Upload
karangpatel
View
224
Download
0
Embed Size (px)
Citation preview
7/30/2019 Limitation of Arbitration in Indian Context (1)
1/22
P a g e | 1
Limitations of Arbitration inIndian Context
Jasman Dhanoa
11A058
Semester V
7/30/2019 Limitation of Arbitration in Indian Context (1)
2/22
LIMITATIONS OF ARBITRATION IN INDIAN CONTEXT
2 | P a g e
TABLE OF CONTENTS
1. Introduction 3
2. Development of the Law..33. Shortcomings of the 1996 Act4
4. Conclusion..18
5. Bibliography...20
7/30/2019 Limitation of Arbitration in Indian Context (1)
3/22
LIMITATIONS OF ARBITRATION IN INDIAN CONTEXT
3 | P a g e
LIMITATIONS OF ARBITRATION IN INDIAN CONTEXT
1. INTRODUCTION
Arbitration, when properly carried out, is an efficacious and alternative method of
dispute resolution. The method of arbitration has evolved over a period of time to help
the parties to speedily resolve their disputes. The Indian Arbitration and Conciliation Act
1996 (the '1996 Act') was enacted with elaborate provisions to cater to the needs of
speedy disposal of disputes. The proceedings under the 1996 Act have become highly
technical and involve considerable prolixity at every stage, providing a variety of legal
traps to the unwary.
In the light of the 1996 Act's main objectives, the courts have had to constantly interpret
the legislative intention for minimizing their supervisory role in the arbitral process.
Tribunals all over the world generally bend over backwards to ensure that the parties'
intention to arbitrate is upheld, as adding unnecessary technicalities disturb the parties'
autonomy of the will. Despite the disquiet expressed about this lack of supervision by
the highest court of the country, namely, the Supreme Court of India, the basic scenario
has not changed.
This paper, while touching upon the development of the arbitration law in India in
Part 1, seeks mainly to highlight the shortcomings in the 1996 Act in Part 2, with the aid
of various important decisions handed down by the Supreme Court of India. The article
concludes that the arbitration regime needs a lot of strengthening if it is really to serve
as a mode of fast track dispute resolution.
2. DEVELOPMENT OF THE LAW
A codified form of arbitration regulations was introduced in India in 1859, as part of the
Code of Procedure of Civil Courts. This Code not only permitted a reference to
7/30/2019 Limitation of Arbitration in Indian Context (1)
4/22
LIMITATIONS OF ARBITRATION IN INDIAN CONTEXT
4 | P a g e
arbitration in pending suits but also provided for reference to arbitration without the
intervention of the court. These provisions, by a trial and error method, reached a
gradual metamorphosis, especially with regard to procedure and the role of courts,
culminating first into theArbitration Act 1899, the operation of which was confined to the
Presidency Towns (Bombay, Calcutta and Madras) and later extended to several
important commercial towns, then into the Code of Civil Procedure 1908and thereafter
theArbitration Act 1940(the '1940 Act').
The 1940 Act was susceptible to numerous anomalies, fallacies, inequities and
shortcomings. Several of its provisions had to be interpreted in the light of case laws
which were not necessarily consistent, which made the 1940 Act itself only a starting
point in trying to understand the correct and complete law relating to arbitration. One of
the main shortcomings of the 1940 Act was that instead of serving as a speedy and
economical remedy, arbitration tended to be a time consuming and costly avenue and
consequently came to be treated only as a one more inning in the match of litigation.
To address these shortcomings in the 1940 Act, in 1995 a new Bill was introduced in
the Indian Parliament, namely the Arbitration and Conciliation Bill 1995. After being
replaced by three Ordinances, the Bill resulted in the 1996 Act on 16 August 1996. In
spite of being passed after three earlier failures, within two years of its enactment,
certain amendments to the 1996 Act were felt necessary by the Law Commission in
1998. However, it was also felt that it may not be appropriate to take up amendments of
the 1996 Act in haste and would perhaps be desirable to wait and see how the courts
grapple with the situations that arise. More than 17 years after the enactment of the
1996 Act, it has failed to achieve its objectives, as discussed below.
3. SHORTCOMINGS OF THE 1996 ACT
Since the passing of the 1996 Act, requests have been voiced for amendments to the
provisions of the 1996 Act, in so far as they related to arbitration. Though the 1996 Act
provides for a challenge in case doubts arise about an arbitrator's independence or
7/30/2019 Limitation of Arbitration in Indian Context (1)
5/22
LIMITATIONS OF ARBITRATION IN INDIAN CONTEXT
5 | P a g e
impartiality, it does not provide for approaching a judicial authority in case the challenge
is not successful. No time limits have been prescribed for the arbitral tribunal to conduct
proceedings and pass the award and further, subsequent to passing of the award, there
is no time limit provided for challenging the award. The 1996 Act does not provide for
the parties to refer to arbitration a dispute which is at any stage of judicial proceeding.
