EXTENT OF JUDICIAL

INTERVENTION IN
ARBITRATION

Submitted To: Ms. Mahima Bhardwaj

Submitted By : Anmol Kataruka (A3221511036)
Shreya (A3221511076)
Kashish Khurana (A3221511010)
Kuunal Bakshi (A3221511016)
B.B.A. LL.B.(H.)
(9th SEMESTER)

ACKNOWLEDGMENT

We are hereby submitting my ADR project titled Extent of judicial intervention in

Arbitration.

Any attempt at any level cant be satisfactorily completed without the support and
guidance of learned people.

It gives us immense pleasure to acknowledge all those who have rendered

encouragement and support for the successful completion of this work.

We are grateful to my teacher Ms.Mahima Bhardwaj. She gave us moral support and
guided us in different matters regarding the topic and very kindly suggested the
outlines of this project and gave different ideas in making it. We thank her for her
overall supports.

THANKING YOU

CONTENT

TOPICS

Page no.

1. INTRODUCTION

2. GROWTH OF ARBITRATION IN INDIA

3. ROLE OF COURT

5-6

4. SCHEME OF THE ACT AND COURT

INTERFERANCE

5. INTERVENTION OF INDIAN COURTS IN ARBITRATION

PROCEEDINGS

SCOPE OF INDIAN COURTS JURISDICTION TO GRANT

INTERIM RELIEF
APPOINTING THE ARBITRATORS
ENFORCEMENT OF ARBITRAL AWARDS

JURISDICTION OF INDIAN COURTS

6. JUDICIAL INTERVENTION: CAUSE OF MISERY

8-12

13-14

7. JUDICIAL INTERVENTION: JUSTIFICATION

15

8. CONCLUSION

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INTRODUCTION

Arbitration is one of the oldest methods of settling civil disputes between two or more
persons by reference of the dispute to an independent and impartial third person,
called arbitrator, instead of litigating the matter in the usual way through the courts. It
saves time and expense. It also avoids unnecessary technicalities and at the same time
ensures substantial justice within limits of the law.

Arbitration is a process of settling disputes in the commercial sphere and is well

known to the Indian system of justice. It is an old practice through which the
panchayats in villages would settle disputes between the parties. The main objective
of the Arbitration Act is to minimize the supervisory role of courts in the arbitral
process and to provide that every final arbitral award is enforced in the same manner
as if it were a decree of the Court.

The courts shall not interfere in arbitral proceeding is one of the fundamental theme
underlying the Act. Indeed the Act contemplates three situations where judicial
authority may intervene in arbitral proceedings. These are:

i)
ii)
iii)

Appointment of arbitrators, where the parties envisaged method for the same fails
Ruling on whether the mandate of the arbitrator stands terminated due to inability
to perform his functions or failure to proceed without undue delay
Provide assistance in taking evidence
All the above three situations provide the backdoor entry to the judiciary (courts) to
interfere into the arbitration matters.

GROWTH OF ARBITRATION IN INDIA

3

Litigation in India is generally time-consuming and expensive. Civil courts in India

are typically bogged down with delay. An estimated backlog of 30 million cases and
routine delays to dispose of a single case has severely undermined public confidence
in the rule of law. In this situation, Arbitrations are becoming increasingly popular &
affords parties the hope of avoiding the judicial system. There are other reasons to
support recourse to arbitration too. For international transactions, arbitration offers
the hope of reducing bias and the prospect of parallel lawsuits indifferent countries.
There may also be the expectation (warranted or not) of confidentiality, speed and
expertise.

The general assumption is that arbitral awards should be final and binding, and open
to limited challenge before the Court.

But what is the basis of Limited Challenge? The Theory behind this is that
Arbitration is amanifestation of party autonomy. It is a consensual process, being the
subject matter of agreement. When two parties have got together and mutually
decided to resolve the dispute outside the Court system then in such a cases the
Courts should not interfere in such consensual arrangements. Once two parties have
chosen to appoint a third person by consent, an award by such a person should be
final and binding and should not be challenged except in very rare circumstances.
This is the basis for a limited challenge under the Arbitration and Conciliation Act,
1996

ROLE OF COURT

One of the fundamental features of the Act is that the role of the court has been
minimized. Accordingly, it is provided that any matter before a judicial authority
containing an arbitration agreement shall be referred to arbitration (Sec. 8 provided
the non - applicant objects no later than submitting its statement of defense on
merits). Further, no judicial authority shall interfere, except as provided for under the
Act.

