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Judicial Review Of Arbitration Awards: The Extent And Grounds For Court Interventions In Arbitration Awards

Arbitration has emerged as a preferred method for resolving disputes, providing a more efficient and flexible alternative to traditional litigation. Where both the parties to the dispute come to a neutral third party known as arbitrator to settle the dispute in efficient manner. Arbitrators hear the evidence of both side and make a final decision which is binding on the parties to the dispute is known as arbitral award. However, if the party assailing the award could set aside the decision if they proved the grounds mentioned under Section 34. Hence, the court could interfere in the arbitration process after passing off the award.

However, the ground which are mentioned under S.34 are limited the basic reason behind the minimal interference ensuring that it remains an efficient and independent method of dispute resolution. However, it is important to keep a check on the enforcement of the arbitration award in certain cases, but it should be limited, and the arbitration proceedings should be as independent as possible to encourage an arbitration-friendly country.

There are various objective of The Arbitration and Conciliation Act 1996 one of them is minimize the role of courts and reduce the burden on judiciary and if judiciary will intervene in every proceeding, then the objective of the Act will fail. In that case the court has to decide where to draw a line and a balance has to be maintained so that there is less intervention and at the same time make sure justice has served.

Introduction
Alternative Dispute Resolution is an approach of settling disputes or differences by involving a third party whose decision is typically not legally binding on the parties. There are various types of Alternative Dispute Resolution (ADR), including negotiation, mediation, arbitration, conciliation, and others. Objective of ADR is to get relief from preciousness, delay and adversarial situation associated with traditional court system. Arbitration involves bringing a dispute before a neutral third party for resolution. An arbitrator hears evidence from both sides and makes a decision. Sometimes the decision is binding on the parties. Arbitral awards refer to the decisions reached in arbitration proceedings. Arbitration is an alternative dispute resolution (ADR) method that aims to resolve disputes without the high costs and time commitment of litigation.

Arbitration has emerged as a popular alternative dispute resolution mechanism in India, driven by a desire to resolve disputes more quickly and efficiently outside of the traditional court system. The arbitration process is successful when there is minimal judicial interference; less judicial interference is a key principle of arbitration. It can only be done if the judiciary has no significant influence over the arbitral awards. However, judicial oversight ensures that arbitration awards are fair, legal, and consistent with public policy.

How much the court should interfere in the arbitration process is the question to be answered. This article examines the scope and reasons for court intervention in arbitration awards in India, providing a thorough overview of the legal framework, judicial interpretation, and practical implications.

Development of Arbitration law in India
Arbitration law in India has evolved in a dynamic manner, influenced by both domestic and international trends. This evolution can be traced back to various legislative enactments, judicial decisions, and policy changes that have shaped the current arbitration landscape in the country.

Arbitration in India dates back to ancient times, when disputes were settled by village elders or panchayats. The modern arbitration system began during British rule with the passage of the Indian Arbitration Act, 1899, which took its inspiration after the English Arbitration Act of 1889. This Act only covered the Presidency towns (Bombay, Calcutta, and Madras).
The Code of Civil Procedure, 1908, also included provisions for arbitration (Sections 89 and 104, as well as the Second Schedule), broadening the scope of arbitration across the country. The Arbitration Act of 1940 was enacted to address the need for a comprehensive arbitration law. This Act consolidated and amended arbitration law, but it was criticized for being too complicated and resulting in excessive judicial intervention.

The most significant development in Indian arbitration law occurred with the passage of the Arbitration and Conciliation Act in 1996. This Act was an important change that sought to align Indian arbitration law with the UNCITRAL Model Law on International Commercial Arbitration and the UNCITRAL Arbitration Rules.

The Arbitration and Conciliation Act 1996
Section 5 of the Arbitration and Conciliation Act of 1996 emphasizes the principle of minimal judicial intervention in arbitration proceedings. This principle is fundamental to the arbitration process, ensuring that it remains an efficient and independent method of dispute resolution.

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."

Section 5 of the Arbitration and Conciliation Act of 1996 is a key provision that emphasizes the principle of minimal judicial intervention in arbitration proceedings. This principle is crucial for maintaining the arbitration process's efficiency and autonomy.

Through a series of landmark decisions, Indian courts have emphasized the autonomy of the arbitration process and reinforced the principle of minimal judicial intervention.

P. Anand Gajapati Raju & ors. v. P.V.G Raju (2000) Supreme Court emphasized that judicial intervention in arbitration matters should be limited to the Act's provisions. The decision emphasized the importance of party autonomy and the effectiveness of the arbitration process.

Bharat Sewa Sansthan v. Uttar Pradesh Electronics corporation ltd. (2007)
The Supreme Court reiterated that judicial intervention in arbitration is limited to the grounds expressly provided in the Act, thereby reinforcing the arbitration process's autonomy.