The 1996 Act also lacks a mechanism for enforcement of interim measures ordered by
the arbitral tribunal.
3.1 Judicial Pronouncements
In view of the shortcomings in the 1996 Act, the onus fell on the court to interpret the
1996 Act and draw conclusions, on the intention of the legislature behind certain
provisions, which were either ambiguous or unclear. In conducting this exercise the
Supreme Court has in some cases clarified the law but some of its judgments have
come under severe criticism, as they have deviated from the paramount objectives of
the 1996 Act, thereby derailing the arbitration regime. Some of the key Supreme Court
judgments are analysed below.
3.1.1 App licabi l i ty o f General Provis ions Contained in Part I of th e 1996 Act to
Internat ional Arbi t rat ions
In the case of Bhatia International v Bulk Trading SA1 ('Bhatia International), the
question before the Supreme Court was whether the General Provisions as contained in
Part I of the 1996 Act would apply to an arbitration which does not take place in India.
Whilst keeping in mind the age old adage, that a Court's duty to expound arises with
caution and that the Court should not try to legislate, the Supreme Court in this matter
held that the provisions of Part I would apply to all arbitrations, including international
commercial arbitrations which take place outside India, unless the parties have
expressly excluded by agreement the provisions of Part I.
14 SCC 105: AIR 2002 SC 1432.
7/30/2019 Limitation of Arbitration in Indian Context (1)
6/22
LIMITATIONS OF ARBITRATION IN INDIAN CONTEXT
6 | P a g e
In the aforesaid judgment, the Supreme Court has acted, though reluctantly, in a
legislative capacity rather than judicial capacity. The application of the whole of Part I to
arbitrations held outside India would have, inter alia, the following ramifications.
Firstly, if Part I is made applicable to international commercial arbitrations which take
place outside India, it may be possible for a party to approach the Chief Justice of the
Supreme Court for appointment of an arbitrator or a presiding arbitrator even where the
seat of arbitration is outside India. Secondly, a party can challenge a foreign award as a
domestic award and subsequently resist the enforcement thereof under the provisions
of the 1996 Act.
It is widely observed that the issue in controversy in the aforesaid matter was the
powers of courts in India to grant interim measures of protection in international
arbitration held outside India. The judgment, however, failed to comprehend the true
nature of international arbitration, which is that parties having chosen their venue by
nominating a particular place as the seat of their arbitration implicitly submit to the curial
and procedural law of that venue. Allowing a party to seek judicial intervention from
another Court is inconsistent with the idea of neutrality sought to be achieved by the
parties by having the arbitral tribunal located at a place other than their home
jurisdiction.
In view of the ultimate conclusion in Bhatia International, that Part I would apply to
foreign awards, recently the Supreme Court in Venture Global Engineering v Satyam
Computer Services Ltd2went a step further and held that a foreign award rendered in
London was amenable to challenge in Indian courts under the provisions of the 1996
Act. Also on similar lines is another recent judgment rendered by the Supreme Court in
Citation Infowares Ltd v Equinox Corporation3 , where it was held that in the absence of
any express or implied exclusion of provisions of Part I of the 1996 Act by agreement
2(2008) 4 SCC 190.
3(2009) 7 SCC 220.
7/30/2019 Limitation of Arbitration in Indian Context (1)
7/22
LIMITATIONS OF ARBITRATION IN INDIAN CONTEXT
7 | P a g e
between the parties concerned, the Supreme Court had jurisdiction to appoint an
arbitrator.
The 1996 Act provides a unique unified legal regime for domestic as well as
international arbitration based on the premise that what is good for international
arbitration is also good for domestic arbitration. However, this approach adopted under
the 1996 Act, while attempting unity between the two types of arbitrations, has lost out
on the nuanced approach that is required in regulating these two very different types of
dispute resolution mechanisms. This has created a legal quandary. While an
interventionist philosophy may be justifiable for purely domestic arbitrations, this is
antithetical to the ethos of international commercial arbitration. The Courts feel helpless
in this situation. Judicial authorities deciding in light of particular fact situations, whether
domestic or international, find their decision to be perceived as either too broad or too
narrow on whether it is seen from the prism of domestic or international arbitration. This
fundamental defect resonates through all the perceived anomalies of the 1996 Act and
the seemingly erroneous judicial decisions by the Supreme Court.
