JUDICIAL

INTERVENTION IN ARBITRATION


SANKALP JAIN*


INTRODUCTION

Arbitration is the means by which parties to a dispute get the same settled through
the intervention of a third person, but without having recourse to a Court of Law.
This is however, more of a fiction as court may have to interfere, or parties, may
approach the Court, from the very initial stages of arbitration. When two persons
agree to have their differences settled through arbitration what they really mean is
that the actual decision of the dispute will rest with a third person called an
arbitrator, though Court may have to intervene to regulate arbitration proceedings,
or, to give the award of the arbitrator a sanction of law.

The law of arbitration is based upon the principle of withdrawing the dispute from
the ordinary courts and enabling the parties to substitute a domestic tribunal. 1
Halsbury defines arbitration as the reference of dispute or difference between not
less than two parties, for determination, after hearing both sides in a judicial
manner, by a person or persons other than a Court if competent jurisdiction. The
parties must intend to make a submission to arbitration, i.e., there must be animus
arbitrandi.2 The parties must agree that the decision of the arbitrator would be
binding upon both of them. If it is binding only on one of them, it would not be a
reference to arbitration.3

OBJECT OF THE ACT

The Arbitration and Conciliation Act, 1996 was brought into existence mainly to
achieve the following objectives:

*
sankalp_jain11@yahoo.com.
1
Fazalally Jivaji Raja v. Khimji Poonji & Co. AIR 1934 Bom 476.
2
Hormusji & Daruwala v. Distt. Local Board, AIR 1934 Sind 200.
3
State of U.P. v. Padam Singh Rana, AIR 1971 All 270.

Electronic copy available at: http://ssrn.com/abstract=2801454

 a) to make provision for an arbitral procedure which is fair, efficient and
capable if meeting the needs of specific arbitration;

b) to provide that the arbitral tribunal gives reasons for its award;

c) to ensure that the arbitral tribunal remains within the limits if its jurisdiction;

d) to minimise the supervisory role of courts in arbitral process;

e) to provide that every final arbitral award is enforced in the same manner as if
it were a decree of the court.4

The object of the Act is expedition. This object would be defeated if the disputes
remain pending in courts for months and years before even commencement of
arbitration. For expeditous disposal of case, it is imperative that arbitration cases
should be decided on the basis of affidavits and other relevant documents and
without oral evidence. There may, however be a few exceptional cases where it may
become necessary to grant opportunity to the parties to lead oral evidence. In both
circumstances, the judicial authority is required to decide the issue expeditiously
within a time frame and not to treat such matters like regular civil suits.5

Section 5 of the Act, 1996 provides for the extent of judicial intervention which says
that “notwithstanding anything contained in any other law for the time being in
force, in matters governed by this Part, no judicial authority shall intervene except
where so provided in this Part”. The word “Part” referred to in this Section is Part I of
the Act, 1996 which shall apply were the place of arbitration is in India6 and shall not
affect any other law for the time being in force by virtue of which certain disputes
may not be submitted to arbitration.7 Therefore, the judicial intervention has been
restricted and minimized. Under Section 5, the words used are “Judicial Authority”
which is a wider term than the word “Court” and judicial authority includes all such

Pursottam Das Chokhani v. Sarita Devi Nathani; 2006 (2) Srb LR 176 (Gau) (DB).
4

5
Shin Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd., (2005) 7 SCC 234: 2005 (3) Arb LR 1; Sial Bionergie
v. SBEC Systems, 2004(3) Arb LR 429 (Del).
6
S. 2(2), Arbitration and Conciliation Act, 1996.
S. 2(3).
7

Electronic copy available at: http://ssrn.com/abstract=2801454

authorities/agencies conferred with the judicial powers of the Government. The
judicial authority’s intervention under the Act, 1996 is limited to the purposes as
prescribed by the Act, itself. The Act, 1996 provides for intervention or assistance of
the judicial authority in respect of several matters.

