JUDICIAL INTERVENTION IN ARBITRATION- A BOON OR A BANE?

Express Law
May 15, 2022
7 min read

ABSTRACT

Alternate Dispute Resolution is indeed the future of the nation as well as the world. It is agreed upon that the world has marked its advancement in the judicial and legal system by implementing alternative dispute resolution mechanisms. Due to the vast nature of ADR mechanisms, the author will be exploring Judicial intervention only with respect to Arbitration. The Arbitration and Conciliation Act of 1996 clearly states that there is no scope for judicial intervention in the arbitral proceedings but at the same time gives away the fact that arbitration award includes the intervention of a judicial authority, throws light onto the vagueness of the statement and lacunae in law. The principle of non-intervention though mentioned in letter, is not being followed by the Courts in India and we often see instances of Judicial intrusion in the arbitration proceedings.

INTRODUCTION

It is acknowledged that Judicial intervention in arbitration comes at different stages and the role that Courts play in international commercial arbitration cannot be wished away. Court’s intervention may be required at the initial state when a dispute regarding the appointment of arbitrators may arise. We see the Judiciary intervening at different stages of Arbitration starting from the inception till the end which includes passing interim orders as well.

Before the arbitral proceedings, Court’s assistance may be required by interim protection and finally, we see the Judiciary interfering at the post-award stage when the Court’s order will be required to enforce it or to contest the award. This article will analyse the intention of the legislation as well as the extent to which judicial intervention is prevalent in the nation.

INTENTION OF THE LEGISLATION

Judicial intervention is laudable if it quickens the arbitration process and helps the tribunal function smoothly. However, it is imperative to mention here that two of the sacrosanct principles of arbitration that are Kompetanz-Kompetanz and Party Autonomy, ought to be respected and protected by the Courts at all the stages of arbitration proceedings, which includes the pre and post-stage as well[1].

The intention of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the ‘1996 Act’) was to minimise the decision-making role of courts in the arbitral process. The basis of the 1996 Act as mentioned in its preamble is the UNICITRAL Model Law on International Commercial Arbitration, 1985[2] (hereinafter referred to as the ‘UNICITRAL Model Law’).

However, there are some significant deviations from the Model Law which have been made in the 1996 Act. Article 16 of the Model law says that the Arbitral Tribunal is empowered to rule on its jurisdiction[3] and further in Article 16(3) provides for an appeal to the Court which has been decided by the tribunal as a preliminary issue[4]. This particular safeguard was not incorporated in the 1996 Act. Therefore, it can be said that the overall effect of the 1996 Act was to limit the supervisory role of Judiciary, and to an extent, even beyond what was acceptable in the Model law.

SUPREME COURT JUDGEMENTS

Unfortunately, the Supreme Court of India, with due respect, has trespassed on the arbitral procedure- quite counter to the spirit of the 1996 Act and erred in its interpretation of the same. The Apex Court’s seven-Bench Judgement in S.B.P & Co. v. Patel Engineering[5] regarding the decision to appoint an arbitrator is a Judicial Order is unfortunate and has drawn valid criticism. Similarly, the holding of a three-judge bench in Bhatia International v. Bulk Trading[6] that the power of Court to grant interim relief extended to arbitration outside India, has been hugely condemned.

This overzealous interventionist attitude of the Court is again evident from the O.N.G.C v. Saw Pipes[7] Judgement where the Supreme Court decided that patent illegality was to be articulated as a ground for setting aside the arbitral award. This ruling eventually led to the Venture Global Engineering v. Satyam Computer Services[8] wherein the Apex Court has extended the challenge under section 34 of the 1996 Act to International awards too in certain cases. This Judgement was deplored by authors who feared that this would open the floodgates to more challenges in arbitral awards. Judgements post Saw Pipes have regrettably not set any coherent principles to predict what could constitute successful grounds of challenge to an arbitral award. In the absence of any apparent guidelines on what constitutes patent illegality in arbitral awards that legitimise judicial intervention, it appears that Courts are going back to the pre-1996 position[9].

Similarly, the Supreme Court in the case of Hindustan Zinc v. Friends Coal Carbonation[10]interfered with an arbitral award arising out of a contract on the grounds that the calculation of price by the arbitrators was not in accordance with the formula given in the contract, and in the case of Delhi Development Authority v. R.S Sharma[11], an award for extra compensation was set aside as contrary to the contract. Thus, explicitly in both cases, the awards were set aside holding that the arbitrators had decided contrary to the terms of the contract and had gone beyond the existing contract. This suggests that the trend of intervening in the arbitral procedure appears to go back to the 1940 Act.

A more glaring trend has been seen in Pakistan where Courts frequently intervene in Arbitration Proceedings, causing considerable confusion, uncertainty, economic costs and loss of institutional credibility. The Riqo Diq case that involved granting a lease to Tethyan Copper Company is a classic example, where the Supreme Court of Pakistan passed judicial orders on an application staying international Arbitration proceedings. The Court obviously failed to take into account recent trends in International law and the fact that the court’s determination will have no bearing on the outcome of international arbitration[12].

