India: Arbitration and Courts - A Confluence

There is abundant material on purpose, intent and resolution of the legislature when the Arbitration and Conciliation Act, 1996 ("the Act") was enacted. There is also adequate information on the amendment to the Act in 2015. Over two decades, since the time the Act has come into effect read with amendments from time to time, arbitration undeniably has evolved to a great extent.

There is an internationally accepted principle in arbitration of "kompetenz-kompetenz"1 to enable the arbitrators to rule on their own jurisdiction. The said principle though not applicable with same vigour across the world, the concept of the same is absolute alien in India. This article seeks to highlight how over a period of time a balance has been created vis-à-vis judicial intervention and arbitration.

Further, considering the underlying principle of passing of the Act was to reduce the burden of the Courts in India and not to keep them outside purview of the Act altogether. On the plain reading of the Act, it is perused that at several stages of arbitration proceedings the Courts are requested to perform the server-side work. Further, arbitration does not end with the passing of an award, since, the Act provides for recourse to Courts in case if any party wants to challenge the same.

In Coppee-Lavalin SA/NV v Ken-Ren Chemicals and Fertilisers Limited2, which was decided before the Arbitration Act, 1996 (United Kingdom) was enacted, a distinction was drawn between three groups of measures that involve the court in arbitration, the first being purely procedural steps which an arbitral tribunal cannot order or cannot enforce (e.g. issuing a witness summons to a third party), the second being designed to maintain the status quo (e.g. the granting of an interim injunction) and the third being designed to ensure the award has its intended practical effect by providing a means of enforcement if the award is not voluntarily complied with.

Section 2(1)(e) of the Act defines Court as under:-

"Court" means--

(i) in the case of an arbitration other than international commercial arbitration, the Principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any Civil Court of a grade inferior to such principal Civil Court, or any Court of Small Causes;

(ii) in the case of international commercial arbitration, the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, and in other cases, a High Court having jurisdiction to hear appeals from decrees of courts subordinate to that High Court;

The definition of Court in Section 2(1)(e) has been altered into two sub-parts. Part (i) includes cases other than international commercial arbitration and Part (ii) includes court for the purposes of international commercial arbitration.

It was held in S.M. Suparies v Karnataka Bank Limited3  that District Courts are deemed to be principal civil courts of original jurisdiction. The Principal Civil Judge of the District alone has jurisdiction to decide questions forming the subject-matter of arbitration and not any other judge.

In the matter of application for setting aside an award, it has been held that the Civil Court at Calcutta is not the Principal Civil Court of Original Jurisdiction for the city of Calcutta. It is a civil court of inferior grade. It does not come within the definition of Court. Only the High Court has jurisdiction to entertain application under the Act. 4Thus, only a Principal Civil Court in a district having original jurisdiction and includes High Court having original jurisdiction can entertain questions involving arbitration.

The question then arises is can a Supreme Court be construed within the definition of "court"?

It was held in State of West Bengal v Associated Contractors5, in no circumstances can the Supreme Court be "court" for the purposes of Section 2(1)(e) and whether the Supreme Court does or does not retain seisin after appointing  an arbitrator, application will follow the first application made before either the High Court having original jurisdiction in the State or a Principal Civil Court having original jurisdiction in the district, as the case may be.

Thus, the Act, contains a narrow definition of the Court. By virtue thereof, the hierarchy that is otherwise required to be followed in normal suits by any party which eventually gets prolonged to litigation is not applicable in arbitration.

This article considers the areas where the involvement of courts of law is mandated under the Act. It is pertinent to note that the courts of law themselves are the delimiters for defining the extent to which they shall act or intervene. The legislature has maintained a fine balance while engrafting the role of judiciary in the fabric of alternate dispute resolution mechanism. 

Section 5 - Extent of judicial intervention

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 so provided in this Part.

An arbitration agreement is a contractual undertaking by which the parties agree to settle certain disputes by way of arbitration rather than by proceedings in court. When a dispute arises however, one of the parties may nevertheless commence court proceedings either because he challenges the existence of validity of the arbitration agreement or because he means to breach it. 6

Now judicial authority has not been defined under the Act. However, under Black`s Law Dictionary Judicial authority means "the power and authority appertaining to the office of a judge; jurisdiction; the official right to hear and determine questions in controversy."7

The aforesaid provision bars the jurisdiction of courts to interfere or to intervene in arbitration proceedings except to the extent provided in Part I. Part I provides for intervention of Courts in the following cases:

  1. Section 8- Making reference in a pending suit;
  2. Section 9- Passing interim orders;
  3. Section 11- Appointment of Arbitrators;
  4. Section 14(2)- Terminating mandate of arbitrator;
  5. Section 27- Court assistance in taking evidence;
  6. Section 29A-Time-limit for arbitral award.
  7. Section 34- Setting aside an award;
  8. Section 37- Entertaining appeals against certain orders and
  9. Section 39(2)- Directing delivery of award.

