Limited Scope of Judicial Intervention under Arbitration Act

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November 30, 2017

One of the intrinsic objectives behind the enactment of Arbitration and Conciliation Act, 1996 was reducing the scope of judicial intervention. The Indian Legislature in conformity with Article 5 of the UNCITRAL Model Law on International Commercial Arbitration 1985vii enacted Section 5 of the Act which eliminates the scope of judicial intervention and enumerates that no judicial authority shall intervene except where so provided by the Act.

In plethora of judgments, the Indian Judiciary has reaffirmed this settled principle of Law and stated that the Act under Section 5 intents to reduce judicial intervention. Furthermore, Section 34 of the Act also restricts the scope of judicial intervention by Courts and provides an inclusive list of circumstances in which an Arbitral Award can be set aside by the Court. For instance, an Arbitral Award can be set aside by the Court when:

  1. A party is under some incapacity;

  2. Arbitration agreement in not valid under the Law;

  3. Party making the application was not given proper notice of appointment of arbitrator;

  4. The arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration;

  5. The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties;

  6. When Court finds that the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force or Award is in conflict with the Public Policy of India

Section 34 of the Act was amended vide the Arbitration and Conciliation (Amendment) Act, 2015 which further curtails judicial intervention and limtes the ambit of “public policy” by stating that an award is in conflict with public policy of India,only if-

i. the making of the Award was induced or affected by fraud or corruption; or

ii. it is in contravention with the fundamental policy of Indian Law; or

iii. it is in conflict with the most basic notions of morality or justice

The aforesaid grounds as enlisted for judicial intervention under Section 34 have also been upheld by the Supreme Court in the case of McDermott International Inc. v. Burn Standards Co. Ltd. In this case, the Court stated that the 1996 Act makes provision for the supervisory role of Courts, for the review of the arbitral award only to ensure fairness.

The Court further observed that intervention of the Court is envisaged in few circumstances only, like, in case of fraud or bias by the Arbitrators, violation of natural justice, etc. The Court cannot correct errors of the Arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, scheme of the provision aims at keeping the supervisory role of the Court at minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the Court’s jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it.

Section 8 of the Act also eliminates the scope of judicial intervention and states that a judicial authority before which an action is brought in a matter, which is the subject of an arbitration agreement shall refer the parties to arbitration. Hence, the scheme of the Act is such that Court intervention is minimal and commercial disputes are attempted to be resolved through the arbitration mechanism. This apart from saving precious judicial time also aids in amicable resolution of dispute.

Court cannot substitute its views over that of the arbitrators In a recent case Ssangyong Engineering & Construction v. National Highways Authority of India, the Division Bench of Delhi High Court while dismissing Petition under Section 34 of the Act, opined that if a Contract can be interpreted in two ways, then it is not open for the Court to interfere with an arbitral award, just because the Court prefers the other view. In this case, the Appellant had challenged the order of Single Judge, wherein the Single Judge had dismissed the Appellant’s petition under Section 34 of the Arbitration and Conciliation Act, 1996 for setting aside the arbitral award. The Court in the case also observed that Court could not substitute its view over that of the Arbitrators.