In relation to arbitration proceedings, parties can approach the Court only for two
purposes:

1. For any interim measure of protection or injunction or for any appointment of

receiver etc.
2. For the appointment of an arbitrator in the event a party fails to appoint an arbitrator or if
two appointed arbitrators fail to agree upon the third arbitrator.

In such an event, in the case of domestic arbitration, the Chief Justice of a High Court may
appoint an arbitrator, and in the case of international commercial arbitration, the Chief Justice
of the Supreme Court of India may carry out the appointment.
A court of law can also be approached if there is any controversy as to whether an arbitrator
has been unable to perform his functions or has failed to act without undue delay or there is a
dispute on the same. In such an event, the court may decide to terminate the mandate of the
arbitrator and appoint a substitute arbitrator.

 The Principle of Non-intervention by the Courts

The principle that the courts shall not interfere in arbitral proceedings is a fundamental
theme underlying the Act. Indeed the Act contemplates of only three situations where judicial
authority may intervene in arbitral proceedings. These are:
By and large the Indian courts have well understood the spirit and intent behind the principle
of non-intervention. Thus, the respondent obtained an anti-arbitration injunction from the
High Court on the ground that the pledge of shares, which was sought to be enforced through
arbitration, would enable the claimants to take control of a telecom company which (as it was
a foreign company) would be contrary to Indian law. On appeal, the Supreme Court rejected
this contention, stating that this was a plea on merits and thus within the sole jurisdiction of
the arbitrators. Interestingly, the court not only vacated the injunction, it also restrained the
respondent from moving any further applications which would have the effect of interfering
with the continuance and conclusion of the arbitration proceedings1.
however, Honble Supreme Court refused to stay the court action on the ground that the
subject matter of the arbitration agreement was not the same as the subject matter of the civil
suit. Besides, the parties in the two actions were not identical. The court held that the entire
subject matter of the suit should be the subject matter of the arbitration agreement in order for
the mandatory provisions of Sec. 8 to be applied.2

CDC Financial Services (Mauritius) Ltd vs. BPL Communications, 2005(2) RAJ 43 (SC).

Sukanaya Holdings vs. Jayesh Pandya, (2003) 5 SCC 531.

SCHEME OF THE ACT AND COURT INTERFERANCE

It is important to note that the assistance of the courts is necessary for the smooth functioning
of the arbitration system since the courts have statutory powers to execute and enforce an
order.
But at the same time courts should avoid entertaining applications against the arbitration
proceedings because the court proceedings delay the arbitral process and consequentially the
objective of the arbitration gets defeated.
Hence the courts, which are exercising the supervisory powers, should exercise the powers
with caution so that the arbitral process does not get affected. The Arbitration and
Conciliation Act, 1996 gives scope to the Courts only with respect to the following issues:
(a) Reference to arbitration (S.8, 45 &54)
(b) Appointment of arbitration (S.11)
(c) Interim measures (S.9)
(d) Challenge to arbitrators (S.12, 13 & 14)
(e) Challenging the arbitration awards (S.34)
(f) Seeking Courts assistance with regard to Witnesses (S.27)
(g) Contempt Proceedings (S.27)
(h) Enforcement of awards (S.36, 49&58)
(i) Appealable orders (S.37 and S.59)

INTERVENTION OF INDIAN COURTS IN ARBITRATION

PROCEEDINGS
7

Section 5 of the Act expressly lays down that no judicial authority will interfere with any
arbitration proceeding except as provided in Part I of the Act. The section opens with a
clause "Notwithstanding anything contained in any other law for the time being in force"
which excludes other statutes from operation in so far as they relate to intervention by any
judicial authority in such proceedings. Set out below is the scope of interim relief and
enforcement of arbitral awards by Indian Courts under the Act.
1. SCOPE OF INDIAN COURTS JURISDICTION TO GRANT INTERIM
RELIEF
Section 9 of the Act empowers judicial courts to grant interim relief. These reliefs can be
claimed at any time before, or during arbitral proceedings or at any time after the making of
the arbitral award but before such an award is enforced. Set out below are the circumstances
under which such interim relief can be granted by judicial courts.
i.

