“Of all mankind’s adventures in search of peace and justice, arbitration is amongst the earliest. Long before laws were established, or courts were organized, or judges formulated principles of law, men had resorted to arbitration for the resolving of discord, the adjustment of differences, and the settlement of disputes.”
-Francis Kellor (The only female founder of the American Arbitration Association)
Historical Perspective
Arbitration is mentioned in the “Brhadaranayaka Upanishad,” one of the earliest texts in “Hindu law.” It vividly describes the various types of arbitral bodies, which consists of three primary bodies: ‘Puga’ the local courts, ‘Srenis’ the people engaged in the same business or profession, and ‘Kulas’, who were members concerned with the social affairs of a specific community, and all three bodies were collectively known as Panchayats. The Panchas, the then-arbitrators, were members of the same.
After the invasion of East India Company in India, the idea of arbitration flourished the Indian sub-continent. The idea of Arbitration was lawfully accepted as a form of dispute resolution for the first time when Indian Arbitration Act, 1899 was enacted however; it was confined to the three presidency towns only i.e. Madras, Bombay and Calcutta.
Justice D.A. Desai pronounced the despondency of the Indian courts and the ineffective working in Guru Nanak Foundation v Rattan Singh, (1981) 4 SCC 634, wherein he laconically stated:
“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………..”
1. Arbitration Friendliness
“Discourage litigation. Persuade your neighbours to compromise whenever you can… As a peacemaker the lawyer has superior opportunity of being a good man. There will still be business enough”
-Abraham Lincoln
a) Awareness of the subjects by the arbitrators: The flexibility of the appointment of the arbitrator beyond the legal arena depending upon the pertinence of the case makes the process of arbitration in the course of dispute resolution more accurate.
b) Flexibility- Flexibility- Another advantage of arbitration is the flexibility of the process, which does not operate strictly by law but rather according to the convenience of the parties and allows parties to feel more accommodated than in public courts.
c) Cost effectiveness- Lawyers charge fees to parties for each court appearance, and the process of resolving cases in court takes time. As a result, it is unnecessary to emphasise that in most cases, arbitration is less expensive than litigation.
d) Finality of arbitral awards – The significant feature of the arbitration is that the award granted by the arbitrator is final and binding unlike the judgements of the national courts.
e) Confidentiality: Unlike courtroom litigation, arbitration is private and confidential. The proceedings are not public records.
Role of the courts in increasing in escalating arbitration affability.
Though the relationship between the court proceedings and arbitral proceedings has always been conflicting because of numerous reasons. But the courts have taken many steps for rectifying these differences. The judgements below authenticates that the courts are striving for a constructive mechanism between the two.
a) The Indian Supreme Court sets aside a domestic award for arbitrator bias:
Vinod Bhaiyalal Jain Vs. Wadhwani Parmeshwari Cold Storage Pvt. Ltd
The Supreme Court, in this matter made sure that there is not an opportunity left to even perceive the arbitrator as a biased entity. The apex court discerned that the aggrieved party had a reasonable bias against the arbitrator thus; the award should be set aside. The court noted: “what is to be seen is that there has been a reasonable basis for the appellants to make a claim that in the present circumstance the learned Arbitrator would not be fair to them even if not biased”.
b) In Uttarakhand Purv Sainik Kalyan Nigam Ltd. Vs. Northern Coal Field Ltd .
This case strengthened the autonomy of both the parties and the arbitrator. The Supreme Court determined that the issue of limitation would be decided by an arbitrator by examining the feature of kompetenz – kompetenz enshrined in Section 16 of the Arbitration & Conciliation Act, 1996 (Arbitration Act) and the legislative intent to limit judicial intervention at the pre-reference stage.
The SC regarded the conflict of limitation as a hegemonic issue and held that the power to decide the limitation should be in the hands of the arbitrator.
c. M/s Icomm Tele Ltc. Vs. Punjab State Water Supply & Sewage Board
This case made the process of arbitration economically viable. The two-member bench of Hon’ble Mr. Justice Rohinton Fali Nariman and Hon’ble Mr. Justice Vineet Saran (Bench) struck down a clause which required a 10% pre-deposit of the claim amount which precede the arbitration proceedings .
d. Tulsi Narayan Garg Vs. The M.P. Road Development Authority, Bhopal and Ors
The three-judge bench of Hon’ble Mr. Justice N.V. Ramana, Hon’ble Ms. Justice Indira Banerjee, and Hon’ble Mr. Justice Ajay Rastogi (Bench) reaffirmed the legal position stated in State of Karnataka v. Shree Rameshwara Rice Mills Thirthahalli, which stated that a party to an agreement cannot be an arbitrator in his own cause.
