India’s Arbitration/Alternate Dispute Redressal Mechanism – Is It A Trap Or A Genuine Redressal Mechanism ?

M. Dutta
18 Sep 2018 2:37 PM GMT
India’s Arbitration/Alternate Dispute Redressal Mechanism – Is It A Trap Or A Genuine Redressal Mechanism ?
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Undoubtedly, the Indian Arbitration Act of 1940 had failed. Barring Government / PWD / DDA Contracts, that imposed arbitration Clause(s) upon Private Contractor(s), India’s alternate dispute resolution mechanism convinced or attracted none. In writing it’s epitaph, Justice D.A. Desai lamented -

“Interminable, time consuming, complex and expensive court procedures impelled jurists to search for an alternative forum, less formal, more effective and speedy for resolution of disputes avoiding procedural claptrap and this led them to Arbitration Act, 1940 (‘Act’ for short).  However, the way in which the proceedings under the Act are conducted and without an exception challenged in courts has made lawyers laugh and legal philosophers weep. Experience shows and law reports bear ample testimony that the proceedings under the Act have become highly technical accompanied by unending prolixity, at every stage providing a legal trap to the unwary. Informal forum chosen by the parties for expeditious disposal of their disputes has by the decisions of the courts been clothed with “legalese” of unforeseeable complexity”[1].

Despite the “lawyer’s laugh” and the “philosophers weep”, it took another  15-years for the legislature to repeal the 1940 Act and introduce the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act).  While the Act was launched with much fanfare, great promise and expectation of not just obliterating the lethargy and inertia of the old Act, it was equally expected to introduce and imbibe, some of the universal notions of the western  justice delivery system, e.g.- speed, quick and expeditious adjudication, minimal / limited role of Court(s) etc.  The new Act was after all based on the United Nations Commission on International Trade Law. After 22-years of its enactment and application, would it not be apposite to wonder, if Justice Desai’s words equally resonate or stand silenced.

Arbitration, an alternative dispute resolution mechanism (ADR), is often described as “a binding voluntary alternative dispute resolution process by a private forum chosen by the Parties”[2].  It is inherently expected, that “If the Parties with their eyes wide open have consented to refer the matter to the arbitration, then normally the finding of the Arbitrator should be accepted without demur”[3].  Apparently, after the pronouncement of the arbitral award the Court(s) are expected to discharge a mere “supervisory role”[4], categorically and explicitly scripted in Section 34 of the Act and by way of the various judgment(s) interpreting and reaffirming its mandate. After all, arbitration is / “was meant to be a speedy, expeditious and cost-effective method of dispute reconciliation”[5]. Undoubtedly, it’s primary and paramount objective is “avoidance of vexation, expense and delay………”[6].

In ONGC vs Saw Pipes[7], one of the first detailed judgment(s) analysing and interpreting Section 34 and Associate Builders vs DDA[8], that had the benefit of the ONGC judgment (supra), the Supreme Court painstakingly defined and re-defined, the limited scope of interference with arbitral awards.

Consequently, if the process of arbitration is well-defined and the scope for interference against an award well settled, would it be correct to say: i) that  lawyers ingenuity / surgical intelligence; and ii) the Court(s) parens-patriae attitude, have succeeded in failing/have abjectly defeated the very purpose of arbitration ? Likewise, is it legitimate to conclude, that Justice Desai’s words are equally applicable to proceedings under the Act?

In examining the legislative mandate, first, let us begin with Section 34 and the pre-amended Section 36 of the Act, that prohibited/prevented execution of an award, till the challenge under Section 34 remained pending and had not been rejected. Pointing at this gaping lacunae and suggesting immediate rectification, Justice Hegde[9] pithily wrote - “However, we do notice that this automatic suspension of the execution of the award, the moment an application challenging the said award is filed under Section 34 of the Act leaving no discretion in the court to put the parties on terms, in our opinion, defeats the very objective of the alternate dispute resolution system to which arbitration belongs”.  Thankfully, the Act was amended on 23.10.2015, allowing successful Parties to seek execution despite the pendency of a challenge under Section 34.

Second, for a forensic appreciation, let us examine a few instances of judicial intervention in the recent past –

  •  in ONGC vs Saw Pipes (supra), the arbitral award was passed on 02.05.1999, while the SLP was finally decided by judgment dated 17.04.2003, consuming a period of more than 4-years;

  • in Associate Builders vs DDA (supra), the arbitral award was passed on 23.05.2005, the objection(s) under Section 34 was dismissed on 03.04.2006, the Appeal under Section 37 was decided on 08.02.2012 and the SLP finally decided by judgment dated 25.11.2014, consuming a period of more than 9-years;

  • in National Highways Authority of India vs ITD Cementation India Limited (2015) 14 SCC 21, the arbitral award was passed    on 12.05.2006, the objection(s) under Section 34 were dismissed on 14.05.2007, the Appeal under Section 37 was decided on 30.11.2007 and the SLP was finally decided by judgment dated 24.04.2015, consuming a period of more than     9-years; and

  • in Centrotrade Minerals and Metal Incorporated vs Hindustan Copper Limited (supra), the Arbitrator / Tribunal at London passed their foreign award on 29.09.2001. Section 48 proceedings before the High Court culminated on 28.07.2004. The challenge to the said order on the question of enforceability of the award, remained undecided / pending till 15.12.2016, consuming a period of 15-years.

