Published On: 25th July, 2024
Introduction
With the judiciary getting overburdened with cases and the tardy process of justice, the concept of arbitration has garnered all the necessary importance. Currently, the judge-to-case ratio stands at 21 judges per million population which is below par with the recommended ratio of 50 judges per million population.[1] This deficiency in our judiciary necessitates the creation of alternative procedures that will be faster and equally just in nature. One such alternative has been introduced and is being widely suggested as the primary mode of dispute resolution.
Arbitration is a method of dispute resolution in which parties resolve their conflicts by opting for a private system of adjudication rather than dealing with the complexities of the national judicial system. Arbitration can be opted for irrespective of the relationship being contractual or not, requiring mutual agreement in writing for the parties to refer their case to arbitration.[2] This private system of dispute resolution resembles the setup of litigation in a court, there is a judge who is chosen by the parties, known as an “arbitrator” and its decisions are called “Awards”. Arbitration provides a flexible and efficient way to settle disputes, bypassing the rigid formalities often associated with traditional court proceedings, lessening the economic burden on the parties and the legal burden on the judiciary.
Arbitration as a mechanism for dispute resolution was initially recognized in India before independence in 1899 through a statute that applied solely to the provinces of that era.[3] Following independence, India formalized arbitration with the Arbitration and Conciliation Act of 1996. Arbitration has emerged as a viable alternative to the national judicial system, thereby limiting the authority of courts over arbitral procedures giving them a good amount of autonomy. This article particularly explores the power of judicial review on the “Awards” dispensed by arbitration tribunals. The Court has the authority to refer the parties to arbitration[4] after which the decision of the arbitrator would be absolute and binding.[5] Consequently, courts have limited authority over the procedure, but there is a consistent challenge regarding arbitrators’ awards being overturned by the court. This challenge has been justified on the grounds that arbitral tribunals are established with the intention of providing an alternative method with equal authority. Allowing challenges to arbitral awards could flood the courts once more with cases contesting these awards. Therefore, it is essential to examine the scope within which courts can overturn any arbitral award, utilizing legal provisions and various precedents.
Extent and Scope of Judicial Review on Arbitral Awards
Our constitution lays down provisions that give the High Court and Supreme Court the power to review its own decisions or the decisions of other courts and tribunals. According to section 227 of the Constitution, High Courts have the power of superintendence over all courts and tribunals within its territory.[6] This further implies that arbitral tribunals shall also fall under the ambit of judicial review according to section 227.
However, in contradiction to this constitutional provision, the Arbitration and Conciliation Act includes clauses[7] that restrict judicial interference in the decisions of arbitration tribunals, except on specific grounds mentioned within the Act. It maintained the autonomy of the arbitration tribunals but also made sure that it did not stay aloof from the whole of the judiciary by providing various clauses in the act that allow various grounds for judicial interference. Section 16[8] of the Act gives the tribunals the authority to determine their jurisdiction to adjudicate a particular dispute. This section envisages limiting the power of civil courts and only allowing their intervention when necessitated.[9]
The grounds under which an arbitral award can be challenged are laid down in section 34[10] of the act. The section provides for courts to set aside the awards ‘only’ if one of the parties proves their incapacity, illegality of the agreement, the other party, who applied, failed to provide any notice of appointment of arbitrator, arbitral award is outside the ambit of the claims submitted for arbitration or the composition of the tribunal or the procedure did not have the consent of both the parties. Apart from the party’s challenge, the court is also given the authority under sub-clause (2) to set aside the award if it finds that the subject of the dispute is not eligible to be solved via the arbitration tribunal or if it thinks that the award goes against or violates any public policy in force at the moment. Therefore, it is clear that courts do have the power to set aside or review the awards under the act but it has been greatly limited to maintain the autonomy. Hence, the scope and grounds for judicial review remain restricted by the Arbitration and Conciliation Act.