The Bench stated that if a state authority’s demand has been challenged by the contractor and is pending adjudication, then the initiation of recovery proceedings against the contractor by the concerned state authority at this stage is not justified and cannot be considered legally sustainable in law.
e. Hindustan Construction Company Limited & anr. vs Union of India.
The court struck down Section 87 of the Arbitration and Conciliation Act 1996 (the “Act”) as being “manifestly arbitrary” in resolving the issue of automatic stays on the enforcement of arbitral awards.
Cost disputes arose in a number of Hindustan Construction Company (“HCCL”) projects, leading to a number of arbitration proceedings. The Union of India (“UOI”) challenged the resulting awards in HCCL’s favour under Section 34 of the Act. Following these challenges, the awards were automatically stayed under Section 36 of the Act as it stood.
HCCL challenged Section 87 of the Act on the grounds that it violated, among other things, Article 14’s right to equality by removing the vested right to enforce an arbitral award without removing the basis of the BCCI judgement, rendering Section 87 unreasonable, excessive, and arbitrary.
This is a welcome decision that appears to resolve years of uncertainty surrounding stays, award enforcement, and the applicability of amendments for a country that is currently ranked 163 in the world (out of 190 countries) for contract enforcement.
f. Three Supreme Court decisions on the right of a party to unilaterally select arbitrators
The Supreme Court recently considered the legality of an agreed procedure for appointing arbitrators in which one party has the unilateral right to appoint the arbitrators or select the pool of arbitrators from which the tribunal must be formed.
In Perkins Eastman Architects v HSCC, the court ruled that a procedure in which one party’s employee (in this case, the chairman and managing director) has the authority to appoint a sole arbitrator was unconstitutional. In reaching its decision, the court relied on its 2017 decision in TRF Limited v Energo Engineering, in which it held that a person who was disqualified from being appointed as an arbitrator (in that case, the Managing Director of one party) could not appoint anyone else to act as the sole arbitrator.
Following that, in Central Organisation for Railway Electrification (“CORE”) v ECI-SPIC-SMO-MCML (“Contractor”), the court upheld an agreement that the tribunal would be composed of three serving and/or retired ‘Railway Officers’ (civil servants working as part of the Indian Railways), with one arbitrator chosen by Contractor from a panel of Railway Officers prepared by CORE’s general manager, who also had the authority to appoint the other.
Finally, in Proddatur Cable TV Digi Services v Siti Cable Network, the Delhi High Court applied Perkins and determined that a procedure in which one party (here, Siti Cable) has the right to appoint a sole arbitrator was also unconstitutional. The fact that the appointing authority was the party itself rather than an employee of that party (e.g., the Chairman and Managing Director in Perkins) made no difference to the court: Siti Cable and/or the board of directors through which Siti Cable would act are parties interested in the outcome of the dispute, making them ineligible to appoint the sole arbitrator.
Conclusion
Justice Sabyasachi Mukharji in the case of F.C.I. V. Joginderpal Mohinderpal , elucidated that:
“We should make the law of arbitration simple, less technical and more responsible to the actual realities of the situation, but must be responsive to the canons of justice and fair play and make the arbitrator adhere to such process and norms which will create confidence, not only by doing justice between the parties, but by creating a sense that justice appears to have been done.”
Arbitration is a revolution in the course of dispute resolution in the modern times. But it has very significant shortcomings too. The scope of arbitration is limited. All the disputes aren’t subject to arbitration as held by the Hon’ble Apex Court in the matter of Booz Allen and Hamilton Inc V. SBI Home Finance Ltd, these are:
a)criminal offences
b) guardianship matters
c) insolvency and winding up proceedings
d) matters of probate, letters of administration, succession certificate etc
e) eviction proceedings
f) patents, trademarks, copyright
g) Anti Trust/ competition laws
h) Bribery/Corruption Laws
i) Fraud
In the judgement of S.P. Singla Constructions Pvt. Ltd. v State of Himachal Pradesh & Anr, itt was decided that once the arbitrator is appointed by the parties, its appointment cannot be challenged under Section 11 (6) of the Arbitration and Conciliation Act, 1996. This provision is one of the biggest hitch in the arbitral course. The party would be left to no choice if the other party bribes the arbitrator to take the decision in their favour. This would lead to corrupt arbitral proceedings and skewed judgements.
The awareness about arbitration is quite rare in the remote areas. Civil cases pertinent to the land prevail in the rural areas. Thus, in rural areas the parties can’t resort to arbitration because of its unawareness.
Arbitration and litigation will complement each other with their co-existence. With arbitration more prevalent in commercial, international, civil disputes and litigation favourable in others with certain reforms their co-existence can lead to a better future in justice dispensation.