3.1.2 Judic ial Autho ri t ies' Power to Refer Parties to Arb itration Where There is an
Arbi t rat ion Agreement
In P Anand Gajapathy Raju v P V G Raju4, in view of the ambiguity in s. 8, dealing with
the powers of judicial authorities to refer parties to arbitration where there is an
arbitration agreement, the Supreme Court held that the provision would be applicable
not only to arbitration agreements entered into before the commencement of the suit or
other proceedings but also to those entered into pending a suit or other proceedings.
Additionally, s 42 of the 1996 Act confers exclusive jurisdiction on the court where any
application has been made under Part I. The objective of this provision is to prevent
forum shopping and minimize hardship to parties by restricting them to only one court
4(2000) 4 SCC 539.
7/30/2019 Limitation of Arbitration in Indian Context (1)
8/22
LIMITATIONS OF ARBITRATION IN INDIAN CONTEXT
8 | P a g e
for all proceedings relating to the arbitration. In view of the broad language of the
section, the Supreme Court in the aforesaid judgment made an observation that
applications under s 8 would not attract the exclusivity rule as provided in s 42. Despite
the aforesaid judgment there is still some uncertainty on this issue also since cause of
action may arise in jurisdiction of various courts and a party may file an application for
interim measures in an inconvenient court and create delays and needless trouble.
Given such a possibility, the current broad drafting of s 42 is felt unsuitable to tackle
modem commercial realities.
It would not be out of context to add here that the 1996 Act does not define 'judicial
authority' and the Supreme Court in a recent decision, Morgan Securities and Credit
Pvt Ltd v Modi Rubber Ltd5, held that the expression would have to be interpreted
having regard to the purport and object for which the 1996 Act was enacted.
3.1.3 Parties May Ap ply to Court fo r Interim Measures
The Supreme Court in Sundaram Finance v NEPC India Ltd6 held that a party may
invoke s 9 of the 1996 Act, which provides for interim measures, even before the arbitral
proceedings have been formally instituted. Under this section, a claimant may apply to
the Court for a wide range of interim or provisional measures without prejudicing her or
his right to prosecute her or his substantive claims by means of arbitral proceedings.
This is a serious lacuna under the scheme of the 1996 Act, as the aforesaid provision
may be misused by the parties. A party may not take any initiative to have the arbitral
tribunal constituted prior to obtaining an interim measure and may unnecessarily delay
the dispute resolution process. Therefore it is submitted that suitable amendments
should be made in the 1996 Act to make it mandatory for a party who has obtained
interim relief from a court to constitute the arbitral tribunal in an expeditious manner.
5(2007) 2 Company Law Journal 401.
6(1999) 2 SCC 479.
7/30/2019 Limitation of Arbitration in Indian Context (1)
9/22
LIMITATIONS OF ARBITRATION IN INDIAN CONTEXT
9 | P a g e
3.1.4 Recourse to Cour t against an Arb itral Award
In Narayan Prasad Lohia v Nikhunj Kumar Lohia7, the parties had agreed upon two
arbitrators in the arbitration agreement and objection to composition of the arbitral
tribunal was not taken up before the arbitral tribunal within the prescribed time. The
Supreme Court held that, arbitration being a creature of the agreement between the
parties, so long as the composition of the arbitral tribunal was in accordance with the
agreement, s 34 (which provides for recourse to a Court against an arbitral award) does
not permit challenge to an award merely on the ground of composition of an arbitral
tribunal and that a challenge can be maintained only if the agreement was in conflict
with the provisions of the Part I of the 1996 Act.
It was further held that if the agreement permits the parties to appoint an even number
of arbitrators contrary to the provisions of the 1996 Act, such arbitral tribunal would be
validly constituted and the validity of an arbitration agreement is not dependent on the
number of arbitrators specified therein.
It can be observed that the aforesaid decision of the Supreme Court is not in
consonance with the scheme and language of s 10 of the 1996 Act, which mandates
that the number of arbitrators shall not be an even number. It has in effect brought back
the institution of umpire, which was deliberately given up by the legislature in favor of an
arbitral tribunal comprising of sole or an odd number of arbitrators.
3.1.5 App ointment of A rbi t rators
Section 11 of the 1996 Act empowers the Chief Justice of the High Courts in domestic
arbitrations and the Chief Justice of India in international arbitrations to appoint an
arbitrator or presiding arbitrator, in the circumstances set out in the section, if and when
the parties are unable to agree on a procedure for the appointment or the two
nominated arbitrators fail to agree on the appointment of a presiding arbitrator.
7(2002) 3 SCC 572.
7/30/2019 Limitation of Arbitration in Indian Context (1)
10/22
LIMITATIONS OF ARBITRATION IN INDIAN CONTEXT
10 | P a g e
Though this section was intended to set the arbitral process in motion expeditiously, it
has been the subject matter of considerable litigation right from inception of the 1996
Act, resulting in long delays in the constitution of the arbitral tribunals and the
commencement of the arbitral proceedings.
