ANALYSIS OF PRINCIPLE OF MINIMUM JUDICIAL INTERFERENCE IN ARBITRATION
Author: Mihir Nirbhuwane, IV year of B.S.W.,LL.B. from Gujarat National Law University
Co-author: Shikhar Nigam, IV year of B.A.,LL.B. from Gujarat National Law University
Arbitration is an effective and alternative technique for resolving disputes quickly. It is a crucial component of the Alternative Dispute Resolution Process. It was introduced in India by the Arbitration Act of 1940. Arbitration in India was regulated and institutionalised under the Arbitration and Conciliation Act, 1996, which considered foreign models such as the UNCITRAL Model Law on International Commercial Arbitration (Act). Several modifications to the Act have been made throughout the years. In India, arbitration was growing in popularity as a conflict settlement method as a substitute to litigation at the time the Act was implemented. The courts were overwhelmed with an enormous number of cases, and the Act drew litigants to this alternative against the usual way of litigation. Over the decades, the judiciary has established the idea of minimal judicial intrusion in arbitration processes, complying with the Act's objectives. It is presently one of the most popular methods of conflict resolution since it incorporates mediation and conciliation and encourages parties to resolve their problems outside of Court and in a short amount of time. Simply put, "Arbitration" is a method of resolving conflicts between two or more parties, the goal of which is expressed by a contract or agreement, and the parties consent to settle their problems through mediation or conciliation."
Section 2 of the Arbitration and Conciliation Act 1996 defines "Arbitration" as - "unless the context otherwise requires (a) Arbitration means any arbitration whether or not administered by permanent Arbitral Institution and (b) "Arbitration Agreement", means, and agreement referred to in Section 7."
"Arbitration agreement" refers to a formal agreement. As a result, it must have all the essential elements of a legal contract. The following are the significant features of a contract of arbitration:
1. The contract must be written.
2. Any documentation signed by both sides and intended to be an arbitration agreement could also be proven as a written agreement.
3. An interchange of letters, telexes, telegrams, or other electronic communication that can be legitimately provided as proof of agreement shall be regarded as agreement.
4. An arbitration agreement could be in the contract format of an Arbitration Clause. Therefore a complete agreement for arbitration is not required.
5. The sides' aim under the Arbitration Clause must be apparent, that conflicts should be resolved by arbitration.
6. An Agreement of Arbitration can be characterised as exchanging some statement of claim and defence in which the presence of an agreement concerning arbitration is stated by one party and not contested by the other.
7. A communication by the sides to commit to arbitration entire or specific conflicts that have occurred or may develop in the future, amongst them in connection to any specified legal obligation, shall be deemed an agreement, whether this communication is contractual or not.
8. A reference in an agreement to documentation containing an arbitration clause becomes an Arbitration Agreement if the contract is written and the reference seems to be that the arbitration clause becomes an element of the contract.
It is a well-known fact that due to the lack of a voluntary agreement between the parties, the jurisdiction of arbitration could not be called in any dispute until there is an express agreement to resolve the matter by arbitration. A distinct Arbitration Agreement is unnecessary if there's a clause in an agreement that refers to any disputes resulting from a breach of any conditions and restrictions of the arbitration agreement. Nevertheless, it should be emphasised that if an arbitration clause is included in the agreement, the concept of separability will apply, and two agreements will be in force. As a result, an arbitration award is enforceable on both sides of the conflict and is executable in Court.
JUDICIAL INTERVENTION UNDER ARBITRATION
Section 5 of the Arbitration and Conciliation Act, 1996 - "Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where provided."
Court intervention, when an arbitration agreement exists
In practice, the Court of other Judicial Authority will not interfere in arbitration processes or awards. The concept of non-intervention is founded on the idea that when sides to a business agreement have agreed to settle their issues through mediation and conciliation by arbitration, the Court has no cause to interfere in this arbitration case.
Section 8 of the Arbitration and Conciliation Act, 1996 specifies that if an Arbitration Agreement exists amongst the parties, the judicial courts should, at the first instance, recommend any case brought before them to arbitration for review.
However, the courts have the authority to hear any dispute if they believe there is no legitimate arbitration agreement between the sides. In this scenario, any parties may apply to the Court, accompanied by the Genuine Arbitration Agreement and a properly authenticated copy of the agreement.