OBJECT OF SECTION 34

Section 34 of the Act is based on Article 34 of the UNCITRAL Model Law and the
scope of setting aside the award is far less the same as under section 30 or section
33 of the Arbitration Act, 1940.8 An arbitral award can be set aside only if any of the
five grounds as contained in section 34(2)(a) or any of the two grounds as contained
in section 34(2)(b) of the Act exist.9 If a party fails to establish his case within the
four corners of this section, the award cannot be set aside.10 The object of the
section is to avoid delay and to require the parties to bring the disputes for the
decision of the court in the form of petition. Remedy by way of a regular suit is
intended to be excluded.11 Section 34 has shrunken the grounds and limited the
scope for challenging the award to such an extent that the recourse to a court
against an award is available only in the following circumstances:12

i. if the part challenging the award furnishes proof that he was under some
incapacity;

ii. that the agreement was not valid under the law;

iii. that he was not given a proper notice of the appointment of an arbitrator or
of the arbitral proceedings or was otherwise unable to present his case;

8
Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan, AIR 1999 SC 2102: (1999) 3 SCC 651.
9
Ircon International Ltd. v. Arvind Const. Co., 2000(1) Arb.
10
State of Rajasthan v. Nav Bharat Const. Co., AIR 2002 SC 258: (2002) 1 SCC 659; M. Anusuya Devi v.
M. Manik Reddy (2003) 8 SCC 565; RITES v. Ravi Const. AIR 2002 NOC 30 (Kant-DB); Executive
Engineer, Deburi Express Way Division v. Hemalata Singh, AIR 1980 Ori 76: 49 Cut LT 373; Food
Corporation of India v. Joginderpal Mohinderpal, AIR 1989 SC 1263: (1989) 2 SCC 347; Yasoda Devi v.
Minerals and Metal Trading Corp. 2000(3) Arb LR 557 (Del).
11
Jawahar Lal Burman v. Union of India, AIR 1962 SC 378.
MCD v. Jasbir Singh, 2003(1) Arb LR 336 (Del).
12

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 iv. that the award deals with a dispute not referred to or not falling within the
terms of the agreement;

v. if the award contains decisions on matters beyond the scope of submission to
arbitration only when of the decisions on matters submitted to arbitration
can be separated from those not to be submitted and in that case only the
severable part is liable to be set aside;

vi. if the composition of the arbitral tribunal or the procedure was not in
accordance with the agreement of the parties;

vii. of the subject matter of the dispute is found, in the opinion of the court, not
capable of settlement under the law; and

viii. of the award is in conflict with the public policy of India.

The legal proceedings which might be stayed under this section must be a
proceeding independently of arbitration. If the legal proceeding is itself under the
Arbitration Act and relates to the appointment of an arbitrator, sole arbitrator or
umpire or such other matter, there can be no stay under this section.13 In order that
the proceedings in the suit may be stayed, there must be an existing dispute by and
between the parties. If there is no dispute, there is nothing to arbitrate upon.14

MATTERS WITHIN THE JURISDICTION OF THE COURT

When a court is called upon to decide the objections raised by a party against an
arbitration award, the jurisdiction of the court is limited as expressly indicated in the
Act and it has no jurisdiction to sit in appeal and examine the correctness of the
award on merits. 15 An award can be set aside only in the following three
contingencies:

13
Kamani Engg. Corpn. v. M.P. Electricity Board, AIR 1964 MP 268.
14
Lachminarain Jute Mfg. Co. v. Bangur Bros., AIR 1968 Cal 330.
15
Puri Construction Co. v. Union of India, AIR 1989 SC 777: 1989 (1) Arb LR 306: (1989) 1 SCC 411;
McDermott International Inc. v. Burn Standrad Co. Ltd. 2006(2) Arb LR 498 (SC).

4
 i. Composition of arbitral tribunal was not in accordance with the agreement;

ii. the arbitral procedure was not in accordance with the agreement between
the parties;

iii. in the absence of such an agreement, the composition of arbitral tribunal or
arbitration procedure was not in accordance with Part I of the Act.16

ONGC v. SAW PIPES

In Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd. 17 the primary question
considered by the Supreme Court was the scope and ambit of the courts powers vis-
a-vis Section 34 of the Arbitration and Conciliation Act. The court considered
whether the power to set aside as award that was patently illegal reposed with the
court as per Section 34. It was argued that the Parliament has not made much
change while adopting Article 34 of UNCITRAL Model law. By not providing error of
law as a ground of challenge to the arbitral award under Section 34 of the Act the
Act did not intend to give a wider jurisdiction to the courts.