In Ador Samia Pvt Ltd v Peekay Holdings Ltd8and Konkan Railway Corporation Ltd
v Mehul Construction Co9, the Supreme Court held that orders passed by the Chief
Justice under s 11 was administrative in nature. It was also held that since the Chief
Justice and her or his designate acted in an administrative capacity, the order could not
be said to have been passed by a court or a tribunal and hence a special leave petition
against such an order was not maintainable before the Supreme Court under Article 136
of the Constitution of India.
The controversy with respect to the nature of the powers of the Chief Justice under s.11
did not come to an end with the aforesaid decisions and it was referred to a
constitutional bench (comprising of five judges) for reconsideration in Konkan Railway
Corporation Ltd v Rani Construction Pvt Ltd.'10 The constitutional bench affirmed the
aforesaid three judge bench decision.
However, this decision was short lived. The controversy was again revived and referred,
only this time to a seven judge bench of the Supreme Court in SBP & Co v Patel
Engineering Ltd.11 ('Patel Engineering') and by a majority of six to one this bench
overruled the decision of the five judge bench.
The Supreme Court in Patel Engineeringheld that the power exercised by the Chief
Justice under s 11(6) is a judicial order and the Chief Justice has to decide whether (a)
the party making the application has approached the right High Court; (b) the applicant
has satisfied the conditions provided in the section for appointing an arbitrator; (c) there
8(1999) 8 SCC 572.
9(2000) 7 SCC 201.
10(2002) 2 SCC 388.
11(2005) 8 SCC 618.
7/30/2019 Limitation of Arbitration in Indian Context (1)
11/22
LIMITATIONS OF ARBITRATION IN INDIAN CONTEXT
11 | P a g e
is an arbitration agreement as defined in the 1996 Act; (d) the person making the
application is a party to such agreement; and (e) the claim was dead or live. To
ascertain all these factors, the Chief Justice can proceed on the basis of sworn
affidavits, documents or even take evidence.
It was widely observed that the decision in Patel Engineering is contrary to the scheme
of the 1996 Act. The Supreme Court has virtually rewritten ss. 11 and 16 of the 1996
Act, when it held that the arbitral tribunal will have the jurisdiction to decide all matters
as contemplated by s 16 - the only exception being those cases where the arbitral
tribunal has been constituted by the parties without having recourse to s 11 - and on the
validity of the arbitration agreement and other jurisdictional issues it would be
conclusive (except when a remedy is available by special leave to appeal to the
Supreme Court in case of a decision of the Chief Justice of the High Court). This is
widely seen as a significant setback to the concept of one stop adjudication
contemplated by the scheme of the 1996 Act.
The other serious ramification under the scheme of the 1996 Act is that all contentious
jurisdictional issues, including objections with respect to the existence and validity of the
arbitration agreement, can be raised before the arbitral tribunal and if any party wants to
challenge such decisions it could do so. This remedy would not be available if the
appointment of an arbitrator is made by the Chief Justice under s. 2 and such decision
becomes final and conclusive and cannot be challenged even in an application to set
aside the award. As a consequence of the aforesaid decision, s. 34 dealing with
application for challenge of an award has effectively been amended to the extent that
certain grounds of challenge are no longer available in awards made by arbitral
tribunals constituted with the aid of s 11.
The consequences flowing from the aforesaid decision in Patel Engineering can be
seen from two recent judgments of the Supreme Court, in Union of India v V.S
Engineering Pvt Ltd,12where the Supreme Court distinguished Patel Engineering on the
12(2007) Company Law Journal126.
7/30/2019 Limitation of Arbitration in Indian Context (1)
12/22
LIMITATIONS OF ARBITRATION IN INDIAN CONTEXT
12 | P a g e
issue of appointment of arbitrators by administrative authorities such as railways, and in
National Thermal Power Corporation Ltd v Siemens Atkeingesellschaft,13 where the
Supreme Court held that Patel Engineeringeffectively confined the operation of s 16 to
cases where the arbitral tribunal was convened without reference to the Chief Justice
under s 11(6) of the 1996 Act. In other words, in a case where the parties have
constituted the arbitral tribunal without recourse to section 11(6) of the 1996 Act, they
still have the right to question the jurisdiction of the arbitral tribunal, including the right to
invite a ruling on any objection with respect to the existence or validity of the arbitration
agreement.
As a result of the decision in Patel Engineering, the decision of the Chief Justice on vital
issues like the existence of a valid arbitration agreement and other jurisdictional issues
will become final and conclusive without a regular trial by the arbitral tribunal or a court.