for the appointment of a guardian for a minor or person of unsound mind for the
purposes of arbitral proceedings; or

ii.

for an interim measure or protection in respect of any of the following matters,

namely:a. the preservation, interim custody or sale of any goods which are the subjectmatter of the arbitration agreement;
b. securing the amount in dispute in the arbitration;
c. the detention, preservation or inspection of any property or thing which is the
subject-matter of the dispute in arbitration, or as to which any question may
arise therein and authorising for any of the aforesaid purposes any person to
enter upon any land or building in the possession of any party or authorising
any samples to be taken or any observation to be made, or experiment to be
tried, which may be necessary or expedient for the purpose of obtaining full
information or evidence;
d. interim injunction or the appointment of a receiver;
e. such other interim measure of protection as may appear to the Court to be just
and convenient.

It is critical to note that initially courts in India interpreted section 9 so as to apply to both
International Commercial Arbitration and Domestic Arbitration. the Supreme Court decided
that the courts had the power to grant interim relief in International Commercial Arbitration
along with Domestic Arbitrations and that section 9 did not just apply to Indian arbitrations
but could also apply to foreign arbitrations unless the arbitration agreement expressly

excludes the application section 9 of the Act.3 However this was subsequently
overturned,wherein the Apex Court held that Part I (Section 2-43) would only apply to
Domestic Arbitrations and not International Commercial Arbitration.4 In Bharat Aluminium,
the Supreme Court restricted the application of the judgment to disputes arising from
arbitration agreements that are executed after the date of the judgment (6 September 2012).
2.

APPOINTING THE ARBITRATORS

Intervention in appointing the arbitrators Sec11 prescribes for the procedure of

appointment of arbitrator by the parties. When the parties/arbitrators/any person including an
institution fails to agree/act/perform any function entrusted to them or any procedure they are
expected to agree upon under sub clauses (4), (5) or (6), then a party may request Chief
Justice or any person or any institution designated by him to take the necessary measure. This
is the first instance where the act envisages recourse to a court in relation to arbitration
proceedings. The difference between model law and Indian law is that the model law
envisages the court to appoint the arbitrator whereas the Indian law requires the Chief Justice
of the High court in national and Chief Justice of India in case International Commercial
Arbitration to appoint the arbitrator. As explained by the Supreme Court, the idea behind this
is to ensure that nomination for the arbitrator is made by a high judicial designate who would
appoint a competent, independent and qualified arbitrator in good faith. But judicial authority
appointing the arbitrator can lead to conflicting decisions. On this, the court has held that the
function of appointment of arbitrator is not judicial but administrative in nature. 5 Even if any
doubt arises in the mind of the Chief Justice or any person so designated by him as to the
existence or validity of the arbitration agreement, same has to be referred to the arbitral
tribunal to resolve but the judiciary is not to intervene with the arbitration.

Challenging the appointment of the arbitrator Under sec12, an arbitrator can be

challenged under only two conditions:
(a) Circumstances exist to indicate that justifiable doubt exists as to the impartiality or
independence of the arbitrator; or
(b) The arbitrator so appointed is not aptly qualified.
Further, subject to the parties agreement that, it is the arbitral tribunal, which shall decide
over the challenge. In case, the challenge fails, the arbitration proceedings shall continue and
the arbitral tribunal will render award.

