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Is Arbitration A Never-Ending Merry-Go-Round?

M Dutta
11 May 2020 8:53 AM GMT
Is Arbitration A Never-Ending Merry-Go-Round?
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In McDermott International Inc. versus Burn Standard Co. Ltd.1, the Supreme Court in some manner without adequate diagnosis, explanation or reasoning held – "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." Consequently, a few pertinent questions arise - i) What is the role of a Court while deciding objections against an Award under Section 34 of the Arbitration and Conciliation Act, 1996?, ii) Is it limited and confined only to setting aside an Award? and iii) Is there a difference and distinction between an Award where Claims are allowed as opposed to an Award where Claims are denied?

Before we proceed any further let us for easy reference remind ourselves about the purpose of Arbitration. Simply defined, it is an alternate dispute redressal mechanism outside the Sovereign Courts. However, it is expected to meet and comply with all applicable and substantive laws of a Country. The primary purpose and reason being to shift and reduce the ever-increasing burden on Sovereign Courts while providing a quick and expeditious redressal mechanism to litigating Parties in business, commerce, etc. An Award passed by an Arbitrator is open to challenge and further Appeal(s) under Section(s) 34 and 37 of the Act. Though the grounds of challenge are limited, it exists to ensure that an Arbitrator has duly followed the substantive laws of the Country.

Consequently, if arbitration is a one-stop, comprehensive and exhaustive adjudicatory process, why cannot the Court "correct errors of the Arbitrator". Why should the role of the Court be limited to quashing "the Award leaving the Parties free to begin the Arbitration if it is desired". These questions may be examined from two simple scenarios – a) where a Claim has been awarded and b) where a Claim has been denied by the Arbitrator and both these Award(s) are duly challenged under Section 34 of the Act.

Irrespective of whether a Claim has been allowed or denied by the Arbitrator subsequent to a successful challenge under Section 34, Parties post McDermott (Supra) are expected to again commence and restart the entire wheel of arbitration. The Arbitrator would start de-novo proceedings and – a) pass an Award similar to that set-aside, b) reverse the earlier Award by dismissing the Claim(s) and c) pass an entirely new award by allowing some and rejecting the other Claim(s).

This second round of de-novo Arbitration would again be open to challenge under Section 34 and subsequent Appeals arising therefrom. The second round could equally meet the fate of the first round, sending the Parties to again another de-novo third round of Arbitration. Especially, since our own Supreme Court has held that a Court "cannot correct errors of the arbitrators" and it could only "quash the award leaving the parties free to begin the arbitration again if so desired". Consequently, is the clock back to where it began? Are we right in concluding that the process of Arbitration is an infinite merry go round? Is McDermott (Supra) therefore self-defeating and contrary to the very purpose of Arbitration?

To avoid such self-defeating consequences and recognizing the fallacy of McDermott (Supra), the Delhi High Court in Union of India vs. Modern Laminators2, after recording – "...if the courts are compelled to only set aside the award and to relegate the parties to second round of arbitration or to pursue other civil remedies we would be not serving the purpose of expeditious/speedy disposal of lis and would be making arbitration as a form of alternative dispute resolution more cumbersome than the traditional judicial process" proceeded to recognise and confer the power to modify an Award within the ambit and expanse of Section 34. Such power to "modify an award" within the ambit of Section 34 has been consistently followed and upheld amongst others in - State of Orissa vs. Samantary Construction Pvt Ltd3, Numaligarh Refinery Ltd vs. Daelim Industrial Co. Ltd.4, Krishna Bhagya Jala Nigam Ltd. vs. G. Harish Chandra Reddy and Another5, M/s Poysha Oxygen Pvt Ltd vs. Shri Ashwani Suri and Others6, Union of India vs. Arctic India7 and Bharat Heavy Electricals Ltd. vs. Tata Projects Ltd.8

Resultantly while exercising jurisdiction under Section 34, a Court is permitted to "modify" an Award and grant such other and further relief(s) that a Court may deem fit "without any elaborate inquiry and on the material already before the arbitrator". Undoubtedly, it is contrary/violative of McDermott (Supra) since it transcends McDermott's (Supra) reasoning that a Court "can only quash the award leaving the parties free to begin the arbitration again if it is desired."

The next logical question is- Whether the interference ends with a mere modification or does it proceed even further? The Madras High Court in Ms. G vs Isg Novasoft Technologies Ltd.9 after framing the following questions - i) "Whether in a petition under Section 34, this Court is entitled to modify the award, either by enhancing the amount awarded by the Tribunal or by granting a relief that was rejected by the Tribunal, especially in the light of the express language of Section 34?" and ii) "If the answer to the first question is in the affirmative, whether the petitioner is entitled to the grant of reliefs that were negatived by the Arbitral Tribunal?", interestingly answered both these questions in the affirmative. After referring to the available case-law including McDermott (Supra) and upon examining similar provisions contained in the arbitration laws of England, the United States, Canada and Singapore it held – "Therefore, in my considered view, the expression recourse to a Court against an arbitral award appearing in Section 34 (1) cannot be construed to mean only a right to seek the setting aside of an Award. Recourse against an Arbitral Award could be either for setting aside or for modifying or for enhancing or for varying or for revising an award".

McDermott (Supra) was distinguished on the premise "Therefore, I do not think that the question raised in this case, is settled by the Supreme Court in McDermott finally". By definition and judicial interpretation, the Court exercised Appellate powers akin and similar to Section 96 of the Civil Procedure Code. Undoubtedly, it is equally contrary/violative of McDermott (Supra) since it transcends McDermott's (Supra) reasoning that a Court "can only quash the award leaving the parties free to begin the arbitration again if it is desired."

