which stated clearly that the provisions of the 1996 Act unequivocally indicate that
the Act limits intervention of the Court with an arbitral process to the minimum) but subsequent
reality however, has been far from ideal. Even as a global study has indicated that an
overwhelming 91% of the respondents were against the mechanism of appealing international
arbitration, cases like ONGC20 and SBP & Co.21 Have sharply belied governmental attempts to
promote arbitration in India. ONGC 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 transgression 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 violative of public policy.

19 Konkan Railway Corporation v. Mehul Construction Co., 2000 (7) SCC 201.
20 Oil and Natural Gas Corporation v. SAW Pipes, (2003) 5 SCC 705.
21 SBP & Co. v. Patel Engineering, (2005) 8 SCC 618.
6

The doors were thus flung open for the very rounds of painstaking judicial review that the Act
was put in place to avoid22. SBP & Co further extended the scope of judicial intervention when
the Supreme Court ruled that it was within the powers of the Chief Justice of India to adjudicate
on issues like valid arbitration agreements and went on to state that the CJ could even call for
evidence to resolve jurisdictional issues while 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 arbitral tribunals 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 Section 13 of
the 1996 Act. This thus brings us to what has been called the dispute between high principles
(stressing the need for justice, though the heavens fall) and low principles (an equally insistent
clamour to end litigation) in adjudication today23. The expansion of the Courts intervention into
the judicial sphere has aroused serious misgivings; ONGCs expansive interpretation of the term
public policy has been followed by a catena of cases which all reiterate the judiciarys right to
review the arbitral award. In cases like HINDUSTAN ZINC 24, the Supreme Court has stated that
awards could be set aside on grounds like being contrary to the terms of contract since ONGC
gave license for interference in such grounds. This indeed sets a dangerous precedent since, as
stated earlier; the encouragement of ADR was based on a need to circumvent the lengthy court
process.

22 Aloke Ray, Dipen Sabharwal, What Next for Indian Arbitration? The Economic Times, 29 August,
2006

23 Zaiwalla, Sarosh, Challenging Arbitral Awards: Finality is Good but Justice is Better 20(2) Journal
of International Arbitration (2003), http://www.zaiwalla.co.uk/html/publications.html, 16 July, 2008.
24 Hindustan Zinc Ltd. v. Friends Coal Carbonisation, (2006) 4 SCC 445.
7

The debate between finality and justice is perhaps best resolved by the reasoned judgment of
EVANS J., in Indian Oil25 where he held that these two factors are not inconsistent with each
other. If either of them is to prevail, then it should be the requirement of justice. But justice, even
fairness, is not an abstract concept. It has to be applied in this context between two parties who
were in dispute with each other and who agreed that the dispute should be resolved by an arbitral
tribunal. They agreed that the tribunal's award should be final. But they agreed this on the basis
that the arbitration procedure would be regulated by law. 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. If the power is exercised, but
only in circumstances when it would be unjust not to do so, then there is not, in my judgment, an
uncovenanted or an unacceptable restriction on the agreed finality of the tribunal's award.
We shall now study in detail all the sections of the act relating to arbitration which make
provisions for judicial intervention and the effect that such intervention has had on the efficacy
of the legislation. We will also see what interpretation the judiciary has placed on the various
sections and how this has affected the functioning of the act.

Correlation between judicial intervention and arbitration


Arbitration Agreement
Section 2 (b) defines an arbitration agreement as Arbitration agreement means an
agreement referred to in section 7.
Section 7 Defines the Arbitration agreement.
Referring Parties to Arbitration
Section 8 Defines the Power to refer parties to arbitration where there is an arbitration
agreement.
Intervention Before or During Arbitration
Section 9 Interim measures, etc. by court. -A party may, before or during arbitral
proceedings or at any time after the making of the arbitral award but before it is enforced
in accordance with section 36, apply to a court.
Intervention in Appointing Arbitrators
Section 11 Defines the appointment of arbitrators.
Challenge to Appointment of an Arbitrator
Section 12 (3) An arbitrator may be challenged only if25 Indian Oil Corporation Ltd., v. Coastal Bermuda Ltd., [1990] 2 Lloyds Rep., 407
8

(a) Circumstances exist that give rise to justifiable doubts as to his independence or
impartiality, or
(b) He does not possess the qualifications agreed to by the parties.
Section 13 Defines Challenge procedure.
Setting Aside an Award
Section 34 Defines the application for setting aside arbitral award.
Section 37 Defines the appealable orders.