3. ENFORCEMENT OF ARBITRAL AWARDS

3

Bhatia International v. Bulk Trading S.A. and Anr (2002) 4 SCC 105.
Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc.(Civil Appeal No. 7019 of
2005).
5
Konkan Rly. Corp v. Rani Construction Pvt. Ltd. Appeal (civil) 5880-5889 of 1997.
4

The Act also distinguishes between Domestic Awards and Foreign Awards in respect to
enforcement of such Awards.
i. Domestic Arbitration
Section 36 of the Act deals with enforcement of Domestic Arbitral Awards which states
"Where the time for making an application to set aside the arbitral award under award
under section 34 has expired, or such application having been made, it has been refused,
the award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the
same manner as if it were a decree of the Court."
As per the 1996 Act, arbitral award includes final and interim awards passed by the arbitrator.
Both interim as well as final awards can be challenged under S. 34. The Supreme Court of
India confirmed the powers of the courts to entertain S.34 applications while dealing with the
case McDermott International Inc. Vs. Burn Standards Co. Ltd.6, The Only recourse
against any arbitral awards as per the act is by filing an application for setting aside arbitral
awards under S. 34.
Section 34 which deals with recourse against Domestic Arbitral Awards provides an
exhaustive list of the circumstances under which such Awards can be set aside by Judicial
Courts . Section 34(2) lays down that an arbitral award may be set aside by the Court only if
a.

b.

The party making such an application for setting it aside furnishes proof that

A party was under some incapacity.

The arbitration agreement was not valid under law

The applicant was not given proper notice of the appointment of the
arbitrator or of the arbitral proceedings or was otherwise unable to
present his case or

The award deals with a dispute not contemplated by or not falling within
the terms of the submission , or it contains decision on matters beyond
the scope of the submission to arbitration. However, if the decision on
matters submitted can be separated from those not so submitted only that
part dealing with matters not submitted may be set aside.

The composition of the arbitral tribunal or the arbitral procedure was not
in accordance with the agreement of the parties, unless such agreement
was in conflict with the mandatory provision of part I of the Act; or

The Court finds that

The subject-matter of the dispute is not capable of settlement by

arbitration under the law for the time being in force; or

(2006) 11 SCC 181

10

The arbitral award is in conflict with the public policy of India. The
explanation clarifies that without prejudice to the generality of
expression, an award is said to be in conflict with the public policy of
India if its making was induced or affected by fraud or corruption or it
was in violation of the obligations of confidentiality of matters relating
to conciliation proceedings(Section 75) or the bar on admissibility of
evidence of conciliation proceedings(Section 81).

Based on the aforesaid it is well established, that judicial courts can only set aside a domestic
arbitral award only if it fulfills the grounds stated in Section 34. The Act expressly denies the
court the authority to decide the case on its merits if the Arbitrator(s) has already looked into
it.
ii. International Commercial Arbitration
Section 49 of the Act deals with enforcement of Foreign Awards which states "Where the
Court is satisfied that the foreign award is enforceable under this Chapter, the award shall
be deemed to be a decree of that Court."
Section 48 of the Act deals with recourse against foreign awards provides a list similar to
section 34 with one additional ground for setting aside a foreign award in circumstances
where such an award has not yet become binding on the parties, or has been set aside or
suspended by a competent authority of the country in which, or under the law of which, that
award was made. The party making such an application would have to provide proof of the
same.
4. JURISDICTION OF INDIAN COURTS
Section 2(1)(e) of the Act defines a Court as the principal Civil Court of original jurisdiction
in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction,
having jurisdiction to decide the questions forming the subject matter of the arbitration if the
same had been the subject matter of the suit, but does not include any Civil Court of a grade
inferior to such principal Civil Court, or any court of small cause.
The Civil Procedure Code, 1908 ("CPC") establishes the territorial jurisdiction of the various
courts in which Civil Suits can be initiated which are set out below.

In respect to disputes involving an immovable property, the suit shall be initiated

in the Court within whose jurisdiction the subject property is situated. Provided
that a suit to obtain relief respecting, or compensation for wrong to, immovable
properly held by or on behalf of the defendant may, where the relief sought can be
entirely obtained through hi s personal obedience, be instituted either in the Court
within the local limits of whose jurisdiction the property is situate, or in the Court
within the local limits of whose jurisdiction the defendant actually and voluntarily
resides, or carries on business, or personally works for gain. CPC further clarifies
that if such an immoveable property is situated in the jurisdiction of more than one
court, the suit can be initiated in either of the courts within whose jurisdiction a
portion of the property is situated.
11

In respect of Suits for compensation for wrongs to person or movablesif the wrong
was done within the local limits of the jurisdiction of one Court and the defendant
resides, or carries on business, or personally works for gain, within the local limits
of the jurisdiction of another Court, the suit may be instituted at the option of the
plaintiff in either of the said Courts.