Section 8 - Power to refer parties to arbitration where there is an arbitration agreement

  1. A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.
  2. The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.

    [Provided that where the original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under sub-section (1), and the said agreement or certified copy is retained by the other party to that agreement, then, the party so applying shall file such application along with a copy of the arbitration agreement and a petition praying the Court to call upon the other party to produce the original arbitration agreement or its duly certified copy before that Court.]
  3. Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.

There is no power under the section to pass an order restraining arbitral proceedings. There is no question of the court acting under Section 8 restraining arbitration from commencing or continuing. The aforesaid section is intended to achieve converse result.8

However, the arbitration agreement does not oust the jurisdiction of the courts by itself. Where no party comes forward to object to the suit, the arbitration agreement becomes ousted. A suit would have no effect on the arbitration proceeding if it is pending, or even commenced. Such proceedings can be continued and an award made. At the same time the initiation of arbitration proceedings during the pendency of a civil suit is not barred. The civil court cannot restrain such proceedings.

Section 8 is a facilitative provision in the Act. The aforesaid section enables the Court to refer the parties to arbitration and encourage them to settle their disputes through the modes covered under this Act.

Section 9 - Interim measures etc. by Court

(1) A party may, before, or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36, apply to a court-

  1. for the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings; or
  2. for an interim measure or protection in respect of any of the following matters, namely:-

    1. the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;
    2. securing the amount in dispute in the arbitration;
    3. the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;
    4. interim injunction or the appointment of a receiver;
    5. such other interim measure of protection as may appear to the Court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it.

[(2) Where, before the commencement of the arbitral proceedings, a Court passes an order for any interim measure of protection under sub-section (1), the arbitral proceedings shall be commenced within a period of ninety days from the date of such order or within such further time as the Court may determine.

(3) Once the arbitral tribunal has been constituted, the Court shall not entertain an application under sub-section (1), unless the Court finds that circumstances exist which may not render the remedy provided under section 17 efficacious.

The purpose of enacting the aforesaid provision is to protect the rights of the parties under adjudication from being frustrated. Section 9 implies existence, subsistence or manifestation of an arbitration agreement to give effect to "before or during arbitral proceedings".

When should an application under Section 9 be admissible?

The Madras High Court in its decision in NEPC India Limited v Sundaram Finance Limited9 held that an interim relief could not be availed of unless there was some manner of proceeding pending under the Act. However, the aforesaid decision was revered by the Apex Court on appeal stating that relief can be provided in such cases though arbitral proceedings have not been commenced provided there is proof of the fact that the party seeking relief means to commence arbitral proceedings. 

When should an application under Section 9 be not admissible?

Section 9 does not permit any or all applications. It only permits applications for interim measures mentioned in clauses (i) and (ii) above. For instance, the provision of section 9 was not allowed to be invoked to seek stay of arbitral proceedings. The court said that such relief could have been obtained from the Tribunal itself and not from the court.10 Interim relief can be obtained from the court to whose jurisdiction the arbitration agreement is subject.11

The Act provides for intrusion of the Court in the circumstances referred to in Section 9, which is but inevitable. It was impertinent for the legislature to supplement this provision under the Act, since, the Courts have been given the power to provide the remedy which are otherwise not available.

Appointment of the Arbitrator and Court (Sections 11, 14 and 17)

Sr. No.

Section

Circumstances in which the Supreme Court/High Court come into picture

Modality

  1.  

11(4)(a)

If the party fails to appoint an arbitrator within 30 days from the receipt of a request to do so from the other party

A party may request the Supreme Court or as the case maybe High Court or any person or institution designated by such court and dispose of the same within a period of 60 days from the date of the service of notice on the opposite party.

  1.  

11(4)(b)

The two appointed arbitrators fail to agree on the third arbitrator within 30 days from the date of their appointment

  1.  

11(5)

Failing to agree on a procedure for appointing the arbitrator/arbitrators

  1.  

11(6)(a)

Where, under an appointment procedure agreed upon by the parties, a party fails to act as required under that procedure

  1.  

