The Indian judicial system has been deficient in handling cases which has resulted in docket explosion in the past few decades. This enormous amount of pending cases has crippled the efficient working of the judiciary. It has not only had an adverse effect on the rights of the citizen but also become a barrier to justice. This has lead to people losing faith in our judiciary and resorting to alternate methods of dispute resolution in order to get justice.
Arbitration is a mode of alternate dispute resolution by which two parties approach one or more persons (known as arbitrators or arbitration tribunal) and agree to be bound by the arbitral decision taken by them. This decision is known as the arbitral award. The award is legally binding on both the parties and enforceable in the court of law. This form of ADR focuses on the autonomy of parties and is a voluntary process.1 This is a cost effective and systematic procedure that allows the parties to choose an arbitrator as per their demands and exercise the right to abide by a particular jurisdiction. The arbitration process maintains a high level of confidentiality with a greater likelihood of settlement.
The Arbitration Act, 1940 was introduced in India by the British. This Act provided multiple opportunities to approach the court for intervention which led to inordinate delays that made the arbitration process ineffective. Therefore it was replaced by the Arbitration and Conciliation Act of 1996 (hereinafter referred to as ‘Act’) which was established after numerous ordinances were passed by the Indian government to meet the economical reforms. The Arbitration and Conciliation Act, 1996 is structured on the UNCITRAL model. India is also a signatory member of the New York Convention. This Act deals with domestic arbitration, international arbitration, enforcement of foreign awards and conciliation provisions.
The important provisions of the Act are to be found in Parts I and II thereof. Part I contains the general provisions for domestic and international commercial arbitration whereas Part II provides for the enforcement of foreign awards. Part I of the Act is exhaustive and deals with detailed provisions on the model Law. It provides for the extent of judicial intervention, arbitrability of disputes, composition and jurisdiction of the arbitral tribunal, appointment of arbitrators, conduct of the arbitration proceedings, recourse against arbitral awards and enforcement procedure of the awards. On the contrary, Part II of the Act is deals with enforcement of foreign arbitral awards.
In the ordinary sense, arbitrability involves the issue of whether specific category of disputes can be barred from arbitration or whether it belongs exclusively to the domain of state courts. The Act clearly illustrates that there need not be a contractual relationship between the parties. Therefore, even a tort dispute could also be referred to arbitration.
In the case of Renu Sagar Power Co v General Electric Co3. Supreme Court stated as follows: ‘The question is not whether the claim lies in tort but the question is whether even though it has lain in tort it ‘arises out of’ or is ‘related to’ the contract, that is to say, whether it arises out of the terms of the contract or is consequential upon any breach thereof.’
In the case of Hindustan Petroleum Corporation v Pink City4, the respondent opposed arbitration on the ground that the action committed by the claimant (i.e. short delivery and tampering with weights and measures and seals) was essentially a criminal offence under various special statutes. It was contended that the claimants’ conduct could be investigated only by authorized officers under statute and that the offence, if any, can be tried only by a court of competent jurisdiction and not by an arbitrator. The Supreme Court negated this argument, and held that the claimant had rights under the contract which are independent of the statutory provisions and hence the contractual rights could be enforced through the arbitration process: ‘The existence of dual procedure; one under the criminal law and the other under the contractual law is a well-accepted legal phenomenon in Indian jurisprudence.5
However, the Supreme Court has held that a claim for winding up is not arbitrable and legal action in a court cannot be dismissed on the ground that the party had entered into an arbitration agreement.6
The Arbitration Amendment is an important step forward in overcoming the inordinate delays, the inefficiency in resolving disputes and the exorbitant costs that plagued the arbitration system in India. Despite making so many provisions in order to decrease the judicial interventions, the Indian courts have adopted an interventionist approach while laying down precedents. These modifications will definitely be scrutinized heavily by them.
The Arbitration and Conciliation (Amendment) Act, 2015 made significant amendments to Section 34. These modifications were aimed at minimizing the courts intervention with arbitral awards on the ground of “public policy.” Accordingly, an amendment was added as a part of “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.”7
This explanation (2) significantly narrowed down the scope of interpretation supplied in ONGC v Western GECO.8 Through this amendment, Courts could no longer be able to interfere with the arbitral awards passed by an arbitrator. This modification helped clarify that in no way would a Court be entailed to review the award on merits of the dispute. Similarly, section 2A also decreases the scope of interpretation of “patent illegality” as propounded in ONGC v Saw Pipes.9 Explanation 2A states – “An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiate by patent illegality appearing on the face of the award:
Provided, that an award shall not be set aside merely on the ground of an erroneous application of law or by reappreciation of evidence.10”
After the Bharat Aluminium and Co. v. Kaiser Aluminium and Co.11(“BALCO”) judgement of the Supreme Court, Indian courts had absolutely no jurisdiction to interfere in all the arbitrations that were seated outside India. This problem was taken resolved by the Amendment Act by inserting Section 2(2), which makes the provision for interim relief(s) also applicable in cases where the place of arbitration is outside India. This amendment has been heavily criticized as it is only applicable to international commercial arbitrations with a seat outside India as well as this means that this kind of protection will only be available to Indian parties that choose to arbitrate outside India.