Court intervention when one party does not possess a copy of the arbitration agreement
The Act enables the Court to accommodate all such applications for interference in matters of arbitration, in which the Court is pleased that the applying side does not have a copy of the Arbitration Agreement and will not be able to obtain it in the ordinary course, via the procedure of arbitration, it can intervene and provide the path, 'on the prayer of one side to the other side, to generate the Original Arbitration Agreement or its adequately authenticated copy of the agreement. However, the Court's minor action in instructing the opposing party to provide the original Arbitration Agreement or a certificated genuine copy before the Court does not preclude the parties from referring the dispute to arbitration.
SUPREME COURT JUDGEMENTS
M/s. Ssangyong Engineering & Construction Co. Ltd. Vs. National Highway Authority of India Limited[i]
The Supreme Court held that - "When it pertains to the Public Policy of India, the contention is based on "most basic ideas of justice," this basis can be used only in extremely unusual situations when the Court's conscience is struck by a violation of fundamental concepts or principles of justice."
"Furthermore, a unilaterally published circular by one side cannot commit the other side to the contract without the permission of that other side. As a result, the majority ruling has constructed a new contract for the parties by utilising the unilateral circular and replacing a viable formula under the agreement with another formula that dehors the agreement. In this instance, a basic principle of justice has been violated: a unilateral addition or change to a contract may never be imposed on a reluctant party, nor can the agreement be held obliged to execute a deal not agreed into with the other party. Such behaviour would be contradictory to fundamental concepts of justice as they are practised in this nation, and it disturbs the conscience of this Court."
The Hon'ble Supreme Court has further stated, "However, we reiterate that this basis is accessible only under extremely unusual situations, such as the facts in the instant matter. Under no conditions may a court overturn an arbitral decision because justice has not been served, in the Court's opinion. That'd be an intrusion into the substance of the case, which, as we've observed, runs in contrast to the spirit of Section 34 of the Act of 1996, as mentioned previously in this judgement. The decisions by the Single Judge and the Division Bench of the Delhi High Court are reversed. As a result, the majority reward is also reversed. According to Section 34 of the Act of 1996, conflicts settled by the majority award must be brought by another arbitration. This would entail significant delay and would run counter to one of the Act's main goals, which is to resolve disputes as quickly as possible through the arbitral procedure established by the Act. As a result, to provide comprehensive justice to the parties, we are using our authority under Article 142 of the Indian Constitution—."
Bhaven Construction v. Executive Engineer Sardar Sarovar Narmada Nigam Ltd. and Anr.[ii]
In this case, a three-judge bench of the Supreme Court of India recognised the High Court's authority of intervention under Articles 226 and 227 of the Constitution of India regarding the arbitral process. The Supreme Court remarked that the High Court's authority of interference in arbitration procedures under Articles 226 and 227 of the Constitution may be invoked in 'extraordinary situations.' Commenting on the word "extraordinary rarity," the Court stated that such intervention would be justified only when a party is rendered helpless under the Act, or one of the parties demonstrates ill faith.
1. Arbitration act - a code in itself
In this case, according to the Supreme Court, The Arbitration & Conciliation Act is "a code in itself." Opining on this remark, the Court stated that it was not solely ceremonial. Still, it had defined legal implications, one being the non-obstante clause found in Section 5 of the Arbitration Act, which was enacted to preserve the parliament's intention, as made clear by the Preamble to the Act embrace the UNCITRAL Model Law and Rules and to lessen judicial intervention. The structure provided in the Arbitration Act, as recognised by the Court, plainly reflected an aim to handle most of the difficulties within the range of the Act itself without providing any room for other statutory mechanisms.
In the instant case, the Appellant evidently followed the method outlined in the contract, whilst the Respondent No. 1 showed up in front of the sole arbitrator and questioned his jurisdiction under Section 16 (2) of the Arbitration Act and then questioned the sole arbitrator's order thru a petition under Articles 226 and 227 of the Constitution. The Supreme Court remarked that Section 34 of the Arbitration Act has a well-defined mechanism for evaluating a jurisdictional dispute.
Furthermore, Section 16 of the Act requires that the matter of jurisdiction be addressed initially by the tribunal and subsequently by the Court under Section 34. As a result, Respondent No. 1 was not rendered helpless, and its use of Article 226 when a statutory right to appeal was manifestly unjustified in this matter.
