Column: Falling behind the intent

Written by GOPAL JAIN | Updated: Apr 3 2014, 08:44am hrs
The economic liberalisation in the early 1990s saw the advent of huge foreign investments in India. The 1940 Act was not an effective mode to settle domestic and international commercial disputes. The Arbitration and Conciliation Act, 1996, was enacted as a comprehensive modern legislation on arbitration in India on the lines of the Model Law of the UNCITRAL (United Nations Commission on International Trade Law). The intention of the Act was to make arbitration process responsive to contemporary commercial requirements.

After 17 years in practice, the Act has fallen way behind the intent for which it was enacted. An out-of-court process should have ideally ensured quick resolution of disputes, but a peep into the law-at-work vis-a-vis the Act reveals just the contrary. While arbitration proceedings should be result-oriented, in practice, the end is never in sight for the disputing parties.

The Indian system is highly litigatious and dispute ridden. It requires a quick and time-bound resolution process, outside the traditional court system. Arbitration offered an effective alternate dispute redressal system where the end was in sight. The reality has been somewhat different. Arbitrations, much like television serials and ordinary suits, drag for years with no outer limit.

In fact, recent examples have shown that initiation of arbitration itself can take over two yearsthe dispute between Reliance and the government is one such instance, where the initiation of arbitration was in November 2011 and the Arbitral Tribunal was constituted in March 2014the Supreme Court has now withdrawn the name of James Spigelman as the presiding arbitrator and has promised to appoint a new arbitrator in his place soon.

No institutional set-up

The Arbitration Act itself is tailor-made for disputes; while the old Act was overhauled to resolve disputes, the 1996 Act appears to have actually created disputes. Some of the troubled spots are in the design of the Act and the lack of an institutional set-up/system is a major area of concern.

India has not yet developed the system of an institutional arbitration where there is a laid down procedure that restricts timelines monitored by an effective secretariat and where the choice of arbitrators depends upon the subject matter of disputes. Universally-applicable timelines should be stipulated within which pleadings should be completed, hearings should commence and awards be passed. Experienced and qualified experts should be appointed as arbitrators to strengthen the quality of decision-making and to ensure faster determination.

Excessive judicial intervention

At first instance, the arbitration process gives a flavour of a speedy and efficacious settlement. In practice, however, excessive judicial intervention has defeated this objective at every stage. There is an inherent flaw in the design of the Act.

For instance, Section 9 of the Act grants powers upon the court to grant interim protection to disputing parties, even prior to approaching the arbitral tribunal. What was intended as an interim measure has turned out to be more than just transient in its scope. The Supreme Court, in the Sundaram

Finance, matter (1999) held that Section 9 could be resorted to only by such parties who seek interim relief while taking recourse to arbitration at the earliest. Despite the legal position, the purpose, intent and scope of Section 9 still remains subject to much legislative and judicial debate. The Law Commissions report in 2001 stands testimony to this. After obtaining an interim order from the court, parties do not take initiatives to have an arbitral tribunal constituted. This allows them to reap the benefits of the interim order without any time limit.

An efficient arbitration process requires an efficient start to it, and Section 9 appears to have been exploited to ensure that it achieves just the contrary.

The other major flaw is in the enforcement and execution of arbitral awards. Once an award is passed, tangible fruits of such award must pass on to the successful parties. However, the real problem of a decree holder starts after the award is passed. Execution of the award is a long journey that rarely sees light at the end of the tunnel without several rounds of trials in courts.

The award passed by the arbitral tribunal just ensures the commencement of a new battle, the battleground being Section 34 of the Act, which empowers courts to set aside an arbitral award on certain specified grounds one among them being that of public policy. An arbitral award that is in conflict with the public policy of India can be set aside by a competent court. The expression public policy remains undefined in the statute. The apex court, in 2005 (ONGC vs Saw Pipes), tried to rescue the situation, but public policy being an unruly horse, the Supreme Court widened the scope of public policy by including patent illegality within its ambit, which is now one of the grounds available for setting aside an arbitral award. This results in a challenge on open ended grounds and the pendency of an application under Section 34 operates as a stay of the award. Section 34 proceedings are instituted in the normal court system which keeps the enforcement of the award at bay.

The need of the hour

Inordinate delay in enforcing awards is frustrating and undermines the effectiveness of the arbitral process. Consequently, it is not the favoured method of settling commercial disputes and there is an increasing trend to have foreign arbitration.

The lacunas in the Arbitration Act have not gone unnoticed. Certainly, legislative correction is the need of the hour, and structural and institutional changes should be introduced to salvage the Act. What is more important is a mindset change and an earnest attempt by all stakeholders in the arbitral process to ensure finality and closure to arbitral proceedings in a time-bound and efficient manner.

The author is senior advocate, Supreme Court