Beginner’s guide to arbitration: Part 2

The first part of this article series dealt with laws governing arbitration, subject matter of arbitration, arbitration agreement and how an arbitrator is appointed. Click here to read more. This second part provides further insight into the arbitration process.

INTERVENTION BY COURTS

What is the role of courts in respect of arbitral proceedings?

One of the biggest advantages of arbitral proceedings is the relative lack of intervention by courts. This has ensured that arbitral proceedings are not rendered nugatory. The intervention by courts falls mainly within the following 4 broadheads:

Appointment of an arbitrator [Section 11 of the Arbitration & Conciliation Act, 1996 (‘the Act’)] – which has already been dealt with hereinabove;
Interim measures by court (Section 9 of the Act);
Challenge to the arbitral award or to orders passed on interim applications under Sections 16, 17, etc. (Sections 34 and 37 of the Act); and
Execution of the arbitral award (governed by the Code of Civil Procedure, 1908).

What is the scope of Section 9 of the Act?

A party may at any stage (i) before the commencement of arbitral proceedings; (ii) after the commencement of arbitral proceedings; and (iii) after the passing of the arbitral award but prior to its enforcement, apply to the court for certain reliefs. These interim reliefs inter alia include:

The appointment of a guardian of a minor/person of unsound mind in respect to arbitral proceedings;
Interim measures of protection for the preservation/custody/sale of goods forming the subject matter of the dispute;
Securing the amount in dispute;
The detention/preservation/inspection of any property or thing; and
Interim injunction or the appointment of a receiver in respect of the subject matter of the dispute.

It is significant to note that the scope of Section 9 of the Act has been enlarged by virtue of the Arbitration & Conciliation (Amendment) Act, 2015 (‘the Amendment Act’). Infact, the inclusion of Section 9(1)(ii)(e) enables the court to pass “such other interim measure of protection as may appear to the Court to be just and convenient”, which grants the courts further power to pass orders on applications under Section 9 of the Act.

Are there any fetters on parties seeking and obtaining reliefs under Section 9 of the Act without subsequently initiating arbitral proceedings?

If the court passes an interim order for protection, the party is supposed to commence arbitral proceedings within 90 days from the date of such order (or within such further time as determined by the court). Generally, in the Bombay High Court, an interim order passed under Section 9 of the said Act is accompanied with an order for the appointment of an arbitrator as also with a direction that the application under Section 9 of the said Act would be converted into an application under Section 17 of the said Act (to be heard by the arbitrator so appointed), which would have to be disposed of in a time-bound manner. Accordingly, the Bombay High Court generally ensures that applications under Section 9 of the said Act are not kept pending in Court and are dealt with expeditiously by the arbitrator appointed.

Where would the challenge to an arbitral award lie?

An arbitral award passed by the arbitrator will have to be challenged in court under Section 34 of the Act, which also provides for the limited grounds on which an arbitral award can be impugned. Generally, an arbitral award can be challenged inter alia if (i) the party can show that the arbitration agreement is not valid; (ii) the composition of the arbitral tribunal is not in accordance with the agreement between the parties; (iii) the arbitral award deals with a dispute which was not submitted to arbitration; (iv) the subject-matter of the dispute is not arbitrable; and (v) the arbitral award is in conflict with the public policy of India i.e. the making of the arbitral award was induced by fraud/corruption or if the award is in contravention with the fundamental policy of Indian law or if the award is in conflict with the basic notions of morality or justice. It is pertinent to note that courts will exercise their jurisdiction under Section 34 of the Act, provided that the challenge falls within the narrow compass contemplated under this Section. See Associate Builders v. DDA, (2015) 3 SCC 49 in this regard.

It is significant to note that the courts cannot substitute the arbitral award under Section 34 of the Act – they can merely set aside the arbitral award passed. At the highest, in the event of an infirmity in the arbitral award, which can be cured, the dispute can be remitted to the arbitrator to decide afresh on certain aspects which may have been overlooked.

Where would the challenge to an order passed under Section 34 of the Act lie?

A challenge to an order under Section 34 of the Act would lie in the same court, under Section 37 of the Act. Section 37 provides for the procedure to challenge not just the order but also orders passed under Sections 8, 9, 16(2), 16(3) and 17 of the Act. However, it is imperative to note that the scope of challenge under Section 37 is extremely limited/restricted. See Sutlej Construction Limited v. Union Territory of Chandigarh, (2018) 1 SCC 718 in this regard (this judgment also deals with the aspect of a challenge to an arbitral award under Section 34 of the Act).

ADVANTAGES OF ARBITRATION

Do arbitral proceedings provide any advantage whatsoever to parties?

Arbitral proceedings are the flavor of the season and have been for some time now. This is in view of some distinct advantages, namely:

Expeditious disposal of arbitral proceedings/speedy justice; and
Freedom of the parties.

In line with the adage “Justice delayed is justice denied”, how do arbitral proceedings ensure speedy disposal?