In other cases, the suit shall be initiated in the Court within whose jurisdiction the
defendants actually and voluntarily resides, or carries on business, or personally
works for gain or in the court within whose jurisdiction the cause of action arose.

Section 42 further states "Notwithstanding anything contained elsewhere in this Part

or in any other law for the time being in force, where with respect to an arbitration
agreement any application under this Part has been made in a Court, that Court
alone shall have jurisdiction over the arbitral proceedings and all subsequent
applications arising out of that agreement and the arbitral proceedings shall be made
in that Court and in no other Court.
Additionally, the Supreme Court has held that where there are two or more competent
Courts which can entertain a suit, if the parties to the contract agree to vest jurisdiction
in one such court to try the dispute, then any such disputes in respect to such agreement
would be tried exclusively by that court.7 Further, the Supreme Court emphasized that
whenever there is a specific provision in the agreement of the parties conferring
jurisdiction on a particular court from among the courts having jurisdiction to decide a
matter then it automatically ousts the jurisdiction of other courts. 8However, it was
clarified that only the courts at the place which has jurisdiction under the CPC can be
clothed with exclusive jurisdiction under the parties agreement.9 Based on the above we
understand that the parties can vide an agreement confer exclusive jurisdiction onto a
court provided that such a court already has jurisdiction under the CPC.

JUDICIAL INTERVENTION: CAUSE OF MISERY

7
8
9

A.B.C. Laminart Pvt. Ltd. vs A.P. Agencies, Salem , AIR 1989 SC 1239.
Rite Approach Groupe Ltd. Vs Poso Boron export, AIR 2000 SC 401.
Tata Finance Ltd vs Pragati Paribahan, AIR 2000 Cal 241.
12

Legislative intent of the new Arbitration and Conciliation Act, 1996 is to reduce excessive
judicial intervention due to which the earlier Arbitration Act, 1940 suffered serious
infirmities. The enactment of the 1996 Act was initially met with approbation by the Court in
case of Konkan Railway Corporation vs. Mehul Construction Co.,10 which stated clearly
that the provisions of the Act indicates that the Act limits intervention of the Court with an
arbitral process to the minimum. But subsequent reality however, has been far from ideal.
Cases like ONGC vs. SAW Pipes11 and SBP & Co. vs. Patel Engineering12 have sharply
shown governmental attempts to promote arbitration in India. ONGC case witnessed the
challenge of an arbitral award on the ground that it was in conflict with the public policy of
India; instead of taking a narrow interpretation of the phrase public policy as being
something in excess of a prima facie of Indian law, the Court adopted a very broad
understanding of the same. The Court went on to equate patent illegality with error of law
and held that any contravention of an Indian legislation would ipso facto make the award in
violation of public policy.
The doors were thus open for the judicial review that the Act was put in place to avoid. Case
of SBP & Co. further extended the scope of judicial intervention when the Honble Supreme
Court ruled that it was within the powers of the Chief Justice of India to adjudicate on the
issues like valid arbitration agreements and went on to state that the Chief Justice could even
call for evidence to resolve jurisdictional issues while performing the function of appointing
an arbitrator when the parties failed to come to an agreement.
The Supreme Court went on to say that such decisions would be final and binding upon the
parties. This effectively flouted the principle of competence and thus amounted to a situation
where the arbitration tribunals power to determine its jurisdiction was undermined.
Effectively therefore, Courts endowed themselves with powers which would substantively
delay arbitral proceedings (be it by raising specious objections to preliminary issues or by
sabotaging the appointment process) which goes against the fundamental reason for enacting
Sec. 13 of the Act.