Section 34: Application for Setting aside Arbitral Awards
Section 34 of the Act provides that an appeal against an arbitral award may be made by an application for setting aside such award according to section 34(2) which defined various ground on which a party can apply to set aside an arbitral award. The grounds for setting aside an award under Section 34(2) include:
  1. Incapacity of a Party: If a party to the arbitration agreement was under some incapacity or the agreement itself was not valid under the law to which the parties have subjected it.
  2. Invalid Arbitration Award: The arbitration agreement is invalid under the applicable law to which the parties are subjected.
  3. Lack of Proper Notice or Inability to Present Case: If 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 its case.
  4. Arbitral Award Beyond Scope: If the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration or contains decisions on matters beyond the scope of the submission to arbitration.
  5. Improper Composition of Arbitral Tribunal or Procedure: If the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with the Act.
  6. Award in Conflict with Public Policy of India: If the arbitral award is in conflict with the public policy of India. This ground has been the subject of significant judicial interpretation, particularly in defining what constitutes a violation of public policy.
Non-Arbitrable Subject Matter (34(2)(b)(i)): The subject matter of the dispute is not capable of settlement by arbitration. Public Policy (34(2)(b)(ii)): The award is in conflict with the public policy of India. The explanation clarifies that this includes awards induced by fraud or corruption, contraventions of fundamental policy, and conflicts with basic notions of morality or justice. However, section 34(3) defines certain limitations to set aside the arbitration award. That is, an application to set aside an arbitral award must be filed within three months of the party receiving the award, with a possible extension of an additional 30 days if the court determines that there was adequate cause for the delay. Except for the term "public policy of India" in Section 34(2)(b), all provisions mentioned in Section 34 are limited, precise, and do not allow for open-ended expression. Thus, the term "public policy" has always denoted the debate over the scope of judicial intervention. The Act of 1996, like all other laws, provides no specific definition of public policy. The term is vague, making it difficult to define precisely. There are some landmark decisions in which the Supreme Court attempted to define the meaning of public policy.
  • ONGC v. Saw Pipe Limited: The Supreme Court expanded the scope of "public policy" to include awards that are "patently illegal." In this case, the Supreme Court broadened the definition of public policy. The court ruled that if the award violates India's statutory provisions, it is against the public interest. An award that is in error of law would impede the administration of justice and is contrary to public policy. As a result, the award's enforceability could be revoked on the basis of "patent illegality." As a result, any legal error will draw the attention of the public policy bar, allowing the court to review the legal basis and increase its interference.
  • ONGC Ltd. v. Western Geco International Ltd: Following the path of Saw Pipes' decision, the Court ruled that if the arbitrator made a prima facie incorrect inference or left out an inference that should have been made, the award is subject to challenge in court. Any perverse or irrational award would be set aside; if the arbitrator's finding is such that "no reasonable person would have arrived at it," the award would be revoked.
  • Associate Builders v. Delhi Development Authority: In this case, the Supreme Court provided detailed guidelines on what constitutes a violation of public policy, categorizing them under the heads of:
    • Fundamental policy of Indian law
    • Interest of India
    • Justice or morality
    • Patent illegality
The Arbitration and Conciliation Act, 2015 (Amendment): In response to criticisms and recommendations from the 246th Law Commission Report, the Arbitration and Conciliation (Amendment) Act, 2015, was enacted. Key changes included:
  • Reducing judicial intervention.
  • Introducing fast procedures.
  • Clarifying the definition of "public policy" to limit the grounds for challenging awards.
  • Ensuring the neutrality of arbitrators.
  • Fixing timelines for the completion of arbitral proceedings and the issuance of awards.
According to the Shrikrishna committee report, the 2015 Act applies to court proceedings involving arbitration that began after the introduction of the 2015 Act, rather than arbitration proceedings that began prior to the 2015 Act, removing the 2015 Act's retrospective applicability. However, this Section was overruled in Hindustan Construction Company Limited vs Union of India (2019), which held that the Arbitration and Conciliation Act, 2015 will apply to all court proceedings, fresh and pending, on, before, or after the commencement of the 2015 Act. The introduction of Section 87 was said to delay arbitration proceedings and increase judicial interference, thus defeating the very purpose of the 2015 amendment. The Arbitration and Conciliation Act, 2019 (Amendment): Further amendments were introduced through the Arbitration and Conciliation (Amendment) Act, 2019, aiming to make India a more arbitration-friendly jurisdiction. Major highlights included:
  • Establishment of the Arbitration Council of India (ACI) for promoting and encouraging arbitration, conciliation, and mediation.
  • Mandating the qualifications, experience, and norms for the accreditation of arbitrators.
  • Introducing the concept of "institutional arbitration" and encouraging the establishment of arbitration institutions.
  • Emphasizing confidentiality in arbitration proceedings and the immunity of arbitrators.


Conclusion
India must foster trust in the arbitration process. "Let's arbitrate, not litigate" should be encouraged. It is necessary to keep an eye on the enforcement of arbitration awards in certain cases, but it should be limited, and arbitration proceedings should be as independent as possible in order to encourage an arbitration-friendly country.

Section 34 of the Arbitration and Conciliation Act of 1996 establishes a mechanism for challenging arbitral awards on specific grounds, ensuring that the arbitration process is fair and just. By defining the limited grounds for setting aside an award, this section seeks to strike a balance between the finality and binding nature of arbitral awards and the need to protect parties from unfair or flawed arbitration processes. Judicial interpretations and legislative amendments have refined this provision, increasing the efficiency and integrity of arbitration in India.

End Notes:
  • The Arbitration and Conciliation Act, 1996
  • Judicial Review of Arbitral Awards: Public Policy and Its Evolution (livelaw.in) - www.livelaw.in/news-updates/judicial-review-of-arbitral-awards-public-policy-and-its-evolution-exploitation-195740
  • Judicial Inroads into Arbitration: Section 34 Saga (livelaw.in) - www.livelaw.in/news-updates/judicial-inroads-into-arbitration-section-34-saga-198591
  • The Arbitration and Conciliation Act 1996, s5
  • P. Anand Gajapati Raju & Ors. v. P.V.G Raju (2000) 4 SCC 539
  • Bharat Sewa Sansthan v. Uttar Pradesh Electronics Corporation Ltd (2007) 7 SCC 737
  • ONGC v. Saw Pipes Ltd., (2003) 5 SCC 705
  • Western Geco International Ltd. v. Oil & Natural Gas Corporation Ltd., (2014) 9 SCC 263
  • Associate Builders v. Delhi Development Authority 2015 (3) SCC 49

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