Section 81 of the Indian Arbitration and Conciliation Act, 1996 ("the Act") empowers the court to refer a matter before it to arbitration, in the event that the matter falls within the scope of an arbitration agreement between the parties. The Indian Supreme Court in a string of judgments has categorically held that this reference is mandatory and the judicial authority has no discretion2 in the same. As such, Section 8 was seen to echo the objectives of the Act, in that it curtailed judicial interference thereby ensuring speedier resolution of matters. On closer scrutiny, it appears that the judiciary over a period of time, has tinged Section 8 with a discretionary element to justify its interference in matters, e.g. tainted with elements of criminality or involving serious allegations of fraud. This is best illustrated by the recent Judgment in Radhakrishnan v. Maestro Engineers3.
In Radhakrishnan v. Maestro Engineer, disputes arose between parties who were partners in a partnership firm. The disputes also involved allegations of fraud, collusion and financial malpractices, which allegedly resulted in the unfair retirement of N. Radhakrishnan (the Appellant) and the reconstitution of a new partnership deed. Maestro Engineers filed a suit before the District Court seeking a declaration that N. Radhakrishnan was not a partner of the firm. As a counter blast to this Suit, N. Radhakrishnan filed an Application under Section 8 seeking reference to arbitration since the Partnership Deed had an Arbitration Clause. This Application for reference to Arbitration was rejected by the Trial Court and by the Madras High Court as well on the basis that the allegations of fraud merited detailed appreciation of evidence which could only be settled in court.
The Supreme Court, despite having found that the subject matter of the suit was within the jurisdiction of the Arbitrator, concurred with the interference of the High Court on the basis that the Court, as opposed to the Arbitrator, was the more competent forum to deal with the dispute raised by the parties. In support, the Supreme Court referred to its earlier decision in Abdul Kadir4 and the High Court decision in Oomor Sait5 which observed that the court is a more appropriate forum to adjudicate matters involving scrutiny of derailed oral and documentary evidence, given that rules of procedure and evidence are not binding in arbitration.
Fraud, financial malpractice and collusion are weighty allegations having criminal repercussions. The arbitrator is a creature of the contract, and his Jurisdiction is limited to the four corners of the Contract. The courts, to the contrary, are guided by exhaustive provisions of the Evidence Act6, Codes of Civil7 and Criminal Procedure8 making it more equipped to adjudicate serious and complex allegations and are competent to offer a wider range of reliefs to the parties in dispute. It is against this background that the courts have resisted the mandatory reference in fraud allegations and cloaked its interference under the armor of discretion.
Whilst the intent of the judiciary has a rationale, it remains to be seen how far in practice, will the Courts broaden the scope and extent of their interference in Arbitral proceedings, by taking aid of this view. This may well be used to strike a blow to party autonomy, which is the very root of evolution of Alternate Dispute Resolution Mechanisms, including Arbitrations.
Footnotes
1. Section 8 of the Act deals with the power of the Court to refer the parties to arbitration and reads as follows:
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 so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.
(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.
(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.
2. Shin-Etsu Chemical Case Co. Ltd. v. Aksh Optifibre Ltd. and Anr., (2005) 7 SCC 234, Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums 2003 (6) SCC 503 and Sumitomo Corporation v. CDC Financial Services (Mauritius) Ltd. and Ors., (2008) 4 SCC 91.
3. N. Radhakrishnan v. Maestro Engineers and Ors., 2009 (13) SCALE 403.
4. Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak and Anr., AIR 1962 SC 406.
5. H.G. Oomor Sait and another v. O. Aslam Sait, (2001) 2 MLJ 672.
6. Indian Evidence Act, 1872.
7. Civil Procedure Code, 1908.
8. Code of Criminal Procedure, 1973
This article first appeared in the March issue of The In-House Lawyer. Copyrights rest with the author and Amarchand Mangaldas
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