A perusal of the scheme of the provisions of the Arbitration and Conciliation Act, 1996 [ACA] will make it clear that the legal basis for resolving disputes between parties to an agreement is the arbitration agreement between them.
Under Civil Procedure Code, 1908 [CPC], the trial procedure involved in adjudication of disputes is quite exhaustive. Pleadings commencing from plaint, written statement of the defendants and additional reply of the plaintiff to the written statement of the defendants mark the written pleadings. There would be also interlocutory and intervening applications taken out by one or the other party which may expand the scope of the case and delay the adjudication process. [To this extent, there may not be any difference in civil court or arbitration or in any other quasi-judicial forum such as the Company Law Board, though the nomenclature of the pleadings may be different]. Thereafter admissions and denials of evidence will take place and trail procedure involving examination / cross examination of witnesses will take place. Finally after hearing the arguments of both sides, the civil court delivers its judgment. Then the stages of first appeal, second appeal and revisions and special leave until Supreme Court finally decides the dispute, the litigation journey does not end.
In order to facilitate quicker resolution of disputes and to reduce the burden upon civil courts, Section 89 of the CPC enables civil courts which are seized of a matter to refer parties to arbitration so that the disputes may get resolved earlier. While doing so, the civil courts have to look at the nature of issues involved and decide if the issues involved in the suit of such nature are capable of being resolved through arbitration.
In Afcons Infrastructure Ltd. and Anr. V Cherian Varkey Construction Co. (P) Ltd. and Others in its decision dated 26th July 2010, (2010) 8 SCC 24 held as follows:
"The following categories of cases are normally considered to be not suitable for Arbitration or Conciliation [ADR process]:
- Representative suits under Order 1 Rule 8 CPC which involves public interest or interest of numerous persons who are not parties before the court. (In fact, even a compromise in such a suit is a difficult process requiring notice to the persons interested in the suit, before its acceptance).
- Disputes relating to election to public offices (as contrasted from disputes between two groups trying to get control over the management of societies, clubs, association etc.).
- Cases involving grant of authority by the court after enquiry, as for example, suits for grant of probate or letters of administration.
- Cases involving serious and specific allegations of fraud, fabrication of documents, forgery, impersonation, coercion etc.
- Cases requiring protection of courts, as for example, claims against minors, deities and mentally challenged and suits for declaration of title against government.
- Cases involving prosecution for criminal offences."
"All other suits and cases of civil nature in particular the following categories of cases (whether pending in civil courts or other special Tribunals/Forums) are normally suitable for ADR process:
- All cases relating to trade, commerce and contracts,
- All cases arising from strained or soured relationships,
- All cases where there is a need for continuation of the pre-existing relationship in spite of the disputes;
- All cases relating to tortious liability; and
- All consumer disputes."
Supreme Court further held that "the above enumeration of 'suitable' and 'unsuitable' category of cases is not intended to be exhaustive or rigid. They are only illustrative."
[On the possibility of resolving disputes involving issues of fraud, read decision of the Supreme Court in Maestro Engineers case. Of course that decision was rendered in an appeal emanating from an application under Section 8 of ACA where the defendants in a suit had applied to the court to refer the parties to arbitration in view of a pre-existing arbitration agreement and the Court contended that it has powers to refuse to grant the application if it is of the opinion that the issues involved allegations of fraud which will not be possible to be resolved by arbitral tribunal]
In the Afcons Infrastructure case, the Supreme Court had held that "under Section 89 of CPC it is ascertaining whether it is feasible to have recourse mandatory for a civil court to have a hearing, after the completion of pleadings, for the purpose of to refer parties to Arbitration or Conciliation [ADR Process]. However the Supreme Court clearly held that it is not mandatory to refer the Parties to any ADR process in all cases. Where the case falls under an excluded category there need not be reference to ADR Process. In all other cases reference to ADR process is a must."
It was further held that "a civil court, exercising power under Section 89 of CPC, cannot refer a suit to arbitration unless all the parties to the suit agree for such reference."
In Jagdish Chander v. Ramesh Chander 2007 (5) SCC 719, the Supreme Court had held as follows:
"It should not also be overlooked that even though Section 89 of CPC mandates courts to refer pending suits to any of the several alternative dispute resolution processes mentioned therein, there cannot be a reference to arbitration even under Section 89 of CPC, unless there is a mutual consent of all parties, for such reference."
The existence of an Arbitration Agreement is mandatory pre-condition before dispute adjudication process through arbitration could be set in motion. Parties to a suit may enter into an arbitration agreement at any stage of a suit subject to the leave of the Court. Under Section 89 of CPC, even if the civil court comes to a conclusion that the dispute is of such nature that it could be resolved through arbitration, arbitration cannot be thrust upon the parties. They must express their consent. Consent of all parties to the suit is mandatory for reference to arbitration even under Section 89 of CPC.
Arbitration Process results in an award. Parties are bound by the same. As per Section 36 of the ACA, Arbitration Award is enforceable as if it were a decree of a court. The legal position does not change if one or more parties to the arbitration find that the award is not palatable.
Arbitration commences with the consent of all the parties. Arbitration puts an end effectively to the dispute. Unlike conciliators, Arbitrators do not need the consent of parties to issue an award that legally binds the parties. The above legal position must be the reason why the legislature has laid a lot of emphasis on the need for consent of parties at the stage of reference to arbitration.
It is a different issue that parties consent to arbitration without even understanding the legal consequences of entering into an arbitration agreement!
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.