Judicial Review of Arbitration Awards

INTRODUCTION

At present, the world is witnessing a rapid increase in extra-territorial trade and globalisation which gives rise to unavoidable disputes and conflicts between the parties involved in trade. As time is of value, parties favour alternate dispute resolution methods over conventional courts for solving their disputes. Also, there is no lie in the fact that courts are overburdened with thousands of cases to settle. The most popular method of alternate dispute resolution for settling conflicts and disputes is Arbitration.

The procedures of arbitration and lawsuits are extremely similar. An impartial third party, known as an arbitrator, is chosen by the disputing parties to resolve their differences. The process is rather flexible and technical aspects of courts can be dispensed away by parties at their own discretion. The decision of the Arbitral Tribunal is referred to as an “Award” and it has the same effect as that of an order of the court.[1] In India arbitration is overseen by the Arbitration and Conciliation Act, 1996. The Act was passed with the aim to ensuring less involvement of the judiciary and the binding status of Arbitral awards.

Aforesaid goal of the Act can be better understood by section 5 of the Arbitration and Conciliation Act 1996. This provision was borrowed from Article 5 of UNCITRAL Model of Law. Section 5 of the Arbitration and Conciliation Act 1996 says: – “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.”[2]

As Arbitration law is still developing, court’s intervention in arbitration cases is seen from time to time for reviewing arbitration awards and sometimes proceedings itself but, before looking into scope of judicial intervention in arbitration, it must be considered that the Act of 1996 as well as amendments done to it in 2015 and 2019, aimed at lowering the burden of courts along with speedier resolution of dispute because it is in best interest of a developing economy to have quick solution to commercial disputes and blockades.[3]

JUDICIAL REVIEW

Judicial review is that power of Supreme court by which it examines the constitutionality of any law. If it seems to the court that a particular law or an order is inconsistent with the provisions of Constitution or is against public policy then it is declared as unconstitutional and inapplicable. Doctrine of Separation of power contradicts with Principle of judicial review as the former talks about distribution of power between executive, legislative and judiciary while the latter gives special power to judiciary to review the actions of other two. Principle of Judicial review got more stability and recognition when it was considered as the Basic structure of Constitution in Indra Gandhi Vs Raj Narain case.

Judicial Review is classified under three categories: –

• Review of Legislative actions
• Review of Administrative actions
• Review of judicial decisions.

ARBITRATION AWARDS

An award granted to aggrieved party in arbitration agreement by an arbitrator in their decision is known as an Arbitration award. This award can be financial and non – financial. In simpler words, arbitration award is a decision given by an Arbitration Tribunal in domestic or foreign arbitration. Part one of the Arbitration and Conciliation act 1996 talks about domestic awards (section 2 to 43) and foreign awards are mentioned in Part two of the Act.

ESSENTIALS of ARBITRATION AWARDS: 

According to Section 31 of the Arbitration and Conciliation Act 1996, essentials of an Arbitral award are:

• It should be made in writing
• Shall be signed by the members of an Arbitral Tribunal.
• The arbitral award shall state the reasons upon which it is based
• Date and place of arbitration should be stated in arbitral award
• A signed copy of arbitral award should be delivered to each party.

JUDICIAL REVIEW OF ARBITRAL AWARDS

Review of arbitral award comes under third category of judicial review i.e. review of judicial decisions. In the case of I-Pay Clearing Services Pvt. Ltd. Vs ICICI Bank Limited[4], the Supreme Court of India examined sections 31, 34 (1), 34 (2A) and 34(4) of the Arbitration and Conciliation Act 1996. It held that Section 34 (4) of the Act uses the words “where it is appropriate”, enabling the court to exercise its discretion and not being compelled to send the case to an arbitration tribunal.[5]

As interpreted from Section 34 of the Arbitration and Conciliation Act 1996, court can review an arbitral award only after completion of arbitration process. According to Section 34 (2)(a) and (b), an arbitral award can be set aside by a court under following conditions: –

• “Party was under some incapacity;
• The arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for time being in force;
• The party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case;
• The arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;
• The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties;
• The subject – matter of the dispute is not capable of settlement by arbitration under the law for the time being in force;
• The arbitral award is in conflict with the public policy of India.[6]

The fact that a party can approach court only on the basis of grounds mentioned above, limits the scope of judicial interference or judicial review which can be clearly seen from the Supreme Court’s decision in Dyna Technologies Pvt. Ltd. Vs Crompton Greaves Ltd.[7], where it held that the courts should not interfere with an award merely because an alternative view on facts and interpretation of contract exits. Further, it was observed that the courts need to be cautious and should defer to the view taken by the arbitral tribunal even if the reasoning provided in the award is implied unless such award shows perversity unpardonable under section 34 of the arbitration and Conciliation Act 1996.[8]

IN CONFLICT WITH PUBLIC POLICY

All the grounds mentioned in section 34 of the Arbitration and Conciliation Act 1996 are specific and limited, hence, not leaving much scope for filing a case under them except one ground which is ‘in conflict with public policy’. Public policy is a very dynamic concept in itself and there can be no hard and fast rule to determine what is in conflict with it and what is not. Therefore, paving way for extensive intervention of courts in arbitration proceedings and awards. For providing some clarity to this concept, Explanation one was inserted to Section 34 of the Arbitration and Conciliation Act 1996 by amendment made to the Act in 2015. According to it an award will be in conflict with public policy only if: –