The Amendment Act stipulates that if the court passes an interim order , the arbitral proceedings for that case must be commenced within a period of 90 (ninety) days from the date of such order or within such time as prescribed by the court. This modification was specifically made to curb the practice of misusing provisions in order to strategically obtaining exparte or ad interim orders and not proceeding with the arbitration process. This used to cause a huge amount of delay in the dispute resolution process. The Amendment act also provides for faster timelines to make the arbitration process more effective. One of the biggest advantages of arbitration is that it is comparatively less time consuming that the courts. So, in order to be able to maintain that a Proviso to Section 24 has been added to provide for the tribunal to hold oral hearings as and when required for evidence and oral arguments on an everyday basis. The proviso also illustrates that the tribunal must not grant any adjournments unless absolutely necessary and wherein sufficient cause has been made out to do so. The tribunal has also been granted the power and privilege to impose heave costs and penalties for adjournment without sufficient reasons.
In order to make sure that the arbitration process in not ardors, a provision has been made that stipulates that every arbitral award must be made within 12 months from the date the arbitrator(s) receives a written notice of appointment. The parties can mutually decide to extend this time limit but it cannot be extended for more than 6 months. If an order is not made within this deadline of 18 months, it will automatically terminate the mandate of the arbitrator(s). Unless, the court extends this period upon an application filed by the parties. However, there is no time period fixed for approaching the court seeking extension of time which may again contribute to delays. In an arbitration system that was plagued with delays and costs, this is a significant move towards betterment.
In August 2019, the Arbitration and Conciliation (Amendment) Act, 2019 was initiated after the assent of the President. As per this amendment, Section 23 has been modified to state that the statement of claim and defense must be completed within 6 months from the date of service of notice to the arbitrator(s). Section 34 of the Act is amended wherein the words’ furnishes proof that’ is replaced by “establishes on the basis of the record of the arbitral tribunal that”, to clarify that the parties must solely rely on the record before the arbitration tribunal. This Amendment Act also grants power to the Supreme Court in all cases of international commercial arbitration and the High Court in all cases of domestic arbitration to designate arbitral institutions to appoint arbitrators.
The Arbitration Amendment is a crucial step forward in overcoming the loopholes in the alternate dispute resolution mechanism of inordinate delays, excessive costs and deficiency in the resolution of disputes. The proposed modifications made through the amendments, are welcome, as the earlier arbitration system was a failure, and was unable to raise the cultivation of the culture of arbitration in India. The interpretations of these amendments in the court will decide its effectiveness. The new arbitration regime promises to herald a new era for resolution of disputes in India. It remains to be seen whether India’s aspirations to become the next arbitration hub will come true after these significant amendments.
[1] Arbitration and Conciliation Amendment Act, 2015, Section 34, Explanation(2)
[2] ONGC v Western GECO, [2015] AIR 363 (SC)
[3] Oil and Natural Gas Corporation vs. Saw Pipes 2003 (5) SCC 705
[4] Arbitration and Conciliation Amendment Act, 2015, Section 34 Explanation(2A)
[5] Aluminium and Co. v. Kaiser Aluminium and Co., (2012) 9 SCC 552
[6] Arbitrability: International & Comparative Perspectives, Loukas A. Mistelis & Stavros L. Brekoulakis eds., 2009 [2] Renu Sagar Power Co v General Electric Co, 1994 Supp (1) SCC 644
[7] Hindustan Petroleum Corporation v Pink City 2003 (6) SCC 503 [4] Ibid at 515
[8] Haryana Telecom v. Sterlite Industries, 1999 (5) SCC 688.
[9] Team@Law Time Journal, Introduction to Arbitration in India, lawtimesjournal.in, ( July 31st, 2019) http://lawtimesjournal.in/
[10] Vibhor Gupta, Arbitration: A Perspective, Mondaq.com, ( May 18th, 2020)
[11] https://www.mondaq.com/india/arbitration-dispute-resolution/935374/arbitration-a-perspective