The various provisions mentioned indicate that the extent and scope of judicial intervention in arbitral awards are very limited. Though the courts do have the power to review arbitral awards that authority is confined to the provisions laid down by the act. Consequently, the courts do not possess discretionary authority to review the arbitral awards unless the challenge is based on the grounds mentioned within the act.
Precedents Making the Road for Arbitration Autonomy
Several case precedents have tried to establish a clear stance on the scope and extent of judicial interference in the awards decided by arbitral tribunals. As precedents, they play an integral role in interpreting the law and also help in its implementation.
In the significant case of Videocon Industries Ltd. v Union of India[11] the apex court held that in the arbitration procedure any sort of intervention by the courts, except that allowed by the act, is expressly barred and shall not be entertained. This case came as a reaffirmation of the exclusivity provided to the tribunals under Section 5 of the act and strengthened the autonomy of the tribunals. This judgment also clarifies that the legislation’s aim has been to limit and restrict the court’s interference in the proceedings.[12] Similarly, in the case of Surya Dev Rai V. Ram Chander Rai[13], the apex court observed that the intervention by the courts can cause a delay in disposing of the proceedings. Therefore, the power to intervene exists but should be discretionary and shall be governed by judicial conscience.12 These two cases strictly limit judicial intervention and encourage the autonomous functioning of the tribunals to fulfill the aim of efficiency.
While interpreting Sections 34 and 37 of the Act, the court in the case of National Highways Authority of India V. P. Nagaraju[14] laid down that a court while acting under Section 34 of the Act can not modify the award but can only set it aside. It reiterated the limitations that a court has to keep in mind while exercising its right to intervene. Therefore, the court does not possess a wide variety of actions in the matter of awards. It can either set it aside or remand the matter under the circumstances mentioned in Section 34 of the Arbitration and Conciliation Act, 1996.[15]
Taking a similar stance but with a different reasoning, the court in the case of Tantia Constructions V. Union of India[16] opined that there cannot exist two court proceedings with respect to the same contact or transaction. It further directed that the party has to seek a fresh suit with fresh and different claims, only then could it be permitted in the court. Another case that strengthened the autonomous functioning of the arbitral tribunals was Sundaram Finance Ltd., V. M/s. N.E.P.C. India Limited.[17] In this case, the court highlighted that the scope of Section 9 is to enable the smooth functioning of arbitral procedures. Therefore, parties must refrain from using the provision to fulfill their ulterior motives and halt the proceedings.
With a contradictory opinion, the court in the case of Roshan Lalgupta V. Parasram Holdings Pvt Ltd.[18]held that the civil courts have rightful jurisdiction to review or hear the matters emanating from arbitral agreements and disputes. It further discouraged the civil court from dismissing a suit on the grounds that it is a subject matter of arbitration. In this judgment, the judge’s reasoning was based on Article 227 of the Constitution.
Courts typically adopt a hands-off approach when dealing with arbitration cases. Arbitration serves as an autonomous alternative for resolving disputes, and excessive court intervention could lead to significant delays in the resolution process, exacerbating case backlogs. Such interference would contradict the fundamental purpose of establishing arbitration as a viable alternative dispute resolution mechanism. Unfettered challenges to arbitration proceedings may also be used by parties to needlessly prolong procedures, undermining the efficiency and efficacy of the arbitration process.
Conclusion
Arbitration stands as a crucial alternative to traditional litigation, particularly in a judicial system burdened with an inadequate judge-to-case ratio and prolonged processes. The Arbitration and Conciliation Act of 1996 has solidified arbitration’s role by providing a framework that emphasizes autonomy for arbitral tribunals while delineating limited grounds for judicial review of their awards. Despite the Arbitration and Conciliation Act of 1996 establishing a robust framework that emphasizes the autonomy of arbitral tribunals and restricts judicial intervention in their awards, arbitration has not yet gained widespread popularity and trust among the populace. Mostly people stay aloof from the mechanism and fail to take advantage of it. The primary objective behind introducing arbitration was to alleviate the burden on the judiciary by providing a quicker and more efficient method of resolving disputes. However, the widespread adoption of arbitration has been hindered by factors such as lack of awareness, misconceptions about its efficacy, and a preference for traditional court litigation. As a result, the anticipated reduction in judicial workload has not been fully realized.
