Is it time for India to create a special court for Arbitration - Part 1
Rahul Kumar & Aditya Singh [i]
Arbitration as a concept has been a part of Indian legislation for quite some time. From the laws of 1899 and 1940 to the all-encompassing Arbitration and Conciliation Act of 1996 (hereinafter ‘Act’) there have been various iterations and therefore multiple interpretations of the laws of arbitration by the Indian courts. One of the main problems with this is that any arbitration proceeding is consequently subjected to various stages of judicial intervention. Theoretically, courts can intervene in an arbitration proceeding in all the following scenarios:
· when the parties need to be referred to arbitration (Section 8);
· interim reliefs sought by the parties from the court (Section 9);
· Appointing the arbitrator (Section 11);
· challenging the order of the tribunal relating to its jurisdiction [Section 16(2) and (3)];
· interim reliefs granted by it (Section 17);
· challenging the award (section 34), and;
· staying the enforcement of the award[A1] . Further, if an award is first challenged in a trial court and subsequently appealed in higher courts, it is subjected to three more appeals. All this inevitably increases the cost of arbitration to such an extent that the primary purpose of choosing it over litigation is defeated.
Such delays in arbitration proceedings show that there is a need for expeditious adjudication and disposal of appeals in such matters. Every time the need for expeditious disposal has been identified, India has created a tribunal specifically to cater to it. The likes of the Debt Recovery Tribunal, the Income Tax Appellate Tribunal and the Central Administrative Tribunal were formed to lessen the burden of the courts and provide for quick disposal of such cases. The authors of this piece aim to elucidate why the formation of a Permanent Appellate Tribunal to deal with matters related to arbitration is the vital need of the hour.
Problems plaguing Arbitration in India
One of the biggest problems plaguing arbitration in India is the constant judicial intervention that courts seem to have no apprehension with, and even this high level of intervention reeks of arbitrary interpretation of the law. The Supreme Court in Essar House Private Limited v. Arcellor Mittal Nippon Steel India Limited highlighted how the powers to grant interim relief under Section 9 of the Act[A2] are more relaxed in comparison with the interim relief granted under the provisions of the Civil Procedure Code. While such application of the Act has been hailed as pro-arbitration, it does undermine the relevance and importance of arbitral tribunals. It makes it abundantly clear that the scope of relief granted by courts is not only wider but getting such relief is also not governed by stringent regulations of the CPC, hence making it a better option than seeking relief from the Tribunal under Section 17. Even still, the judgement does inspire some confidence in India by adopting a more arbitration-friendly stance, however, in a move which is the perfect embodiment of the arbitration environment in the country, the court went on to contradict itself in a subsequent judgement. In the case of Sanghi Industries Limited v. Ravin Cables Ltd[A3] , the Supreme court in complete contravention to its earlier stance held, that until and unless conditions mentioned in Order XXXVIII Rule 5 of the CPC are satisfied, commercial courts cannot exercise their powers under Section 9 of the Act.
Furthermore, the question of whether court orders under Section 11 of the Act are administrative or judicial in nature has always been up for debate. If the functions are termed to be judicial in nature they would then be appealable under Article 136 and if they are classified as administrative, then they are merely binding under Article 141 of the Constitution of India[A4] . There have been judgements from both sides of the argument- with cases stating that since there is no adjudication being done, the appointments by the court under Section 11 would be an administrative function. However, this was turned on its head when a seven-judge bench in SBP and Co. v. Patel Engineering Co. maintained that every function of the Chief Justice or his designation would be judicial in nature thereby increasing the scope of appeal and subjecting arbitration proceedings to more judicial intervention. While the 2015 amendment attempted to clarify this position and reduce the burden of the court along the way by giving the parties more opportunities to mutually appoint the arbitrator(s), it sets very ambitious deadlines for the same. A party gets only 30 days from the day it receives the request to appoint an arbitrator and if the deadline lapses, the parties would once more be subjected to judicial proceedings in order to have an arbitrator appointed. While the legislation was well-intentioned in giving the parties more party autonomy while keeping expeditious disposal as a priority as well, setting up such aggressive deadlines only serves to defeat that purpose as once the 30 days lapse, it would inevitably eat up more time of the parties to have a court or its designation appoint the arbitrator for them.