This brings us to what has been called the dispute between high principles (stressing the need
for justice) and low principles (an equally insistent to end litigation). The expansion of the
10

(2000) 7 SCC 201

(2003) 5 SCC 705
12
(2005) 8 SCC 618
11

13

Courts intervention into the judicial sphere has aroused serious issues; ONGC case
expansive interpretation of the term public policy has been followed in many cases which
all reiterate the judiciarys right to review the arbitral award.
Further, in case of Hindustan Zinc Ltd. vs. Friends Coal Carbonisation,13 Honble
Supreme Court has stated that awards could be set-aside on grounds like being contrary to the
terms of contract. This indeed sets a dangerous precedent since, as stated earlier; the
encouragement of ADR was based on a need to avoid the lengthy court process.
The Court has statutory power to set aside an award when the arbitrators misconduct
themselves or the references. But it also has the unqualified discretion to remit the award to
the chosen tribunal.

JUDICIAL INTERVENTION: JUSTIFICATION

13

(2006) 4 SCC 445

14

In the vast majority of purely domestic arbitrations, where there is no foreign element, the
government or its agencies are parties. In many cases the arbitrators appointed by the center
are the government employees who are likely to be biased for one or the other reason.14
Most arbitration Tribunals are not institutional but ad-hoc, and there are no trained arbitrators
who can facilitate fast and summary disposal while maintaining the confidence of both
parties. Most Arbitration is ad hoc arbitrations. There are few institutions, which can provide
arbitration facilities under their Rules.
Often, retired judges are appointed as arbitrators who, by virtue of long tenures behind the
Bench, have got accustomed to tedious rules pertaining to procedure and evidence. As a
result, arbitrations become a battle of pleadings and procedures, with each party trying to stall
if it works to their favour15.
And, there may be a temptation for arbitrators to prolong the arbitration to earn higher
"sitting fees". Whispers also abound of arbitrators being vulnerable to `being procured' and
those with deep pockets being able to purchase justice. Many arbitrators are not familiar with
the practice of arbitration or how to effectively conduct the arbitral process.16 They all have
forgotten the object, the aim, and the mission behind incorporating the Act. Lawyers too, are
often not trained in the law and practice of arbitration and there is a tendency among them to
prolong arbitrations, seek unnecessary adjournments, sandwich arbitrations between their
regular court appearances, etc., all of which add up to a lack of standards in conducting
arbitration in India.17
Therefore, many arbitrations end up being conducted as if they are mini trials, with pleadings,
issues, admission and denial, oral and documentary evidence, cross examination etc. Thus,
where there is no connection between the theory and the practice of arbitration, not
unnaturally the Courts would wish to intervene when they are faced with injustice and the
people would definitely knock the door of the court for Justice.

CONCLUSION

14

Is Judicial Intervention in arbitration justified? http://indiacorplaw.blogspot.com/2009/04/nlsirsymposium-isJudicial.html

15

Promod Nair, Quo vadis Arbitration in India?

http://www.thehindubusinessline.com/2006/10/19/stories/2006101900101100.htm
16
Is Judicial Intervention in arbitration justified? http://indiacorplaw.blogspot.com/2009/04/nlsirsymposium-isJudicial.html
17
Promod Nair, Quo vadis Arbitration in India?
http://www.thehindubusinessline.com/2006/10/19/stories/2006101900101100.htm

15

In reality, judicial intervention is justified if current Indian situation is taken into

consideration. Where the arbitrators appointed by the center are the government employees
who are likely to be biased for one or the other reason & where often, retired judges are
appointed as arbitrators who, by virtue of long tenures behind the Bench, have got
accustomed to tedious rules pertaining to procedure and evidence.

On the other hand, if we look at the aim and purpose of the Act than we find that the
intervention of judiciary diminishes it. Therefore it becomes apparent to adopt a middle
approach to sort this dilemma.

The aims and objectives of the Act could be met with adequate availability of skilled, trained
and honest arbitrators as well as well-equipped arbitration institution. The need of such
arbitrators is also very imp. Because if there is an emergent opinion that by choosing
arbitration over litigation, parties have substantially diminished their chances of getting good
quality of justice, it will obviously darken the future of arbitration. And what is needed is
inculcation of a culture of arbitration among the key stakeholders the bar, the Bench, the
arbitrators and the consumers of arbitration.

Sir LJ Earl Warren once correctly said, It is the spirit and not the form of law that keeps the
justice alive.

16