Legal precedents play an important role in shaping the landscape for arbitration in India. They strictly discourage judicial interference and review in the disputes referred to arbitration. Judicial review though a constitutional right can only be used in arbitral procedures if warranted by the provisions laid down in the Act. This not only limits judicial interference but also provides the tribunals with a sense of responsibility and accountability. The act maintains a balanced approach by respecting the autonomy of tribunals and providing for the grounds for judicial intervention. This approach fosters a conducive environment for arbitration to succeed in our country. Therefore, we must fully utilize the mechanism of arbitration by spreading awareness about it.
Reference(s):
[1]PTI, ‘India’s judge-population ratio stands at 21: Law Minister tells LS’ (Hindustan Times, 8 December 2023) <www.hindustantimes.com/cities/delhi-news/indias-judge-population-ratio-stands-at-21-law-minister-tells-ls-101702050805063.html.> accessed 27 June 2024..
[2]Lakshmikumaran&Sridharan Attorneys, ‘Arbitration in India: A handbook’ (Lakshmikumaran & Sridharan: Top Law Firm in India, October 2014) <www.lakshmisri.com/Media/Uploads/Documents/L&S_Arbitration_Booklet_Oct2014.pdf> accessed 27 June 2024.
[3]Tariq Khan, ‘History and development of Arbitration Law in India’ (Bar and Bench – Indian Legal news, 30 April 2020) <www.barandbench.com/columns/history-and-development-of-arbitration-law-in-india> accessed 27 June 2024.
[4]Arbitration and Conciliation Act, 1996, §8
[5]AIR 1981 SC 479
[6]Saurabh Mishra, ‘Judicial Review Of Arbitration: How Far Can The Constitutional Courts Go?’ (Supreme Court News, Latest India Legal News, Supreme Court Updates, High Courts Updates, Judgments, Law Firms News, Law School News, Latest Legal News, 12 March 2022) <www.livelaw.in/law-firms/law-firm-articles-/judicial-review-arbitration-singapore-international-arbitration-centre-194045#:~:text=Article%20227%20vests%20with%20the,structure%20of%20the%20Indian%20constitution.> accessed 27 June 2024.
[7]Arbitration and Conciliation Act, 1996, §5
[8]Arbitration and Conciliation Act, 1996, §16
[9]Arundhati Panwar, ‘Section 16 of the Arbitration Act, 1996’ (iPleaders, 6 April 2024) <https://blog.ipleaders.in/section-16-of-the-arbitration-act/#:~:text=Section%2016%20specifies%20that%20the,where%20it%20is%20specifically%20stated.> accessed 27 June 2024.
[10]Arbitration and Conciliation Act, 1996, §34
[11]2011 AIR SCW 3129
[12]Riya Chauhan, ‘Judicial intervention In Arbitration- A Comparative Analysis’ (Manupatra Articles, 3 March 2022) <https://articles.manupatra.com/article-details/Judicial-Intervention-In-Arbitration-A-Comparative-Analysis> accessed 27 June 2024.
[13]2003 AIR SCW 3872
[14]2022 SCC Online SC 864.
[15]Vasanth Rajasekaran and Harshvardhan Korada*, ‘Ten Landmark Judgments On Arbitration In The Year 2022’ (Supreme Court News, Latest India Legal News, Supreme Court Updates, High Courts Updates, Judgments, Law Firms News, Law School News, Latest Legal News, 21 December 2022) <www.livelaw.in/law-firms/law-firm-articles-/landmark-judgments-arbiitration-arbitral-award-supreme-court-indian-oil-corporation-ltd-trinity-chambers-217271#_ftn6> accessed 27 June 2024.
[16]2011 (4) SCALE 745
[17]AIR 1999 SCW 225
[18]MANU/DE/0146/2009