The Supreme Court considered Section 28(1)(a) which states that the arbitral
tribunal is required to make the award in keeping with the substantive law for the
time being in force in India. This is inclusive of the provisions of the Arbitration and
Conciliation Act as well. The Supreme Court stated that the legislative intent could
not be that an award, despite being in contravention of the Act should be allowed to
stand. If the arbitral tribunal has not followed the mandatory procedure prescribed
under the Act, it would mean that it has acted beyond its jurisdiction and thereby
the award would be patently illegal which could be set aside under Section 34. The
court held:

” …the jurisdiction or the power of the arbitral tribunal is prescribed under the Act
and if the award is de hors the said provisions, it would be, on the face of it, illegal.
The decision of the Tribunal must be within the bounds to its jurisdiction conferred

16
Mafatlal Securities Ltd. v. Birla SunLife Securities Ltd. 2002 (2) Arb LR 304 (Bom).
(2003) 5 SCC 705.
17

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under the Act or the contract. In exercising jurisdiction, the arbitral tribunal cannot
act in breach of some provision of substantive law or the provisions of the Act.”

This statement necessarily has grave implications on the interpretation of Section
34(2)(a)(v). The Supreme Court also acknowledged that Section 34(2)(a)(v) dealt with
the setting aside of an award if the arbitral procedure or the composition of the
tribunal was not in accordance with the parties agreement or in the absence of an
agreement, Part I of the Act comprising of Sections 2 to 43. Interestingly, the court
observed that the parties’ agreement must not be in contravention of the provision
of Part I. This was in stark contrast to the Apex court’s observations in Narayan
Prasad Lohia v. Nikunj Kumar Lohia18 wherein it was held that if an award was in
accordance with the agreement of the parties, it may not be set aside by the court.
But as per the ONGC case, it award must be in accordance with the agreement of the
parties and the agreement of the parties must lie within the parameters prescribed
by the non-derogable provisions of Part I. If the award does not meet the said
criteria, it may be set aside, via Section 34(2)(a)(v) read with Section 28(1)(a).

The second approach employed by the court was to attempt to capture the meaning
of ‘public policy’ under Section 34(2)(b)(ii) and read a patently illegal award as
antithetical to the interests of ‘public policy’. The court held, inter alia, that public
policy is not defined under the Arbitration Act, the Contract Act or the Constitution
but must be understood in the light of all three. The court reiterated that public
policy is not the policy of a particular Government but is a policy in keeping with
public interest, public good and the public conscience. It is a concept that must not
be accorded a static meaning. In fact, the term is capable of modification and
expansion. Further, the explanation to Section 34(2)(b)(ii) reads ‘without prejudice
to the generality of sub-clause (ii)’ implying that policy is not a concept limited to the
above examples but inclusive of them. Therefore, the ground of public policy that
has been provided for is very wide in scope and ambit. The court specifically
considered Renusagar Power Co. Ltd. v. General Electric Co.19 and added to the

18
(2002) 3 SCC 572.
1984(4) SCC 679.
19

6
principles laid down therein stating that an award may be set aside if it is contrary
to:
a) Fundamental policy of Indian law; or
b) The interest of India; or
c) Justice or morality: or
d) If it is patently illegal.

The need for ‘error of law’ as a ground for setting aside the arbitral award, as is
present in Section 68 of the English Arbitration Act, 1996 has often been expressed.
Thus, it may be observed that the Supreme Court has exerted itself to provide wide
grounds of challenge under the broad head of public policy.

FURTHER IMPLICATIONS OF THE SAW PIPES DECISION

It may be observed that Section 34 does not provide ‘misconduct of the arbitrator’
as one of the grounds for recourse. Indeed this ground is not made available under
the UNCITRAL Model Arbitration Law. Under the English Arbitration Act, 1996,
misconduct of the arbitrator is a ground for challenge and Section 67 and 68 of the
English Act do not correspond exactly with the UNCITRAL Model Law. Under the Act
of 1940, Section 30 included misconduct of the arbitrator as a ground for recourse.
However, since the ONGC case, under the head of ‘public policy’ the court has
deemed itself to have the power to cure any injustice. Therefore, wherever the
principles of natural justice have not been followed, the court may redress this by
setting aside the arbitral award.