(i) The making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or 81 of the act;

(ii) It is in contravention with the fundamental policy of Indian Law;

(iii) It is in conflict with the most basic notions of morality or justice.[9]

Explanation added to section 34 gave some clarity but was not of much help in fulfilling its purpose, as public policy was still being vaguely interpreted and providing scope for judicial interventions in arbitral wards. Defining dynamitic term like public policy is not possible, its meaning varies with time and from case to case. Courts by dint of judicial interpretation have been trying to give shape to this concept in regards with setting aside of awards. Some of the famous landmark judgements are: –

• Renu Sagar Power Co. Ltd Vs General Electric Co. (1993): in this case Supreme Court held that, violation of Indian laws is just not adequate to revoke the enforcement of the award. The term public policy should be comprehended in the sense as in private international law. Supreme Court restricted the meaning of public policy, and the enforcement of the award would be contrary to public policy if it is contrary to (i) fundamental policy of Indian law (ii) the interest of India; or (iii) justice or morality. Thus, the award in violation of the statute foreign exchange regulation act 1973, which was for the benefit of national economic interest was in violation of public policy.
• Oil and Natural Gas Corporation Ltd Vs Saw Pipes Ltd (2003): In this case, the Supreme Court widened the meaning of public policy. The Court decided that the award would be against the public interest if it violated an Indian statute. An award that violates public policy and is in mistake would impair the administration of justice. Because of this, the arbitral award’s enforceability may be challenged on the grounds of “patent illegality.” As a result, any legal mistake will draw attention from the public policy bar, giving the Court the opportunity to examine the supporting evidence and become more involved.
• Oil and Natural Gas Corporation Ltd. Vs Western Geco International Ltd. (2014): In this, following the path of Saw Pipes judgement, the Court ruled that, if the arbitrator made inference which is prima facie wrong, or left out inference which should have been made then the award is open to challenge before the Court. Any perverse or irrational award would be set aside, if the arbitrator’s finding is such that a “no reasonable person would have arrived at it”. Then the same would be revoked.
• Associate Builders Vs Delhi Development Authority (2014): The Supreme Court held that “the fundamental public policy of India” would include: (i) not taking orders from the superior court, (ii) judicial approach, (ii) principle of natural justice. The Supreme Court held that the award would be set aside if it is found to be perverse. As a result, the following scenarios fall within the definition of perverse: (a) conclusions based on no evidence; (b) critical evidence ignored; and (c) irrelevant considerations made by the tribunal in reaching its decision.[10]

CONCLUSION

There is no doubt in the fact that independence of Arbitration proceedings is important for achieving its aim of lowering the burden of courts and for making our country arbitration-friendly, but at the same time, reviewing the enforcement of Arbitral awards and Arbitral process by Courts is also important so, there is an urgent need of striking a balance between the two by eliminating loopholes and usage of vague concepts. For making this process smooth, courts should know where to draw lines and should act as administrators for Arbitral tribunals. This view was also supported by Supreme Court itself in its latest judgement given in the case, SV Sundaram Vs State of Karnataka [ (2024) 1 SCR 281] where Hon’ble court stated that, “the courts under section 34 of the 1996 Act cannot “cross the Lakshman Rekha” by modifying an award.” While doing its judicial duty, courts should keep in mind that its role is to facilitate and encourage alternate dispute resolution so that cases are settled expeditiously and cost effectively. Most importantly, this will prevent miscarriage of justice, lessen the burden of courts which ultimately will improve legal framework of our country.

References

[1] “Law of Arbitration in India and Alternate Dispute Resolution” by Vaish Associates Advocate- Vijay Pal Dalmia, Lexology. https://www.lexology.com/library/detail.aspx?g=c74be5b9-f8c1-4d5a-ae87-936d0ca6de8b

[2] Section 5 of Arbitration and Conciliation Act 1996

[3] “Judicial Intervention in Arbitration- A comparative analysis” by Niharika Chauhan, Manu Patra. https://articles.manupatra.com/article-details/Judicial-Intervention-In-Arbitration-A-Comparative-Analysis

[4] 2022 SCC Online SC 4.

[5] “Patent Illegality as a Ground of Judicial Intervention in Arbitration” by Ishita Kashyap. https://www.livelaw.in/lawschool/articles/patent-illegality-ground-judicial-intervention-arbitration-264375

[6] Section 34(2) sub clause (a) and (b) of arbitration and Conciliation Act 1996.

[7] AIRONLINE 2019 SC 1928.

[8] “Judicial intervention in Arbitration- A Comparative Analysis” by Niharika Chauhan. https://articles.manupatra.com/article-details/Judicial-Intervention-In-Arbitration-A-Comparative-Analysis

[9] Explanation one of Section 34 of Arbitration and conciliation act 1996.

[10] ”The extent of judicial intervention into arbitral awards” by Dnyaneshwari Patil. https://blog.ipleaders.in/extent-judicial-intervention-arbitral-awards/#The_principle_of_minimal_interference