If the legislature intended to give finality to the decision on such vital issues as those
examined above, it would have conferred the power under s ll on the courts as it has
done in other sections and not on the Chief Justice or any person or institution
designated by him or her. The legislature must have been aware that the Chief Justice
or any other person or institution cannot decide on such issues finally and conclusively.
Thus, there has been a widespread campaign for the majority decision in Patel
Engineeringto be the subject of immediate legislative intervention or reconsideration by
a still larger bench of the Supreme Court.
3.1.6 Power of Jud icial Auth ori t ies to Refer Parties to Arb itration un der Part II of
the 1996 Ac t
In Shin-Etsu Chemical Co Ltd v Aksh Optlfibre Ltd14, the Supreme Court had to consider
whether the finding of the judicial authority under s 45 of the 1996 Act, as to whether the
arbitration agreement, falling within the definition of s 44 of the 1996 Act, is or is not 'null
and void, inoperative or incapable of being performed', should be a final expression of
13(2007) 5 Company Law Journal 83.
14(2005) 7 SCC 234.
7/30/2019 Limitation of Arbitration in Indian Context (1)
13/22
LIMITATIONS OF ARBITRATION IN INDIAN CONTEXT
13 | P a g e
the view of the judicial authority or should rather be a prima facie view formed without
full-fledged trial.
By a majority, the Supreme Court answered the aforesaid question by holding that sub-
section (3) of s 8 in Part I of the 1996 Act envisages that even in a situation where an
application to the court has been made under sub-section (1), the arbitration may
commence, continue and even an arbitral award be made. This was obviously meant to
cut down delay in the conclusion of the arbitral proceedings. There is conspicuous
absence of a corresponding provision either in s 45 or in the rest of the provisions in
Part II. This legitimately gives rise to an inference that once the arbitral agreement has
been subjected to scrutiny before the court under s 45of the 1996 Act, conceivably, the
arbitral proceedings could be stayed till the outcome of the decision of a court on the
nature of the arbitral agreement.
If it were to be held that the finding of the court under s 45 should be a final and
determinative conclusion, then it is obvious that, until such a pronouncement is made,
the arbitral proceedings would have to be in limbo. This evidently defeats the credo and
ethos of the 1996 Act, which is to enable expeditious arbitration without avoidable
intervention by judicial authorities.
3.1.7 The 1996 Act as Sp ecial Legislatio n
In Gujarat Uraja Vikash Nigam Ltd v Essar Power Ltd15, the issue adjudicated before
the Supreme Court was whether the provisions for dispute resolutions contained in the
Indian Electricity Act 2003 would prevail over s 11 of the 1996 Act. In complete
disregard of the dispute resolution clauses in the executed Power Purchase Agreement
between a State Electricity Board and an Independent Power Producer and applying the
principle of generalia specialibus non derogant (specific prevails over general) the
Supreme Court held that any dispute between these two parties will have to be
adjudicated by the State Electricity Regulatory Commission as per the provisions of the
15(2008) 4 SCC 755.
7/30/2019 Limitation of Arbitration in Indian Context (1)
14/22
LIMITATIONS OF ARBITRATION IN INDIAN CONTEXT
14 | P a g e
Electricity Act, since the Electricity Act is a specialised statute and will override the
general provisions contained in the 1996 Act.
The immediate implication of the aforesaid judgment is to render the dispute resolution
mechanism contractually agreed between the parties in all the existing Power Purchase
Agreements inoperable, despite the parties voluntarily choosing arbitration as their
preferred mode of dispute resolution.
In handing down the aforesaid judgment, the Supreme Court had not taken into
consideration s 5of the 1996 Act, which provides that all other laws for the time being in
force have been excluded from operation in so far as they relate to intervention by any
judicial authority. Additionally, any judicial authority faced with a matter that is the
subject of an arbitration agreement is statutorily mandated by s 8 to refer the parties to
arbitration. Both these provisions apply to any judicial authority performing an
adjudicatory function, including the State Electricity Regulatory Commission under the
Electricity Act.
It is even more ironic that in another decision of the Supreme Court applying the very
same principle of generalia specialibus non derogant - namely, Consolidated
Engineering Enterprises v Principal Secretary, Irrigation Department16 - the Court
decided the 1996 Act is in fact a specialised act. It is submitted that conflicting decisions
like these are only adding to the already existing uncertainty and ambiguity in the
current form of the 1996 Act.
16(2008) 7 SCC 169.