CONCLUSION
The Parliament has enacted the Arbitration and Conciliation Act with a view to provide speedy
remedy by arbitration and to achieve this objective, section 5 of the Act puts a complete bar on
the intervention of the courts matter where there exists an arbitration clause. It is relevant to
mention that prior to coming into force of the Act, the Arbitration Act, 1940 was the law in
the force relating to arbitration and section 34 of the repealed Act being para material to section
5 of the Act also provided that in respect to matter covered by arbitration proceeding in a court
were not maintainable. However, the language used in section 5 of the Act is more stringent and
unequivocal insofar as the bar to the jurisdiction of any judicial authority is concerned. Whereas
in section 34 of the 1940 Act only civil suits were practically barred as would be clear from the
language used in section 5 of the Act, every judicial authority has been barred from intervening
in respect of a matter which is governed by Part-I of the Act. 26Arbitration is a sum of many parts.
There are benefits and costs and the reminder that one is incomplete without the other. As things
stand today, arbitration is poised to effect great changes to the ways in which dispute resolution
is conducted. It brings with it the solemnity and finality of the judicial process and couples it
with the procedural flexibilities of non-conventional dispute resolution methods. There is,
however, an equally pressing need to recognize that much more can and should be done to
improve the conduct of arbitral proceedings in India but most importantly, we, the researchers,
feel that there is a need to effect a change in perceptions. As our nation moves towards increasing
litigiousness, alternative methods of dispute resolution might just provide the key to resolving
the problems of overburdened case loads, long pendency of cases and an all too frequent case of
justice delayed. For long, the problem plaguing the effective implementation of ADR methods
has been their perception as being subordinate to the court process- a perception shared and
fostered by lawyers and people alike. It is imperative, that this be changed and this can only be
achieved if there is active engagement from all the stakeholders in this process. Certainly, there
are some disputes inherently unsuited for alternative channels but there are so many more which
fit perfectly within the vision envisaged for if a system of rendering justice that runs concurrent
to the Courts. It is necessary for the Courts themselves to mandate recourse to ADR methods in
26 Engineers India Ltd v. D. Warren International Ltd.
10

inter alia international commercial disputes, employment disputes, matrimonial cases,


compoundable criminal offences, to name just a few. At the end of the day, what should take
precedence is the provision of justice, in substance more than in form. As our country grows and
flowers, taking wing on issues unimagined before, it is time also for our dispute resolution
systems, the undisputed backbone of our nation, to follow suit.

11

BIBLOGRAPHY

Law of Arbitration And Conciliation- P.K. Majumdar


Supreme Court On Arbitration- Surendra Malik
Law of Arbitration And Conciliation- Justice R.P. Sethi
Arbitration And Conciliation- O.P. Malhotra & Indu Malhotra
Law of Arbitration And Conciliation- Justice R.S. Bachawat
Arbitration And Conciliation- Shibsankar Sarkar
Challenging Arbitral Award: Finality is Good but Justice is Better 20(2) Journal of

International Arbitration (2003)


http://www.zaiwalla.co.uk/html/publications.html, 16 July, 2008.
Imhoos Christophe, Verbist Herman, Kwatra G.K., International Trade Centre, Arbitration
and Alternative Dispute Resolution, (New Delhi: LexisNexis Butterworths, 2004), 48.
Arbitration And Conciliation Act- Hari. Dev Kohli
The Arbitration And Conciliation Act, 1996

12