Covid lockdown: When you can’t litigate and arbitrate

Published: May 6, 2020 5:15:02 AM

Given the many advantages it has over traditional litigation during the corona crisis, arbitration should no longer be just an alternative dispute resolution mechanism, but the primary choice for adjudicating disputes.

One of the biggest advantages of arbitration is that all hearings can be conducted by video conferencing.(Representative image)

By Ila Kapoor & Ananya Aggarwal

As with most sectors, the legal fraternity too has been reeling under the impact of the corona pandemic and the resultant lockdown, searching for ways to surmount the difficulties that lie ahead. Indian courts have adapted to the new situation by introducing video conferencing to hear urgent matters, where parties cannot wait for regular courts to resume to seek relief. However, this is a solution only for a tiny fraction of cases, and with the pandemic unlikely to retreat for a while, traditional litigation has hit a roadblock for an uncertain period.

There is another mode of dispute resolution that has dealt with the constraints of present times with relative ease—arbitration. Arbitration was increasingly becoming a preferred mechanism of dispute resolution. While arbitral procedures have continued to be conducted largely unhindered, even these are not completely immune to the impact of the global lockdowns. We propose to examine what aspects of arbitration are inherently suitable for dispute resolution in these times, and the roadblocks where additional clarification and infrastructure is needed.

What works for arbitration

Flexibility and party autonomy: Arbitration’s key feature, parties’ ability to mould the arbitral procedure based on their agreement, is most suitable to resolve disputes in the times of Covid-19. For instance, the parties may now agree to a documents-only arbitration, or have all hearings by video conferencing. If the parties don’t agree, the arbitrator has the power to conduct the proceedings as they deem appropriate. The arbitrator generally gives a procedural order (PO), with the rules and dates of the proceedings, at the outset. This may be changed anytime during the course of the proceedings, as required.

E-filings: These were always the norm. All pleadings in arbitration, from the notice invoking arbitration to the statement of claim and witness affidavits to written submissions, are filed by email. Voluminous documents are uploaded on a file share link, which is sent to the opposing party and the arbitral tribunal. Therefore, the requirement for printing and couriering hard copies to multiple parties, which would pose a problem in the lockdown, is easily done away with. Equally convenient is the fact that communications with the opposite party, arbitral tribunal, or the arbitral institution is through email.

Videoconference hearings: One of the biggest advantages of arbitration is that all hearings can be conducted by video conferencing. This is not a novel feature and is commonly resorted to for regular pre-scheduled hearings such as procedural hearings, cross-examination of witnesses, and sometimes even final arguments. This has become particularly relevant now due to the travel restrictions. The courts have also started holding hearings through video conferencing, but these are still restricted only to certain matters. Moreover, the judiciary may face teething issues as judges may find it difficult to cope with the technology, which they may overcome with time. Seasoned arbitrators are more likely to be familiar and comfortable with the technology.

Interim relief provisions: Under section 9 of the Arbitration & Conciliation Act, 1996, during arbitration proceedings, a party may approach the tribunal for any interim relief. However, before an arbitral tribunal is formed or after it gives its award, the only forum available for interim relief are the courts. Even though courts are now only dealing with urgent matters, the interim relief sought in a section 9 petition is, in any case, only meant for pressing claims that would warrant the court exercising its jurisdiction before the tribunal is even formed. Interim relief is usually granted if the claimant is able to prove that they will suffer irreparable harm without such relief—for example, the respondents’ assets being dissipated, bank guarantees being invoked, etc. Given the nature of the relief, these petitions are being heard by courts even during the lockdown.

During the lockdown, courts have heard several section 9 petitions dealing with injunctions on encashment of bank guarantees or letters of credit, where performance of contract was suspended due to lockdown. The Delhi High Court has allowed an injunction on encashment of bank guarantee and granted relief to the petitioner until one week after the current lockdown ends. The court felt that the petitioner was unable to continue work under the contract due to the lockdown, and it was, therefore, necessary to grant the relief.

