CENTRAL UNIVERSITY OF SOUTH BIHAR

ALTERNATIVE DISPUTE RESOLUTION

Research Project on

“Extent of judicial intervention in Arbitration”

Submitted to-

Mrs. Poonam Kumari

Faculty, School of Law and Governance
Central University of South Bihar

Submitted by-

SACHIDANAND

CUB1313125020

B.A.LLB (8TH SEM)

 INDEX

S.NO. TOPIC PG.NO.

1. Introduction 3
2. Growth of Arbitration in India 4
3. Role of court 5
4. The Principle of Non-intervention by the 6
Courts
5. Judicial Intervention: Cause of misery 7
6. Judicial Intervention: Justification 9
7. Conclusion 10-11

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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 parties1. 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 proceedings2. These are:

I.) Appointment of arbitrators, where the parties’ envisaged method for the same fails3
II.) Ruling on whether the mandate of the arbitrator stands terminated due to inability to

perform his functions or failure to proceed without undue delay4

III.) Provide assistance in taking evidence5

All the above three situations provide the backdoor entry to the judiciary (courts) to interfere into
the arbitration matters.

1
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.

2
Sumeet Kachwaha. ‘The Arbitration Law of India: A Critical Analysis’ http://www.kaplegal.com/articles/aiaj.html
3
Sec.11 of Arbitration and Conciliation Act, 1996.

4
Sec. 14 (2) of Arbitration and Conciliation Act, 1996
5
Sec. 27 of Arbitration and Conciliation Act, 1996

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Growth of Arbitration in India:

Litigation in India is generally time-consuming and expensive. Civil courts in India are typically
bogged down with delays6. An estimated backlog of 30 million cases and routine delays to dispose of
a single case has severely undermined public confidence in the rule of law 7. 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, 19968. Further the Arbitration & Conciliation Act, 1996 allows appeals against an

6
Kachwaha Sumeet and Rautray Dharmendra (2006).’The International Comparative Legal Guide to International
Arbitration’ http://www.kaplegal.com/articles/International-Arbitration.pdf
7
Promod Nair, “Quo vadis Arbitration in India?”
http://www.thehindubusinessline.com/2006/10/19/stories/2006101900101100.html

8
“Is Judicial Intervention in arbitration justified?” http://indiacorplaw.blogspot.com/2009/04/nlsir-symposium-is-
Judicial.html

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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.

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 Act9.

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.10

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 appointment11.

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.

9
Sec. 5 of Arbitration and Conciliation Act, 1996

10
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.
11
Sec. 11 of Arbitration and Conciliation Act, 1996

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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:

I.) Appointment of arbitrators, where the parties’ envisaged method for the same fails12
II.) Ruling on whether the mandate of the arbitrator stands terminated due to inability to

perform his functions or failure to proceed without undue delay13

III.) Provide assistance in taking evidence14

Two points are noteworthy. The first is that Sec. 5 (departing from the Model Law 15) contains a
non-obstante clause. Sec. 8 also departs from the Model Law. The corresponding provision
(Article 8 of the Model Law16) 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 Communications17
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

12
Sec.11 of Arbitration and Conciliation Act, 1996
13
Sec. 14 (2) of Arbitration and Conciliation Act, 1996
14
Sec. 27 of Arbitration and Conciliation Act, 1996
15
The United Nations Commission on International Trade law (UNCITRAL) produced a Model Law on International
Commercial Arbitration in 1985
16
Article 8. Arbitration agreement and substantive claim before court
17
2003 (12) SCC 140

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vacated the injunction, it also restrained the respondent from moving any further applications
‘which would have the effect of interfering with the continuance and conclusion of the
arbitration proceedings’. In Sukanaya Holdings vs. Jayesh Pandya18, 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.19, 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 Pipes20 and SBP & Co. vs. Patel Engineering21 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
18
2003 (5) SCC 531

19
2000 (7) SCC 201

20
(2003) 5 SCC 705
21
(2005) 8 SCC 618

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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 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,22
Hon’ble Supreme Court has stated 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 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.

22
(2006) 4 SCC 445

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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 reason23.

Most 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 favor24. 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 process25. 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 India26. 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.

23
Is Judicial Intervention in arbitration justified?” http://indiacorplaw.blogspot.com/2009/04/nlsir-symposium-is-
Judicial.html
24
Promod Nair, “Quo vadis Arbitration in India?”
http://www.thehindubusinessline.com/2006/10/19/stories/2006101900101100.html
25
Is Judicial Intervention in arbitration justified?” http://indiacorplaw.blogspot.com/2009/04/nlsir-symposium-is-
Judicial.html
26
Promod Nair, “Quo vadis Arbitration in India?”
http://www.thehindubusinessline.com/2006/10/19/stories/2006101900101100.html

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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.
Based on the aforesaid we understand that the powers of the Court under the Arbitration Act,
1996 is not unbridled but is subject to certain limitations and restrictions. In cases of Domestic
Arbitration, the court can grant interim protection only in compliance to Section 9 of the Act, in
respect to International Arbitration, the court cannot grant such relief under section 9 unless it
meets the criteria laid down by Bharat Aluminium Co. -v- KaiserAluminium Technical
Services Inc.

In respect to enforcement of such awards, once these awards become final and binding they can
be enforced as if it were a decree of the court. Further these awards cannot be challenged unless
they meet the ground under section 36 in cases of Domestic Awards and Section 49 in case of
foreign awards.

The appropriate court to exercise such powers under the act, would be the principle civil court of
the District and the territorial jurisdiction of such court is to be decided vide Section 16 – 20 of
the CPC.

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

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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”.

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 Bibliography

 Arbitration And Conciliation Act, 1996 by Dr. S.C. Tripathi.

 Law of Arbitration & Conciliation and Alternative Dispute

Resolution Systems by Avtar Singh.

 https://www.fenwickelliott.com/sites/default/files/nick_gould_-_-
_an_update.pdf

 http://www.hardwicke.co.uk/insights/articles/adr-becoming-
more-familiar

 https://www.academyofexperts.org/alternative-dispute-
resolution/

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