7/30/2019 Limitation of Arbitration in Indian Context (1)
15/22
LIMITATIONS OF ARBITRATION IN INDIAN CONTEXT
15 | P a g e
3.1.8 Scope for a Court to Enter tain an App l icat ion for Sett ing Asid e an Arbi t ral
Award
One of the main objectives of the 1996 Act was to minimize the supervisory role of the
courts in the arbitral process. In that light, s 34 of the 1996 Act was modeled on Article
34 of the UNCITRAL Model Law. It permitted challenge to an award only on very limited
grounds, such as invalidity of the arbitration agreement, excess of jurisdiction as to the
scope of the arbitration and conflict with the public policy of India.
The Supreme Court in Oil & Natural Gas Commission v SAW Pipes Ltd17, ('SAW Pipes')
examined the jurisdiction of the courts under s 34 of the 1996 Act. It was held that if the
award is (a) contrary to the substantive provision of law; (b) against the provisions of the1996 Act; or (c) against the terms of the contract, it would be 'patently illegal', which
could be interfered with under s 34, meaning thereby that such a patently illegal award
will be liable to be set aside on the grounds of 'public policy' under s 34. While doing so
the Supreme Court made it abundantly clear that in order to fall within the ambit of
public policy of India, the illegality must go to the root of the matter and if the illegality is
of a trivial nature it cannot be held that the award is against public policy. The nature of
patent illegality has been clarified further, in that the award should be so unfair or
unreasonable that it shocks the conscience of the court and such an award is opposed
to public policy and is required to be adjudged void.
The aforesaid decision was extensively criticised as bringing back by the interpretative
process, the much abused ground of 'error of law' for setting aside an award, which had
been done away with by the 1996 Act. While the SAW Pipes decision discusses the
grounds for appeal against a domestic arbitral award, the concern also is that the
reasoning could just as well apply to foreign arbitral awards. This could therefore mean
that the Courts could give the same wide interpretation to the grounds available for the
setting aside of a foreign arbitral award as they have given and are prone to giving in
respect of domestic arbitral awards.
17(2003) 5 SCC 705.
7/30/2019 Limitation of Arbitration in Indian Context (1)
16/22
LIMITATIONS OF ARBITRATION IN INDIAN CONTEXT
16 | P a g e
There is a danger that the concept of illegality introduced by the Supreme Court as a
ground of challenge will convert the proceedings under s 34 of the 1996 Act into a full
fledged appeal and frustrate the very purpose of the 1996 Act. According to critics, the
aforesaid judgment showed the inability of the courts to reconcile with the limited role
assigned to them in arbitrations.
Another criticism of s. 34 of the 1996 Act is its suspensory effect on the execution of the
arbitral award. In National Aluminium Co Ltd v Pressteel & Fabrications Pvt Ltd18, the
Supreme Court held that there is an automatic suspension of the execution of the award
the moment an application challenging the said award is filed under s 34. In such an
event, if any interim orders or measures are to be taken, the parties have no recourse
but to wait till the application under s 34 is decided.
It has been widely argued that the legislature should amend s 34 to bring more clarity
on the various instances which could confer a right on a party to challenge an award.
It would avoid wasting the valuable time of the courts and will prevent trivial issues
being challenged under the aforesaid provision. For instance, in Sanshin Chemicals
Industry v Orient Carbons & Chemicals Ltd19, a simple issue of venue for the arbitration
was challenged and the same had to be decided ultimately by the Supreme Court.
Though the Supreme Court expressed its hope that necessary steps would be taken by
the authorities concerned at the earliest to bring about the required change in the law to
empower courts to pass suitable interim orders in s 34 cases, the suggested change in
law is yet to occur.
18(2004) 1 SCC 540.
19(2001) 3 SCC 341.
7/30/2019 Limitation of Arbitration in Indian Context (1)
17/22
LIMITATIONS OF ARBITRATION IN INDIAN CONTEXT
17 | P a g e
3.1.9 Relief from Appellate Orders
In Shin-Etsu Chemical v Vindhya Telelinks20, the Supreme Court had to decide, whether
a person aggrieved by an appellate order passed by a District or Civil Court under s 37
of the 1996 Act could challenge it by filing a special leave petition before the Supreme
Court. It was held that the aggrieved party could not approach the Supreme Court
directly against such an order and would have to first approach the High Court either by
way of a revision under the Code of Civil Procedure 1908 or under Article 227 of the
Constitution of India, which grants supervisory powers to the High Court.
While the 1996 Act clearly excludes the applicability of Civil Procedure Code 1908, the
Supreme Court in the aforesaid judgment has observed that the jurisdiction of the High
Court shall not stand superseded under the 1996 Act, since the 1996 Act does not
contain any express bar against exercise of revisional power by the High Court. Section
37 of the 1996 Act prevents a party from filing a second appeal, but allows the
aggrieved party to appeal to the Supreme Court. The aforesaid provisions in the 1996
Act are specifically provided to avoid multiple rounds of litigations. However, this
decision does not further the objective of this legislation, which is minimal judicial
intervention and maximum judicial support.