In another instance, a Single Judge of the Delhi High Court in Bharti Airtel Ltd. vs. Union of India10 while examining concerns similar to those raised herein, held – "In my view, once the parties go to arbitration on a question whether one party is entitled to the monies claimed from the other or not and the arbitral award not finding that party to be entitled to the monies claimed is set aside in exercise of powers under Section 34 of the Arbitration Act, the order of the Court has but to be read as finding the claimant party to be entitled to the monies claimed…".

Expressing further, the Single Judge elaborated – "Once the Court in exercise of power under Section 34 of the Arbitration Act has set aside an arbitral award rejecting a monetary claim, on the ground of the same being against the public policy of India, as the arbitral award in the present case has been set aside, the necessary corollary and inference, in my opinion is that the Court finds the award rejecting the monetary claim to be contrary to law and resultantly finds the monetary claim to be proved/established". Undoubtedly, by such interpretation the Single Judge has again conferred/read Appellate powers within the ambit of Section 34 quite contrary to the limited power ascribed by McDermott (Supra).

Refusing any other interpretation, the Single Judge argued and held- "If it were to be held otherwise, and it were to be held that the order of the Court means nothing more than setting aside the arbitral award (rejecting the monetary claim), it would leave the claimant who applied under Section 34 and succeeded therein, in spite thereof, being left high and dry and without a relief. A litigant litigates not for academic purposes or to score a moral victory but to secure the relief claimed and benefit therefrom. If such a litigant who has secured setting aside "on merits" of the arbitral award (rejecting his monetary claim) is told that he has to start another litigation either by way of suit or arbitration to secure his monetary claim, people will hesitate from incorporating arbitration Clause in the agreements and/or from agreeing to arbitration for the fear of not getting effective relief at the end of the proceedings under the Arbitration Act."

Any other interpretation, the Single Judge warned and cautioned would render and reduce proceedings under Section 34 to an "unending exercise", where "the lis will never attain finality". Undoubtedly, it is also contrary/violative of McDermott (Supra) since it transcends McDermott's (Supra) reasoning that a Court "can only quash the award leaving the parties free to begin the arbitration again if it is desired."

Unfortunately, the aforesaid reasoning did not translate into any declared law, since the Single Judge was bound by McDermott (Supra) and other pronouncements following McDermott (Supra). Consequently, the Single Judge bound by precedents was unable to provide the due relief(s), no matter and "howsoever strange the said result may sound". Despite the Award refusing the Claim of the Claimant duly set- aside, the Claims of the Claimant were still not awarded to the Claimant. The Claimant is required to pursue yet another round of Arbitration.

Consequently, the pursuit and application of McDermott (Supra) presents a hopeless, contradictory and self-defeating eventuality with no end in sight. Parties would indulge in an arbitration that may never end. As apparent, they would be caged in an infinite merry- go- round. On the contrary, if the conclusions propounded in Ms. G (Supra) and Bharti Airtel Ltd (Supra) are accepted and embraced, a Section 34 Court would be empowered and entitled to grant the requisite relief(s), once it sets-aside an Award. It could modify, enhance, vary and revise an Award exercising powers akin to an Appellate Court in such manner it deemed fit. Resultantly, arbitration proceedings would meet and reach a finality allowing Parties to achieve and secure the purpose of their arbitration. If the process of arbitration is to meet and serve the purpose of its enactment, it must necessarily secure and obtain relief to the Parties who have invested their time, energy and money. As rightly argued, a Party does not invoke the arbitration proceedings for academic or superficial reasons but for the obtainment of reliefs and for the enforcement of rights denied to them. The alternate dispute redressal mechanism must respond with the desired result and relief(s) to all those reposing fate, trust, and belief.

McDermott (Supra) reduces arbitration to an "unending exercise", where "the lis will never attain finality". McDermott (Supra) needs re-consideration. It is contrary to the very purpose of arbitration. The reasoning, logic and rationale propounded in Ms. G vs. Isg Novasoft Technology (Supra) and Bharti Airtel Ltd. (Supra) needs appreciation and acceptance. The cycle has to stop. The merry-go-round must cease. The purposive, expansive and relief oriented conclusion must prevail over the strict, literal and relief evading interpretation. Isn't law meant to serve and secure? Was it ever meant to be "interminable, time-consuming, complex and expensive court procedures"11 replete with "procedural claptrap"11, that would make "lawyers laugh and legal philosophers weep"11?

Views Are Personal Only.

BIBLIOGRAPHY

1. McDermott International Inc vs. Burn Standard Co. Ltd. (2006) 11SCC 181.

2. Union of India vs. M/s Modern Laminators Ltd., OMP 103/2005 Dated 20.08.2008.

3. State of Orissa vs. Samantary Construction Pvt. Ltd., Civil Appeal 2991/2007 Dated

11.09.2015

4. Numaligarh Refinery vs. Daelim Industrial Co. Ltd. (2007) 8SCC 446.

5. Krishna Bhagya Jala Nigam Ltd. vs. G. Harish Chandra Reddy and Another (2007) 2SCC 720.

6. M/s Poysha Oxygen Pvt. Ltd, vs. Ashwini Suri and Others, OMP 126/ 2001 Dated 30.07.2009.

7. Union of India vs. Arctic India (2007) 4 Arb LR 524 (Bom).

8. Bharat Heavy Electricals Ltd. vs. Tata Projects Ltd. (2015) 5SCC 682.

9. Ms. G vs. Isg Novasoft Technologies Ltd., (2015) 1MLJ 5.

10. Bharti Airtel Ltd. and Others vs. Union of India 231 (2016) DLT 71.

11. Guru Nanak Foundation vs. Rattan Singh and Sons (1981) 4SCC 634.

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