Appointment of Sole Arbitrator: Two Sides of the Same Coin

Almost every commercial contract contains an arbitration clause in order to circumvent the traditional trajectory of dispute resolution through litigation. It is common to encounter myriad project financing documents between a lender and a borrower bearing arbitration as a means of settling any dispute or difference. The concerning question raised in such a scenario is whether the lender of facilities exercises an upper hand in designating an arbitrator devoid of any recourse to the borrower; thereby bringing us to the crucial question: Have the clauses similar to All disputes and differences of whatsoever nature arising out of this agreement, whether during its term or after expiry thereof or prior termination shall be referred to arbitration in terms of the Arbitration and Conciliation Act, 1996. The arbitration shall take place before a sole arbitrator, to be appointed by the Lender.been obliterated?

The law in case of appointment of the sole arbitrator by a party has been settled by the Hon’ble Supreme Court in the case of Perkins Eastman Architects DPC and Ors. v. HSCC (India) Ltd.[1] (Perkins case). HSCC (India) Ltd. (Respondent), the executing agency of the Ministry of Health and Family Welfare, issued a Letter of Award (LOA) to the consortium of Applicants for the appointment of Design Consultant for All India Institute of Medical Sciences (AIIMS) proposed at Guntur in Andhra Pradesh. The dispute resolution clause in the contract between the parties provided that if Applicants were dissatisfied with the decision of Director (Engg.), HSCC (India) Ltd. (HSCC) they were at the liberty to issue a notice to the Chief Managing Director (CMD), HSCC for the appointment of an arbitrator within 30 (thirty) days of receipt of the decision.

Furthermore, the contract also prohibited any other person except appointed by CMD, HSCC to act as a sole arbitrator thereby entirely vesting the power of appointment of an arbitrator on the Respondent. When disputes arose, the Applicants invoked the dispute resolution clause in the contract and the Chief General Manager, HSCC appointed the sole arbitrator. Thereafter, an application was filed by the Applicants under Section 11(6) read along with Section 11(12)(a) of Arbitration and Conciliation Act, 1996 (hereinafter referred to as the “Act”) which envisages appointment of an arbitrator by the court. The Hon’ble Supreme Court examined if it could exercise the power of appointment of an arbitrator in this case dehors the procedure set out in the arbitration agreement.

The Hon’ble Supreme Court referred to the judgement of TRF Limited v. Energo Engineering Projects Limited[2] (TRF case) in which the Apex Court examined the issue wherein the Managing Director of the Respondent was titled as the sole arbitrator and was also vested with the authority to nominate a replacement. The Apex Court by virtue of Section 12(5) of the Act that deals with the arbitrator’s relationship with the parties or counsel or subject matter of dispute, affirmed the ineligibility of a person falling under the purview of Seventh Schedule of the Act to perform the role of an arbitrator. Therefore, the Managing Director was ineligible to act as an arbitrator due to which his ability to nominate another person as an arbitrator was annihilated. The Apex Court in this case differentiated the dual power of the Managing Director, one to adjudicate as an arbitrator and second, the capacity of the Managing Director to appoint a nominee in his place.  

The principles emanating from the TRF case were reflected in the present case wherein the capacity of CMD, HSCC to appoint an arbitrator was analyzed. The Hon’ble Supreme Court held that in the TRF case the ineligibility of the Managing Director arose due to his interest in the outcome of the dispute. The same ground would be applicable in the scenario irrespective of the binary power of the arbitrator. In other words, if the appointed arbitrator has an interest in the dispute or in the outcome or decision thereof, he shall be incompetent to adjudicate the dispute as an arbitrator and/or disentitled to appoint any other person as an arbitrator.

The Hon’ble Court stated that the facet of exclusivity shall encompass the party that unilaterally appoints the sole arbitrator of its choice and discretion in spelling the course of the proceedings. Thus, the essence of the Act along with the TRF case was retained by upholding that it would be incongruous to confer the power of appointing an arbitrator in the hands of a person who has an interest in the outcome or decision of the dispute. The appointment made by the Respondent who was empowered in accordance to the dispute resolution clause was annulled and the Hon’ble Court exercised its power under Section 11(6) resulting in the appointment of a sole arbitrator to preside over the disputes between the parties.