Apart from the anomaly in the 1996 Act in its current form, one of the reasons for the
aforesaid approach by the Supreme Court is that, normally, the majority of the arbitral
tribunals which pass an award or any interim orders comprise of retired Supreme Court
Judges and or retired High Court Judges. Normally the judge presiding in a District
Court would either avoid overruling decisions which have been challenged before it or
not state any reasons for dismissal of an appeal. Given this situation, the Supreme
Court, in order to avoid becoming a court of first appeal and getting into the entire
details of the matter, has directed the aggrieved parties to approach the High Court for
one more round of litigation.
20AIR (2009) SC 3284.
7/30/2019 Limitation of Arbitration in Indian Context (1)
18/22
LIMITATIONS OF ARBITRATION IN INDIAN CONTEXT
18 | P a g e
The 1996 Act does not provide any clear provision on whether an aggrieved party can
approach a High Court under the supervisory jurisdiction or the Supreme Court by a
special leave petition against an order of a district judge. It also does not lay down what
kind of orders would be appealable before the Supreme Court.
Though the Supreme Court in Rashtriya Ispat Nigam Ltd v Verma Transport Co.21
observed that the 1996 Act was enacted by the Indian Parliament in the light of the
UNCITRAL Model Rules, in certain respects, the Parliament of India while enacting the
1996 Act had gone beyond the scope of the said rules. As a consequence of this, the
Courts have taken upon themselves the role of the legislature in interpreting the 1996
Act. In some cases it has resolved and in others it has added to the ambiguity.
4. CONCLUSION
In view of the various shortcomings in the provisions of the 1996 Act, as discussed
above, the Law Commission in 2001 recommended amendments to Part I of the 1996
Act. It was widely felt that these recommendations, which sought to provide all
pervasive court supervision and control over the conduct of the arbitral proceedings,
would take us back to the era of court structured and court controlled arbitration -
something that was supposed to have effectively ended with the coming into force of the
1996 Act.
In 2004 the Government of India constituted a Committee headed by Justice Saraf to
make an in-depth study of the implications of the recommendations of the aforesaid Law
Commission and also all the aspects of the Arbitration and Conciliation (Amendment)
Bill 2003 and make suggestions to the government. In its report, submitted in 2005, the
committee made recommendations which largely attempted to protect the basic
features like party autonomy, maximum judicial support and minimum judicial
intervention contained in the 1996 Act.
21(2007) 6 Company Law Journal 240
7/30/2019 Limitation of Arbitration in Indian Context (1)
19/22
LIMITATIONS OF ARBITRATION IN INDIAN CONTEXT
19 | P a g e
The key highlights of this committee's recommendations included constitution of
separate courts to specifically deal with arbitration matters, deeming of international
commercial arbitration held in India as domestic arbitration, provision for maintainability
of revision, enabling reference to arbitration in pending legal proceedings, providing
mechanisms for the enforcement of interim measures, additional grounds for
challenging a domestic award and providing for constitution of fast track arbitral tribunal
for fast track arbitration. These recommendations have not yet taken the shape of a law.
The greatest single virtue of a strong legislature is not what it can do, but what it can
prevent. The paramount objectives of enacting the 1996 Act were party autonomy,
maximum judicial support and minimum judicial intervention. The courts should
undoubtedly be reluctant to extend the scope of a statute beyond the contemplation of
the legislature on difficult matters of law or policy. However, this is what has happened
with judicial attitudes to the 1996 Act. An analysis of the aforesaid decisions handed
down by the Supreme Court makes it evident that the 1996 Act needs a serious rethink
in order to achieve the objectives for which it was enacted.
The first Chancellor of the German Empire, Otto von Bismarck, is said to have quipped,
'Laws are like sausages - it is better not to see them being made'. With due respect, our
law makers should pay more attention while enacting statutes, which would further the
objective of fast track dispute resolution and reduce the time taken in litigation. If some
fine tuning of the 1996 Act is undertaken, it could remove the pitfalls and go a long way
towards strengthening the arbitration regime in India.
7/30/2019 Limitation of Arbitration in Indian Context (1)
20/22
LIMITATIONS OF ARBITRATION IN INDIAN CONTEXT
20 | P a g e
5. BIBLIOGRAPHY
LIST OF CASES
1. Bhatia International v Bulk Trading S.A., 4 SCC 105: AIR 2002 SC 1432
2. Venture Global Engineering v SatyamComputer Services Ltd, (2008) 4 SCC 190.
3. Citation Infowares Ltd v Equinox Corporation, (2009) 7 SCC 220
4. P Anand Gajapathy Raju v P V G Raju, (2000) 4 SCC 539.
5. Morgan Securities and Credit Pvt Ltd v Modi Rubber Ltd, (2007) 2 Company Law
Journal 401.