If, such copious time is consumed for an award to bear fruition, Justice Desai’s words are indeed ringing true. What then is the panacea?

Post an award, the Act mandates a three-tier process of the hierarchical check(s) – a) Hurdle 1-Section 34; b) Hurdle 2-Section 37; and c)Hurdle 3-Article 136 of the Constitution. If a Party, successfully prevails over  Hurdle 1, it is automatically placed before Hurdle 2 and thereafter Hurdle 3.  In other words, after an award, the lawmakers prescribe a successful triple hurdle chase, for the award to finally mature.

Consequently, all those seeking to repose faith and confidence on India’s arbitration mechanism, are impelled to ask, if arbitration is – “a binding voluntary alternative dispute resolution process…..”*; whose findings should normally “be accepted without demur”*; where the Court(s) are expected to discharge a mere “supervisory role”*; “a speedy, expeditious and cost-effective method of dispute reconciliation”*; aimed at “avoidance of vexation, expense and delay……”*, would it be right and thus lawful to place an award so procured through this system of triple hurdles?  Does it not indicate or establish a complete lack of confidence or faith of our law-makers over our justice dispensation system ?

          Ironically, such an elaborate mechanism is not prescribed even under the Civil Procedure Code, to escape which the Act was particularly enacted. Undoubtedly, against a decree, the civil law permits a First Appeal, followed by a Second Appeal only on “a substantial question of law”[10].  In cases, where the High Courts exercise ordinary original civil jurisdiction, e.g.- the Delhi High Court, a Party is denied the remedy of a Second Appeal, since only a First Appeal lies before the Division Bench, against a decree passed by the Single Judge. The only remedy thereafter being before the Supreme Court under Article 136.  What then is the relevance and purpose for a Party to seek recourse through arbitration and undergo the triple hurdle chase?  Is it not self-defeating? What good fortune did Parties achieve, after spending substantial time, energy and money before the Arbitral Tribunal?

 As we foray further and as the law suggests, that - the Act is an exhaustive self-contained code[11], that arbitration proceedings must necessarily be fair, speedy and inexpensive without unnecessary delay or expense[12], where the “legislative intent underlying the 1996 Act is to minimize the supervisory role of Court(s) in the arbitral process…..”[13], can it even be vaguely countenanced, that an arbitral award be subjected to such three-tier challenge and more so, permitted and prescribed by our lawmakers.

That brings us back to the question we started with, which is how relevant and apposite is Justice Desai’s lament in the present circumstances? Also, are lawyer(s) still laughing and the philosopher(s) in tears? Undoubtedly, yes. The whole purpose of an ADR mechanism stands defeated, if it takes years to attain finality / or obtain the fruits. If, the arbitration proceedings are to attain respect as a genuine mechanism and not a trap, that engulfs a Party for years altogether, the legislature must necessarily amend the Act and for all purposes bury Section 37 with full State honours.  Likewise, it is imperative to prescribe statutory time-frame(s) for adjudicating Section 34 and Article 136 challenge(s). If drastic measures are not immediately introduced, the rot will rapidly percolate and nullify the entire arbitration process.

While the lawmakers may debate and find solution to the threat sought to be exposed herein, let me conclude by what Shri F.S. Nariman, Senior Advocate while affirming the adage – “Justice is good but, finality is better”, recently quoted – “Someone has humorously stated that the provision for one appeal is a reasonable precaution, the provision for two appeals is panic, and that for three appeals is a complete lack of confidence in the judiciary - this  is the case of India - in our anxiety to secure justice, we unduly delay it”[14].

[The opinions expressed in this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of LiveLaw and LiveLaw does not assume any responsibility or liability for the same]

[1] Guru Nanak Foundation vs Rattan Singh & Sons (1981) 4 SCC 634. The judgment was delivered by the Supreme Court on 29.09.1981 and the Arbitration and Conciliation Act, 1996 came into force on 22.08.1096.

[2] Indian Oil Corporation Ltd & Others vs Raja Transport Private Limited (2009) 8 SCC  520.

[3] Numaligarh Refinery Limited vs Daelim Industrial Company Limited (2007) 8 SCC 466.

[4] McDermott International Incorporated vs Burns Standard Company Limited & Others (2006) 11 SCC 181.

[5] Centrotrade Mineral and Metals Incorporated vs Hindustan Copper Limited (2006) 11 SCC 245.

[6] Centrotrade Mineral and Metals Incorporated vs Hindustan Copper Limited (Supra).

[7] ONGC vs Saw Pipes Limited (2003) 5 SCC 705.

[8] Associate Builders vs DDA (2015) 3 SCC 49.

[9] National Aluminium Co. Ltd. vs Pressteel & Fabrications (P) Ltd. (2004) 1 SCC 540.

[10] See Section 100 of the Code of Civil Procedure, 1908.

[11] Fuerst Day Lawson Limited vs Jindal Exports Limited (2011) 8 SCC 333.

[12]Union of India & Others vs Uttar Pradesh State Bridge Corporation Limited (2015) 2  SCC 52.

[13]Food Corporation of India vs Indian Council of Arbitration & Others (2003) 6 SCC 564.

[14] Please see Article by Mehal Jain dated 02.05.2018, Live Law.

* Please see footnotes 2, 3, 4, 5 and 6 (supra).

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