Such ancillary disputes do nothing but increase the burden of the courts and stretch out the arbitral proceedings unnecessarily. The creation of a permanent bench/tribunal that solely deals with arbitral disputes would drastically change the current scenario. Not only would this reduce the burden of the courts and decrease the time consumed by such petitions, but it would also satisfy the legislative intent behind allowing judicial intervention while not being a hurdle in the efficiency of the proceedings.
The most pinching issue that arbitration in India suffers from, is the appeals to courts for setting aside the arbitral award. While the reasons behind the same cannot be inferred and are not explicitly stated either, arbitral awards in India are appealable before courts. This implies that awards passed by the arbitral tribunal, which in India usually consists of retired justices of the High Courts and Supreme Court, would then be presented before, and scrutinised by a trial court judge. Even after being successful in one’s claim, the claimant is not able to enjoy the award and is instead subjected to litigation in court, escaping which was the very objective of the arbitration agreement both parties had entered into. While many problems persist within the language of Section 34 and the grounds of appealability within them, awards being vitiated on the grounds of violation of public policy is the biggest of them by far. The explanation provided under Section 34(2)(b) elucidates that an award will be against the public policy of the nation when it violates Section 75 or 81 of the Act or is induced or affected by fraud or corruption, however, as there is no proper definition of ‘public policy’ in the Act, it had to be construed over time with the help of various landmark cases. The Supreme Court in ONGC v Saw pipes took the view that the term ‘public policy’ cannot be constrained by a narrow interpretation, adding ‘patent illegality’ as another facet to it. It is important to note that the explanation does further go on to state that 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 and therein lies the conundrum. While it is clear that the award of the tribunal cannot be reviewed on its merit, the definition of patent illegality, the grounds on which the award is set aside, is shrouded with confusion. The Supreme court in Saw pipes construed this illegality to mean ‘error of law’ which then implies that the court can review such cases making it akin to litigation, something which is not only in violation of section 34 of the Act but defeats the purpose of the Act itself- making arbitration a viable alternative dispute resolution mechanism.
The final major problem that needs to be discussed before showing how the creation of a permanent bench for resolving arbitration disputes is essential to ensure a future where Indian arbitration is still considered a viable dispute redressal option, is the cost of arbitration. One of the main purposes of any Alternative Dispute Resolution process is to be a cheaper and quicker alternative to traditional litigation. However, when said process tends to involve so many aspects of litigation and that too at multiple stages, the whole affair becomes so ridiculously costly that there exists absolutely no difference between it and actual litigation. Couple the cost of filing petitions in various courts with the actual cost of arbitration, which includes fees payable to the arbitration, logistical expenses and bearing costs if the award is not in your favour and you will find that this does nothing but turn parties away from choosing arbitration to resolve their disputes.
There are provisions under the Act, namely under Section 31, where the tribunal has discretion on determining and awarding costs to a party along with a payment schedule for the same and the fourth schedule does attempt at fixing fees of arbitrators while also allowing parties autonomy in determining arbitrator fees as per the institution rules which the parties have chosen for arbitration. Unfortunately, there are no, and cannot be any provisions to determine or fix litigation costs arising out of disputes in the arbitration process. What can be done, however, is to reduce the filing costs by making a special court for such matters, with relatively low filing costs where arbitration disputes are exclusively appealable. In the second part of this piece, the authors will elaborate further on the main advantages of building a separate forum for arbitration proceedings in India and why the same must be done immediately.
Aditya Singh is an undergraduate law student from Dr Ram Manohar Lohiya National Law University, India. They hold interests in various fields of law including Arbitration Law, Insolvency Laws, IPR, Alternative Dispute Redressal processes and Securities Law. For any discussion related to the article, he can be contacted via mail at firstname.lastname@example.org. Rahul Kumar is an Advocate at Sarvada Legal and can be contacted at email@example.com