Tuesday, October 18, 2005


All’s not well with resolving disputes through arbitration in India. Conceived as a faster and less expensive mode of dispute resolution by experts chosen by the parties themselves, arbitration has often been billed and promoted as the solution to overloaded court dockets. The enactment of the Indian Arbitration and  Conciliation Act, 1996 on the lines of the UNCITRAL Model Law was intended to encourage resolution of disputes through arbitration. Almost a decade down the line, the picture doesn’t look all that rosy.
  • Arbitration seems to be have added one more tier to the already multi-layered system of Indian adjudication. Parties often find themselves spending more time in courts even during the pendency of arbitral proceedings.

  • The work load of courts seems to have actually increased with parties approaching courts for appointment of arbitrators, for interim measures of protection, for substitution of arbitrators, to challenge interim orders passed by arbitral tribunals, to challenge or enforce arbitral awards etc.

  • Public confidence in arbitration has become a bit shaky- what with whispers abounding about the suspect integrity of certain arbitrators, about undue delay in completing arbitral proceedings, virtually no regulation of arbitral procedure etc.

  • The grounds for challenging an arbitral award are very narrow, and even a patently illegal award is binding on the parties. The only substantive ground of challenge of an arbitral award is to establish that the award is contrary to “public policy”, a delightfully vague legal expression.

  • The costs involved are often enormous and sometimes, whimsical and unreasonable.

The Law Commission has dealt with some of these issues in its report and has recommended amendments to the law. I recently came across an interesting article authored by Goolam Vahanvati, presently the Solicitor- General of India which highlights some of these concerns. The piece was published in the Deccan Chronicle, Hyderabad Edition on July 26, 2003. The articles was published in response to the Supreme Court judgment in ONGC v. Saw Pipes. I tried in vain to find an online link to the article, but here is a typed copy of the entire article. I hope this constitutes fair use.

You are probably wondering what this unusual title is all about. It is about the reaction to a recent Supreme Court judgment in the case of ONGC Vs. Saw Pipes Limited, an arbitration case. Sore is how one would have to describe the reaction of the arbitration community to this judgement. One retired judge has shot off a long article in which he argues that this judgment is wrong and should be referred to a larger bench. He also mentions that a series of seminars and discussions are being organized to discuss and analyse this judgment. I am told that another eminent retired judge has openly wondered whether he could say he was not bound by the judgment.

Why all this uproar? The answer is simple. Under the new Arbitration and Conciliation Act, 1996, everybody proceeded on the basis of the scope for challenge to arbitral awards was extremely narrow. The new Section 34 made an arbitral award liable to be set aside on very limited grounds such as incapacity of a party, invalid arbitration agreement, failure to give notice of the arbitral proceedings, dealing with disputes not dealt with and if “the arbitral award was in conflict with the public policy of India.”

Public policy has always been an unruly horse, difficult to define and even more difficult to tame. Incapable of precise definition, there were always two approaches to public policy. The narrow approach or the broad approach. This has led to considerable confusion and in fact, in one House of Lords judgment it was said that public policy is an unsafe and treacherous ground for legal decision.

Notwithstanding this, lawyers proceeded to give diverse interpretations to the expression “public policy”. In the Supreme Court judgment in Renusagar’s case, they construed the words in a narrow sense as meaning something more than a violation of the law of India. It was construed to mean the violation of the fundamental policy of Indian law, the interests of India, and justice or morality. In the Saw Pipes Ltd case, the judgment of the Supreme Court consisting of M.B. Shah and Arun Kumar JJ, discards the narrow approach. The learned judge, Justice Shah, refers to Section 28 of the Arbitration Act which mandates that the arbitral tribunal has to decide the dispute “in accordance with the substantive law for the time being in force in India”. They accepted the submission of Ashok Desai, former attorney general of India, that an award passed in contravention of the provisions of the Arbitration Act itself must be liable to be set aside. There is considerable merit in the submission that it would be incongruous if a court would find that an award is contrary to Indian law but still holds that it would not be set aside and allowed to stand.

It is true that arbitration is supposed to be an efficacious, effective, speedy and cheap remedy. It is true that an arbitration is supposed to be an alternative dispute resolution mechanism and people were to be encouraged to resort to arbitration so as to lessen the load on courts. This was the spirit with which many approached the new Arbitration Act and the thinking worldwide was to restrict the scope of challenge to arbitral awrds to extremely limited grounds. All over the world arbitration is promoted as the preferred remedy for dispute resolution.

There has been a rethink in India with regard to how arbitrations are conducted leading the former chief justice of this country to observe in a judgment that arbitration “in this country is a racket”. I wrote about this sometime ago and I understand that the article caused considerable resentment in some quarters.

It was never my intention to taint everybody with the same brush. In fact, as far as I am concerned, personally, I hardly do any arbitration work given the constraints that the office puts on me, but interact with persons whose practice is arbitration oriented. Senior counsel whose practice mainly revolves around arbitration, most of whom almost exclusively appear for large public corporations, are quite agitated.

Several questions are raised. They feel strongly that these questions have to be addressed honestly and in a straightforward fashion without any unnecessary indignation and unnecessarily getting upset. These questions include the following:

Is it true that arbitration is no longer speedy?

Is it true that this is because of the difficulty to get three arbitrators to agree upon dates?

Is it true that hearings are being prolonged by unnecessary prolix arguments and that lawyers go on merrily without being stopped?

Is it true that charges are levied for a full day’s fees even though the hearings do not extend more than half a day’s session?

Is it true that arbitrations are no longer a cheap affair?

Is it true that some arbitrators are demanding fees for reading papers and then in fact when the arbitration proceedings start, it becomes clear that the papers have not been read at all?

These are only some questions which require serious consideration. The bull has to be caught by the horns.

What is even more serious is that people are more increasingly raising questions about the role of the individual arbitrators. Here again I must make it clear that these apply to a few and individual cases only and may well be aberrations.

Consider the case of a lady advocate who was bitterly complaining sometime ago about the problems she had with a lawyer from Delhi who had been appointed as an arbitrator by a party who happened to be his regular client. He did not disclose the relationship and though she knew about this, she was unable to prove it. She challenged him but he denied the relationship.

All through the conduct of the arbitration it was clear that the person concerned was not an impartial arbitrator. He was proceeding as if he was an advocate for one of the parties.
This, I am told, is happening more and more.

Another very senior lawyer with a huge experience in arbitrations told me that in certain cases some arbitrators suggest answers to the witnesses of the parties who have appointed them. Some even mould the evidence suitably.

If this is true, and I am not saying it is, it is a very serious matter. Unfortunately, these statements are made in hushed undertones given that the persons whom they are talking about may have held high judicial offices earlier.

It is my respectful submission that the Supreme Court judgment in the Saw Pipes case is a reaction to this very environmental and atmospheric condition.

It was inevitable that the Supreme Court would take notice of all this. It is only when the comfort level relating to the manner in which arbitrations are conducted in this country rises and comes on par with that of international arbitrations, that one will legitimately be able to argue that there is a case for making arbitral awards virtually free from challenge.”
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