More specifically, Section 12(4) read with Section 13(3) indicates that the
appointment of an arbitrator may be challenged on the grounds of doubt as to
independence of the arbitrator or impartiality of the arbitrator in the course of the
arbitral proceeding itself. Section 13(4) states that if the challenge is unsuccessful,
the arbitral proceedings shall continue. Section 13(5) provides that any award made
under these circumstances may be challenged by the party and an application for
setting aside of the award may be made in consonance with the provisions of Section
34. Section 34(2)(a)(v) can be read to include a challenge on the above grounds. In

7
the ONGC case, the Apex Court validated Section 13(5) and Section 16(6) as
legitimate grounds of challenge under Section 34 of the Act. The old act which
provided for recourse in a situation where the arbitrator misconducted himself or
the award was broadly construed. Reading Section 34 in the light of the ONGC case,
it is evident that though this ground for setting aside an award under the 1996 Act is
not expressly stated, the interpretation of the judiciary enhances the scope of the
Section so as to possibly include it as a ground for recourse. Therefore, the position
in law would seem to be that misconduct of the arbitrator may be read into the
section and would be a sufficient ground for setting aside an award.

CONCLUSION

The judiciary has through the decision in the ONGC case demonstrated its
unwillingness to take a back seat and play the limited role in arbitration matters
envisaged for it by the Model UNCITRAL Law. From the above observations, the
logical conclusion follows that though the structure and language of Section 34 of
the 1996 Act is far removed from that of Section 30 of the 1940 Act, judicial
interpretation has, in essence, diluted the differences between the two: the extent
of this dilution will only become apparent by observing and analyzing the next few
judicial decisions in this area which will be crucial.

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 BIBLIOGRAPHY

STATUTES

1) Arbitration and Conciliation Act, 1996

2) UNCITRAL Model Law, 1985

CASE LAWS

1) Executive Engineer, Deburi Express Way Division v. Hemalata Singh
[AIR 1980 Ori 76]

2) Fazalally Jivaji Raja v. Khimji Poonji & Co. [AIR 1934 Bom 476]

3) Food Corporation of India v. Joginderpal Mohinderpal [AIR 1989 SC 1263]

4) Hormusji & Daruwala v. Distt. Local Board [AIR 1934 Sind 200]

5) Ircon International Ltd. v. Arvind Const. Co. [81 (1999) DLT 268]

6) Jawahar Lal Burman v. Union of India [AIR 1962 SC 378]

7) Kamani Engg. Corpn. v. M.P. Electricity Board [AIR 1964 MP 268]

8) Lachminarain Jute Mfg. Co. v. Bangur Bros. [AIR 1968 Cal 330]

9) Mafatlal Securities Ltd. v. Birla SunLife Securities Ltd.
[2002 (2) Arb LR 304 (Bom)]

10) M. Anusuya Devi v. M. Manik Reddy [(2003) 8 SCC 565]

11) McDermott International Inc. v. Burn Standrad Co. Ltd.
[2006(2) Arb LR 498 (SC)]

12) MCD v. Jasbir Singh [2003(1) Arb LR 336 (Del)]

13) Narayan Prasad Lohia v. Nikunj Kumar Lohia [(2002) 3 SCC 572]

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 14) Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd. [(2003) 5 SCC 705]

15) Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan [AIR 1999 SC 2102]

16) Puri Construction Co. v. Union of India [AIR 1989 SC 777]

17) Pursottam Das Chokhani v. Sarita Devi Nathani
[2006 (2) Srb LR 176 (Gau) (DB)]

18) Renusagar Power Co. Ltd. v. General Electric Co. [1984 (4) SCC 679]

19) RITES v. Ravi Const. [AIR 2002 NOC 30 (Kant-DB)]

20) Shin Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd. [(2005) 7 SCC 234]

21) Sial Bionergie v. SBEC Systems [2004(3) Arb LR 429 (Del)]

22) State of Rajasthan v. Nav Bharat Const. Co. [AIR 2002 SC 258]

23) State of U.P. v. Padam Singh Rana, [AIR 1971 All 270]

24) Yasoda Devi v. Minerals and Metal Trading Corp. [2000(3) Arb LR 557 (Del)]

10