ROLE OF COURTS IN ARBITRATION

The general principle envisaging the extent of judicial intervention is elucidated in Section 5 of the 1996 Act[13]. This section is consonant to the General Principle given in Part I of the English Arbitration Act as well as the Article 5 of the UNICITRAL Model Law. The statement of dogma in section 5 of the 1996 Act is an unambiguous acknowledgement of the requirements to keep a tight rein on the court’s role in arbitration. The predominance of party autonomy over court intervention with the aim of swiftness and economy in a resolution of disputes is the heart and soul of this legislation.

However, in certain situations, sans court’s support, the arbitral process will be in a destitute situation and it is for such situations, in Coppee-Lavalin SA/NV v. Ken-Ren Chemicals and Fertilisers Ltd (In Liquidation)[14], Lord Mustill speaking for the House of Lords stated that there needs to be a correct balance of the relationship between international arbitration and national courts and that in some instances, the intervention of court may not just be permissible but highly beneficial too. Despite this, the point at issue still persists as to what extent should a court intervene in arbitral proceedings, especially as specialised domain expertise is increasingly at a premium.

The interpretative role of the higher courts, especially the Supreme Court is of great significance in this regard because of the doctrine of binding precedent followed by our Courts[15]. In the recent judgement of Antrix Corporation v. Devas Multimedia,[16] the court showed a pragmatic approach and concluded that the arbitration clause can be invoked only once, was done by the respondent in this case, and not for the second time as the petitioner tried to do so, though being aware of the initiation of arbitration proceedings by the respondents. The strategy of the petitioner was to use the Supreme Court to nullify the respondent’s first-mover advantage. But appreciably, the Supreme Court disappointed the petitioner by showing a pro-arbitration approach thereby preventing the abuse of Section 11 jurisdiction. Arbitration is a boon for the overburdened Indian Courts as it does not entail Judicial intervention[17].

CONCLUSION

The abovementioned right attitude of Courts displaying a logical bias towards arbitration is the key to the success of Alternative Dispute Resolution in India. A survey by Queen Mary and law firm White & Case in 2015 shows Singapore as the most improved arbitral seat with increasing demand for it from India compared to London being one of the most widely used seats. This is followed by Hong Kong. If the Indian Courts adopt this pragmatic approach as a part of their judicial policy, it will not only align with the principles of arbitration but will also fulfil the purpose of the legislation behind the 1996 Act making India a growing hub of Alternate Dispute Resolution.

[1] Sharma, Ajay. “Judicial Intervention in International Commercial Arbitration: Critiquing the Indian Supreme Court’s Interpretation of the Arbitration and Conciliation Act, 1996”. Indian Journal of Arbitration Law V(III) I(I) [2] Preamble, Arbitration and Conciliation Act, 1996. [3] Article 16, UNICITRAL Model Law on International Commercial Arbitration, 1985. [4] Article 16(3), UNICITRAL Model Law on International Commercial Arbitration, 1985. [5] S.B.P & Co. v. Patel Engineering, (2005) 6 SCC 288 [6] Bhatia International v. Bulk Trading S.A, (2002) 4 SCC 105 [7] O.N.G.C v. Saw Pipes, (2003) 5 SCC 705 [8] Venture Global Engineering v. Satyam Computer Services, (2008) 4 SCC 190 [9] Sharma, Ajay. “Judicial Intervention in International Commercial Arbitration: Critiquing the Indian Supreme Court’s Interpretation of the Arbitration and Conciliation Act, 1996”. Indian Journal of Arbitration Law V(III) I(I) [10] Hindustan Zinc v. Friends Coal Carbonation, (2006) 4 SCC 445 [11] Delhi Development Authority v. R.S Sharma, (2008) 3 ARB. L. R. 362. [12] Chaudhry, Umer Akram “Pakistani Court Interference in Arbitration Proceedings- Yet Again” Kluwer Arbitration Blog February 27, 2012. [13] Section 5, Arbitration and Conciliation Act, 1996. [14] Coppee-Lavalin SA/NV v. Ken-Ren Chemicals and Fertilisers Ltd (In Liquidation), (1994)2 ALL ER 449,466 (HL). [15] Banerji, Gourab “Judicial Intervention in Arbitral Awards: A Practitioner’s Thoughts” National Law School of India Review, 2009, Vol. 21, No. 2, pp. 39-53 [16] Antrix Corporation v. Devas Multimedia, 2013 (2) Arb. L.R 226 (SC) [17] Sharma, Ajay. “Judicial Intervention in International Commercial Arbitration: Critiquing the Indian Supreme Court’s Interpretation of the Arbitration and Conciliation Act, 1996”. Indian Journal of Arbitration Law V(III) I(I)