In another instance, the Bombay High Court rejected a similar claim on the grounds that the petitioner could have, in fact, performed the contract despite the lockdown as its performance was an essential service. Other reliefs usually sought under section 9 include pleas for respondents to deposit money in court or, injunction on sale of assets. Courts will deal with these claims based on the case of irretrievable harm and imminent injury made out by the petitioner.

Parties governed by institutional arbitration may apply for emergency relief before an arbitral tribunal is formed. However, enforcement of emergency awards in India is difficult, which is why there are not many takers for this option.

Roadblocks for arbitration

Appointment of arbitrator: Arbitration clauses usually contain a party-agreed procedure to appoint the arbitral tribunal, which are often unsuccessful due to parties’ inability to reach a mutual consensus after disputes have arisen.
In such situations, in an ad hoc arbitration, parties have to approach the court under section 11 of the Arbitration Act for appointment of an arbitrator. In the current scenario, this will pose an issue as it is unlikely that courts will consider an application for appointing an arbitrator as ‘extremely urgent’.

Hence, parties may have to wait to start dispute resolution until the courts open up for regular functioning. They can, however, rest assured that once they invoke the arbitration by sending a notice, the limitation period for raising a dispute stops running. Therefore, there is no fear that the claim will become time-barred. Even the timelines for completing the arbitration proceedings under the Arbitration Act don’t kick in until the arbitrator has been appointed.

If the agreement calls for an institution to govern the proceedings, the path is much simpler; the institution steps in and appoints the sole arbitrator, or the presiding arbitrator. Even in an ad hoc arbitration, parties can overcome this problem by amending the agreement to grant an institution the right to appoint the arbitral tribunal. Of course, this is much easier said than done because, as mentioned earlier, parties rarely agree to anything after a dispute has commenced. Once the amendment to section 11, allowing courts to refer appointments to designated institutions, is notified, even this road block can be done away with.

Timeline for arbitration: Section 29A of the Act provides that arbitral awards have to be given within one year of completion of pleadings. The Supreme Court on March 23, 2020 passed an order extending limitation periods stating, “This court has taken suo moto cognizance of the situation arising out of the challenge faced by the country…and resultant difficulties being faced by litigants across the country in filing their petitions/applications/suits/appeals/all other proceedings within the period of limitation prescribed under the general law of limitation or under special laws (both central and/or state).

To obviate such difficulties and to ensure that lawyers/litigants do not have to come physically to file such proceedings in respective courts/tribunals across the country including this court, it is hereby ordered that a period of limitation… shall stand extended…”

A mere reading of the order makes it clear that it pertains only to filing pleadings before courts or tribunals, and it is unlikely that it will cover timelines under Section 29A. The Indian Commercial and Arbitration Bar Association addressed a specific letter to the Supreme Court requesting for a clarification that benefits of the March 23 order ought to be extended to other circumstances as well, including timeline for giving an award under Section 29A.

The Supreme Court has not responded to this letter yet. The Allahabad High Court, by circular dated April 6, 2020, has notified that if, in any arbitral proceedings, pleadings have been completed and the time period of 12 months has concluded or is going to expire on or after March 25, 2020, then the same stands extended upto May 25, 2020. However, this circular would only extend to arbitral proceedings in Uttar Pradesh.

In other jurisdictions, there is a possibility that parties will be unable to approach courts to extend the timeline during the lockdown. Without an extension, the tribunal’s mandate will terminate, and the entire arbitration be frustrated. Therefore, there is a clear need for clarification so that parties are not left without any remedy.
Despite the roadblocks, it is apparent that arbitration is no longer just an “alternative” dispute resolution mechanism, but for, many parties, should be the primary choice for adjudicating their disputes.

Kapoor is partner & Aggarwal is senior associate, Arbitration Practice Group at Shardul Amarchand Mangaldas & Co. Views expressed are personal.

 

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