On account of the pendency of proceedings as also the gross volume of matters, court proceedings are generally synonymous with delay. It is in this context that arbitral proceedings are seen to have a distinct advantage. In view of the fact that parties and the arbitrator could by consensus schedule timelines for the conclusion of arbitral proceedings, the general time taken is considerably less viz-a-viz court proceedings. This is on account of factors that adjournments sought/granted would be accompanied by costs (unquantified) – an effective practice to deter adjournments/protracting proceedings; and that arbitral meetings/hearings could be scheduled prior to court/during court hours/after court hours.

Does the Act provide for timelines of arbitral proceedings?

Section 29-A, which was introduced in the Act by virtue of the Amendment Act, prescribes a time limit for an award to be passed by the arbitrator. According to this Section, an award needs to be made/passed within 12 months from the date on which the arbitrator enters upon the reference i.e. the date on which the arbitrator receives intimation (in writing) of the appointment.

If the time period of 12 months lapses, the parties may, by consent, extend the period by a further 6 months. Thereafter, the only means to seek an extension would be by an order of the appropriate court.

Are there any safeguards to ensure that the time period is complied with?

Costs are the only (but decidedly important) inimical factor which come into play. Arbitrators are entitled to additional fees if they pass an award within 6 months of entering upon the reference. Conversely, however, in the event that the parties have to seek an extension from court (after the period of 12+6 months expire), and the court finds that the arbitral proceedings are delayed for reasons attributable to the arbitral tribunal, the court may order a reduction in the fees of the arbitrator. Likewise, the court may also impose actual/exemplary costs on the parties if it finds the delay attributable to them.

What is a fast track procedure?

This is an aspect which has also been introduced by the Amendment Act and which finds place as Section 29-B of the Act. According to the fast-track procedure, a sole arbitrator appointed by the parties ideally ought to complete the arbitral proceedings and pass an award within a period of 6 months from the date of entering upon the reference. This would be a possibility in view of the fact that the dispute would be decided by the arbitrator only on the basis of written pleadings, documents and written submissions and without any oral hearing being held (unless either party makes a request or the arbitrator considers it necessary). This form of arbitral proceedings may also be beneficial to the parties inter alia including since the costs/expenses towards hearings would be obviated.

Are there any other advantages under the Act?

One of the main aspects under the Act is the freedom afforded to the parties – which is reflected in the freedom of choice in the appointment of the arbitrator; freedom to choose the law governing the dispute; freedom to choose the procedure governing the arbitral proceedings; freedom to choose the venue where the arbitral proceedings will be held, etc. Of course, all of the above are subject to an agreement between the parties. It is significant to note that these aspects (amongst numerous others) which provide considerable freedom to the parties would not be afforded in court proceedings.

DRAWBACKS OF ARBITRATION

Are there any drawbacks to arbitral proceedings?

Unfortunately, some courts including the Supreme Court have taken an archaic view to the concept of an arbitration agreement by holding that the statement made by the legal counsel of the parties is not sufficient to constitute a valid, binding and enforceable arbitration agreement as the same is not in writing (as more particularly set out hereinabove). This outlook of courts detracts from the very impact that arbitration seeks to make in a developing and emerging economy in India. Another major drawback is the fact that numerous topics are non-arbitrable in India, further constricting the scope of arbitral proceedings. Further, the execution of an arbitral award is governed by the Code of Civil Procedure, 1908, which brings its own pitfalls/restrictions.

Why are arbitral proceedings costlier than court proceedings?

Arbitral proceedings come with their own set of expenses which includes expenses towards (i) fees of the arbitrator – which varies depending on the level of seniority of the arbitrator appointed (retired Judge of the Supreme Court or a High Court; designated Senior Advocate; legal counsel) – although the Amendment Act by way of the introduction of the Fourth Schedule sought to regulate the same, it does not appear to be adhered to presently by arbitrators; (ii) costs of the venue of the arbitral proceedings – which are generally held in conference rooms/hotels; (iii) miscellaneous secretarial costs including for a stenographer, lunch/tea etc. These costs add up, making arbitral proceedings not as cost-effective as proceedings in court.

From the aforesaid, hopefully, it is clear that the trajectory followed in the Indian legal sphere is pro-arbitration. Infact, in view of the myriad advantages that arbitration has (with relatively few disadvantages as aforestated), this is a complete no-brainer. India has welcomed this trend with open arms and is seemingly becoming an arbitration-friendly environment, which is manifested inter alia in the sprouting of numerous centres for institutional arbitration across the country; the amendments being made to the Act in India; and the fact that government contracts also contain arbitration agreements etc. With this boom in the arbitration sphere in India, various law firms, legal practitioners and legal counsel are solely basing their focus on arbitral proceedings – and there cannot be any greater indicator of the burgeoning role of arbitration in India than that.

DISCLAIMER: The information provided in this article is for educational purposes only. The same cannot be construed as legal advice.