11(6)(b)

Where, under an appointment procedure agreed upon by the parties, the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure

  1.  

11(6)(c)

Where, under an appointment procedure agreed upon by the parties, a person, including an institution, fails to perform any function entrusted to him or it under that procedure

  1.                      

11(9)

In case of appointment of sole or third arbitrator in international commercial arbitration

The Supreme Court or the person or institution designated by that court may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities.

The Law Commission in its Report bearing No. 246 dated August, 2014 stated that the arbitration proceedings are becoming replica of the Court proceedings despite Chapter V of the Act which provides for adequate powers to the Arbitral Tribunal. Hence, the legislature while amending the Act made provision to give power and authority to the Arbitral Tribunals to deal with the issues and avoid delays.

Further, the new amendment makes a leeway for disclosures12 that shall be sought by the Supreme Court or the High Court or the person or institution designated by such court, before appointing an arbitrator under Section 11(8).

An arbitration agreement existed between two foreign companies. A dispute occurred between them. A former judge of the Supreme Court was appointed as a sole arbitrator in terms of the agreement.13

Under Section 14 of the Act, the mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator for the reasons mentioned therein. Further, if the controversy remains concerning any of the grounds referred to in Section 14(1)(a), party may unless otherwise agreed by the parties, apply to the Court to decide on the termination of the mandate.

Section 17, party may during the arbitral proceedings or at anytime after the making of the arbitral award but before it is enforced in accordance with Section 36 apply to the arbitral tribunal for such reliefs as stated therein.

Section 27- Assistance of the Court in taking evidence

The Tribunal may by itself, or any party with the approval of the Tribunal, apply to the court for assistance in taking evidence. The application has to specify the particulars as stated in Section 27.

Under Sections 11, 14, 17 and 27, the Courts come into picture when the arbitral proceedings are found difficult to commence or continue. The Courts under the play of section 11 reassures parties to continue with the mode of settlement of disputes through arbitration.    

Section 29-A- Time limit for arbitral award

The aforesaid section interalia provides that the award shall be made within a period of 12 (twelve) months from the date the tribunal enters upon the reference. If the award has been made within a period of 6 (six) months from the date the arbitral tribunal shall be entitled to receive such amount of additional fees as the parties may agree.14 The parties may, by consent, extend the period specified in sub-section (1) for making award for further period not exceeding six months15.  If the award is not made within the period specified in sub-section (1) or the extended period specified under sub-section (3), the mandate of the arbitrator (s) shall terminate unless the Court has, either prior to or after the expiry of the period so specified, extended the period. Provide that while extending the period under this sub-section, if the Court finds that the proceedings have been delayed for the reasons attributable to the arbitral tribunal, then, it may order reduction of fees or arbitrator(s) by not exceeding 5% for each month of such delay.16

The insertion of Section 29-A pursuant to an amendment in 2015, gives the parties to arbitration a leeway to seek an extension for the maximum period of 6 months after the expiry of 12 months. However, the extension of period referred to in sub-section (4) may be on the application of any of the parties and may be granted only for sufficient cause and on such terms and conditions as may be imposed by the Court. Further, it shall be open to the Court to impose actual or exemplary costs upon any of the parties under this provision.

On the bare perusal of the newly inserted section 29-A, it is observed that the proceedings initiated to settle the disputes through arbitration are not to be taken frivolously. The power is given to the Courts to disable the parties from prolonging the arbitral proceedings and assist the party filing the arbitration petition to acquire prompt result.

Section 31-A Regime for costs

The aforesaid provision enables the Court or arbitral tribunal in determining the costs payable by the parties to arbitration in relation to any arbitral proceedings under the provision of the Act.

Section 34- Setting aside an Award

Even though Section 34 provides a recourse to a court against the arbitral award that may be made only by an application for setting aside the same in accordance with sub-section (2) and sub-section (3) of Section 34, every award is nonetheless challenged before the Court. However, there are limitations attached to the court with respect to the extent in which it can decide matters of arbitration. The Court approached for setting aside cannot sit as court of appeal and disturb the findings of fact recorded by the arbitrator after considering all the materials or record.17

On bare perusal of Section 34 it is observed that the Court can set aside the award in the following circumstances: -

  1. For the reasons mentioned in Section 34(2)(a)(i) to (v);
  2. For the reasons stated in Section 28(1)(a);
  3. For the reasons stated in Section 34(2)(b)(ii) on the ground of conflict with the public policy of India, that is to say, if it is contrary to:

    1. Fundamental policy of Indian law; or
    2. The interest of India; or
    3. Justice or morality; or
    4. If it is patently illegal.
  4. For the reasons stated in Section 13(5) and 16(6).