2. The interplay of the Arbitration Act and judicial interference under article 226/227 of the Constitution
The Supreme Court stated that it is established law that when a statutory facility is set by statute for the redressal of grievances, a writ petition shall not be heard notwithstanding the statutory dispensation already in place.[iii] In such instances, it is wise for a judge not to use discretion in enabling judicial intervention further than the mechanism specified by the legislation. The Court concluded that this authority may only be used in rare circumstances, such as when one party is rendered helpless by the bill of one of the parties exhibits apparent 'bad faith.'
Reflecting on the high bar established by the Supreme Court in the present case, the Court stated that it is consistent with the parliamentary objective to establish arbitration as fair and efficient. In the present case, Respondent No. 1 could not demonstrate extraordinary circumstances or 'bad faith' on the side of the Appellant to utilise the redress provided by Article 227 of the Constitution. As a result, notwithstanding the vast and extensive scope of Article 227, the High Court should not have utilised its inherent jurisdiction to intervene with the arbitral procedure at that time.
Furthermore, it was highlighted that allowing courts to intervene in arbitral procedures outside the scope of the legislation would reduce the process's effectiveness. However, the Court specifically stated that Respondent No. 1 was free to submit any legally admissible challenges to the arbitrator's jurisdiction in the ongoing Section 34 procedures.
M/s Deep Industries Ltd. v. ONGC Ltd[iv]
It should be emphasised that the interrelationship of Section 5 of the Act and Article 227 was examined in this landmark case. The most substantial component was ascertained to be the non-obstante clause found in Section 5, which indicates that, notwithstanding anything enshrined in any other legislation, no judicial authority will interfere in issues emerging under Part I of the Arbitration Act unless such was so provided in this Part. Since this is the case, there is no certainty that if applications were brought under Articles 226/227 of the Constitution over orders issued in Section 37 appeals, the whole arbitral procedure could be derailed and would take several years to complete. Simultaneously, we must remember that Article 227 is a constitutional instrument undisturbed by Section 5 of the Act's non-obstante clause. In such situations, it is worth noting that, while pleas can be submitted under Article 227 against judgments allowing or rejecting first appeals per Section 37 of the Act, the High Court will be remarkably cautious in meddling with the same, taking into consideration the statutory policy adumbrated by us above, so that intervention is limited to orders that are missing in inherent jurisdiction.
INTERFERENCE ON THE GROUND OF PUBLIC POLICY
The term public policy implies public good or the interest of the common public, and this term is not defined in the Act. Therefore, this has led to ambiguities that led to the courts exercising their discretion, causing different interpretations.
This ambiguity was once sought to be tackled through the Law Commission in their 246th Report, which limited the setting aside of an arbitral award only on the grounds of public policy. The foundation of public policy was limited to being used only in cases of fraud and corruption, if the award is critical to the policy of India, or if the award is not in the interest of justice or morality.
Though what constitutes an infringement of public policy, mainly whether the award is in the interest of the general public of India or not, is still contentious, however; what is mistaken on the face of the law or what is in clear violation of a statutory provision and can be inferred on the face of the award can't be stated to be in the interest of the public.
The whole purpose of parties resorting to arbitration is to restrict the jurisdiction of the courts expressly. It's a time-saving mechanism for tackling disputes that arise between parties swiftly and efficiently. Section 34, in theory, could lead to an endless loop between the two parties by procedure by the method of the Court amusing the petition to line aside the award by the losing party says on the grounds of public policy that in itself is continues to be somewhat ambiguous. This has resulted in excessive wastage of the Court's time, precisely what arbitration was designed to tackle.
The purpose is that arbitration will cause the parties tons of money, and the parties would make a settlement sooner or later, the chance of it still undermines the complete objective of the arbitration. Where the parties have an agreement to oust the jurisdiction of the courts to come back along and confirm the dispute through arbitration, then the courts should not interfere. Furthermore, with learned, qualified and unbiased arbitrators set in situ, the question of necessary judicial interference can be reduced considerably.
[i] Civil Appeal No. 4779 of 2019 [ii] Bhaven Construction v. Executive Engineer Sardar Sarovar Narmada Nigam Ltd. and Anr.CIVIL APPEAL NO. 14665 OF 2015 [iii] Nivedita Sharma vs Cellular Operators Association of India, Civil Appeal No. 10706 of 2011, decided on December 7, 2011. [iv] (2019) SCC Online SC 1602.