6. Sundaram Finance v NEPC India Ltd, (1999) 2 SCC 479.
7. Narayan Prasad Lohia v Nikhunj Kumar Lohia, (2002) 3 SCC 572.
8. Ador Samia Pvt Ltd v Peekay Holdings Ltd, (1999) 8 SCC 572.
9. Konkan Railway Corporation Ltd v Mehul Construction Co., (2000) 7 SCC 201
10.SBP & Co. v Patel Engineering Ltd., (2005) 8 SCC 618
11.Union of India v V.S Engineering Pvt Ltd, 2007)] Company Law Journal126.
12. National Thermal Power Corporation Ltd v Siemens Atkeingesellschaft, (2007) 5
Company Law Journal 83.
13.Shin-Etsu Chemical Co Ltd v Aksh Optlfibre Ltd., (2005) 7 SCC 234.
14.Gujarat Uraja Vikash Nigam Ltd v Essar Power Ltd, (2008) 4 SCC 755.
15.Consolidated Engineering Enterprises v Principal Secretary, Irrigation Department,
(2008) 7 SCC 169.
16. Oil & Natural Gas Commission v SAW Pipes Ltd(2003) 5 SCC 705.
17.National Aluminium Co Ltd v Pressteel & Fabrications Pvt Ltd(2004) 1 SCC 540.
18.Sanshin Chemicals Industry v Orient Carbons & Chemicals Ltd., (2001) 3 SCC 341.
19.Rashtriya Ispat Nigam Ltd v Verma Transport Co., (2007) 6 Company Law Journal
240.
7/30/2019 Limitation of Arbitration in Indian Context (1)
21/22
LIMITATIONS OF ARBITRATION IN INDIAN CONTEXT
21 | P a g e
ARTICLES
1. RISHI KUMAR DUGAR, Derailment in Fast Track Dispute Resolution, Law Asia
Journal, 2010 Lawasia J. 129 2010.
2. SUMEET KACHWAHA AND DHARMENDRA RAUTRAY, Kachwaha & Partners,
Arbitration in India: An Overview, available at
http://www.kaplegal.com/index.php?option=com_members&view=members&id=3
3. GEOFFREY S. STEWART & KARTHIK KUMAR,Dispute Resolution Issues in IndianCross-Border Transactions, available at http: //www.
jonesday.com/dispute_resolution_issues/.
4. MARTIN DOMKE, Recent Developments in International Commercial Arbitration,
N.Y.U.Journal of International Law and Politics, 2 N.Y.U. J. Int'l L. & Pol. 267 (1969).
5. TOM CANNING, The Supreme Court of India upholds the sanctity of internationalarbitration, Milbank, Tweed, Hadley & McCloy LLP Publications, available atwww.milbank.com/.../Indian-Supreme-Court-Upholds-The-Sanctity-of/.
6. BADRINATH SRINIVASAN, Arbitration and the Supreme Court: a tale ofdiscordance between the text and judicial determination, 4 NUJS L. Rev. 639 2011.
7. SUMEET KACHWAHA, The Indian Arbitration Law: Towards a New Jurisprudence,
10INT. A.L.R. 13, 17 (2007).
8. PRABHASH RANJAN & DEEPAK RAJU, The Enigma of Enforceability ofInvestment Treaty Arbitration Awards in India, 6ASIAN J. OF Comp. LAW ART. 5(2011).
9. REPORT OF JUSTICE SARAF COMMITTEE ON ARBITRATION (January 29,2005), available at lawmin.nic.in/la/consultationpaper.pdf.
BOOKS
1. DAVID ST. JOHN SUTTON, Russell on Arbitration, 21st ed, 1996, Sweet & Maxwell,
London
2. SAHARAY H.K., Law of Arbitration and Conciliation, Eastern Law House, New Delhi,
2001
http://www.kaplegal.com/index.php?option=com_members&view=members&id=3http://www.kaplegal.com/index.php?option=com_members&view=members&id=37/30/2019 Limitation of Arbitration in Indian Context (1)
22/22
LIMITATIONS OF ARBITRATION IN INDIAN CONTEXT
22 | P a g e
3. JUSTICE DR. B.P. SARAF AND JUSTICE S.M. JHUNJHUNWALA, Law of
Arbitration and Conciliation, 4th ed., 2006, Snow White Publishing Ltd.
4. MALHOTRA O.P., Law and Practice of Arbitration and Conciliation 1st ed., 2002,
Lexis Nexis Butterworths Wadhwa, Nagpur (India).