The Supreme Court stated that the requirement that adjudication authority must apply its mind can also be described as a fundamental policy of Indian law. The arbitrators committed error resulting in miscarriage of justice. They failed to appreciate and draw logical inference from proved facts. The award became liable to be interfered with.18

There is hardly any award that the affected party would take as it is which shall result into challenging the validity of the award thereby increasing litigation. However, in the hindsight the purpose of involving the Court under the Act to discourage the proceedings from reaching cul-de-sac.

Appeals (Sections 37 and 50)

The aforesaid section provides for an appeal that may lie in respect of the orders passed by the Arbitral Tribunal.

Section 50 deals with orders which are appealable. Section 50(2) bars a second appeal against the appellate order passed u/s 50. However, the right to appeal to the Supreme Court is not affected.19

Jurisdiction vis-à-vis enforcement of Foreign Awards-Section 42

Notwithstanding anything contained elsewhere in this Part or in any other law for the time being in force, where with respect to an arbitration agreement any application under this Part has been made in a Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that Court and in no other Court.

The context of section 42 starts with non-obstante clause which does away with anything which may be inconsistent with the section either in Part I of the Act or any other law for the time being in force.20 The expression "with respect to an arbitration agreement" widens the scope of section 42 to include all matters which directly or indirectly pertain to an arbitration agreement. Further, the context of the aforesaid Section is merely to see that one court alone shall have jurisdiction over all the applications with respect to arbitration agreements, which context does not in any manner enable the Supreme Court to become a "court" within the meaning of Section 42. It has been aptly stated that the rule of forum conveniens is expressly by Section 42.21

Comment

The Supreme Court in F.C.I v Joginderpal Mohinderpal22 at paragraph 7 observed-

"We should make the law of arbitration simple, less technical and more responsible to the actual realities of the situation, but must be responsive to the canons of justice and fair play and make the arbitrator adhere to such process and norms which will create confidence, not only by doing justice between the parties, but by creating a sense that justice appears to have been done."

The Law Commission in its Report bearing No. 246 dated August, 2014 highlighted that the paradox of arbitration is that it seeks co-operation of the same public authorities from which it wants to set itself free. Hence, when the amendment to the Act was brought in the year 2015, a balance of the powers of the courts and arbitral tribunal was sought. Whether the purpose of the legislation in passing the Act (amendment of 2015) is served or defeated is a question that may be answered over a period of time. There have been great many cases in making (some are made already) and some more will be required to equal an award to the decree of the Court and bring the matters in dispute to a necessary conclusion with the limited intrusion of the Court.

Footnotes

1 The power of the arbitrator to determine his own competence in arbitrating the dispute at hand.

2 [1994] 2 All E.R. 449

3 AIR 2011 Kar 38

4 Mohd Nasim Akhtar V Union of India, 2015 SCC OnLine Cal 10443: AIR 2015 Cal 64

5 (2015) 1 SCC 32: (2015) 1 SCC (Civ) 1

6 Russell on Arbitration

7 HENRY CAMPBELL BLACK, M. A., 4th Edition

8 Ardy International (P) Ltd v Inspiration Clothes & U, (2006) 1SCC 417

9 AIR 1999 Mad 29

10 Chennai Port Trust V Hindustan Construction Company Limited, AIR 2003 NOC 162 (Mad)

11 DLF Industries Limited v Standard Chartered Bank AIR 1999 Del 11

12 Section 12(1) of the Act

13 Mears Group Inc v Fernas Insaat AS, (2017) 2 SCC 429

14 Section 29-A (2)

15 Section 29-A (3)

16 Section 29-A(4)

17 Rajasthan SRTC V Indag Rubber Limited (2006) 7 SCC 700

18 ONGC Limited V Western Geco International Limited, (2014) 9 SCC 263

19 Fuerst Day Lawson Limited v Jindal Exports Limited, (2011) 8 SCC 333

20 Law of Arbitration and Conciliation-Avtar Singh (11th Edition), 2018

21 State of West Bengal v Associated Contractors, (2015) 1 SCC 32: (2015) 1 SCC (Civ) 1

22 (1989) 2 SCC 347

© 2018, Vaish Associates Advocates,
All rights reserved
Advocates, 1st & 11th Floors, Mohan Dev Building 13, Tolstoy Marg New Delhi-110001 (India).

The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article.

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