The Hon’ble High Court of Delhi echoed this principle in the case of Bilva Knowledge Foundation and Ors. v. CL Educate Limited[3] where the court conceded with the view, followed by the case of Proddatur Cable TV DIGI Services v. SITI Cable Network Limited[4] wherein the distribution agreement vested a unilateral right to appoint the sole arbitrator on the Respondent Company which disagreed with the nomination of arbitrator proposed by the Petitioner. The High Court held that test of having an interest in the outcome of the dispute will be exhibited by the Respondent Company acting through its Board of Directors thereby vitiating the unilateral appointment. The High Court clarified that though party autonomy is a touchstone in arbitration, one cannot overlook the underlying principles of fairness, transparency and impartiality that are also fundamental in an arbitration. While the parties may agree to the procedure mentioned in the dispute resolution clause by free will, this agreement should not eclipse the facet of fairness and impartiality in an arbitration proceeding.

Concluding remarks

In cases where both parties can nominate their respective choice of arbitrators the power derived by one party is counter balanced by an equal power with the other party as seen in the Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV)[5].  Though it may seem that the law governing the right of the lender to appoint the sole arbitrator as upheld in the case of D.K. Gupta and Ors. v. Renu Munjal[6] is now settled through the Perkins case, one has to be prudent in drafting and interpreting the clauses for the appointment of sole arbitrator that may be reached by mutual consent or by court appointment or any other alternative thereby balancing party autonomy and the tenets of fairness, transparency and impartiality.

 

References:

[1] AIR2020SC59

[2] (2017)8SCC377

[3] Arb. P. 816/2019

[4] 267(2020)DLT51

[5] 2020(1)ALT70

[6] O.M.P. (T) (COMM.) 106/2017 & IA No. 14824/2017

 

 

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In cases where both parties can nominate their respective choice of arbitrators the power derived by one party is counter balanced by an equal power with the other party as seen in the Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV).

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Evolution of the Doctrine of Public Policy in Arbitration

The pendency of litigation and piling up of cases in courts was the necessity which led to the discovery of alternative dispute resolution mechanisms. These tools of dispute resolution are highly efficient, time-bound and cost-effective. Further, as the dispute resolution is amicable, the delicate and long-standing relationship of parties is preserved. It is for this reason separate tribunals are set up for arbitration, independent mediators can be appointed for mediation and a number of unaided negotiations take place between the parties for settlement of any disputes. 

Arbitration is also familiar as a form of private litigation as to some extent the formalized means of dispute resolution; witness examination, expert opinions, and binding nature of the arbitral award will substantiate the fact. However, with enhanced remedial and appellate participation from the judiciary, the idea of ‘alternative’ dispute resolution seems to replicate a façade. The primeval legislation, Arbitration Act of 1940 provided for a triangular remedial setup, namely rectification, remission, and setting aside of the arbitral award. This was narrowed down to remission and setting aside of the award in the subsequent Act, 1996.

A noteworthy argument here is, that the arbitration disputes are often referred to as, ‘matters’ and not ‘suits’, this is a practice to limit the authority of courts over these disputes. The term ‘judicial authority’ is not construed in a narrow sense, rather derives a wider import to itself by the virtue of numerous common law precedents. Inclusion of District Forums, State Commissions and National Commission[1] under COPRA Act[2], commissions under Monopolies and Restrictive Trade Practices Act, 1969[3]  and Company Law Tribunals have been brought under the ambit of ‘judicial authority’.

The interplay of litigation courts in the proceeding of arbitration can be analyzed in three stages vis-à-vis before proceedings, during proceedings, and after proceedings. When on one hand this intermingling helps establish effective checks and balances when it comes to matters of public policy, on the counter, it defeats one of the primary advantages of arbitration, i.e. the expediency of dispute resolution. 

Section 5 of the Arbitration & Conciliation Act, 1996 provides for the limited or minimal intervention of judicial authority in arbitration proceedings.[4] The said section is analogous to Article 5 of UNCITRAL Model Law on International Commercial Arbitration, 1985[5]. The scope of judicial intervention is however non-arbitrary and is limited to the purposes prescribed in the Act, extending only to the administrative and non-judicial roles, within the non-obstante provisions.[6] The stance of the Indian judiciary was firmly established while inclining with the legislative intent behind the section, that the courts’ intervention should be minimal to encourage the resolution of disputes expeditiously and less expensively.[7] Even if the matter requires judicial intervention, the judicial authority is required to decide the issue expeditiously within a prescribed period and not to treat the matter in parimateria regular civil suits.[8]

Section 9 and 17 of the Arbitration & Conciliation Act, 1996 provide for interim measures  by the courts and tribunals. An application under Section 9 is that of a mandatory nature and is not a substantive remedy available at the discretion of the parties. The section provides for the judicial recourse for enforcement of rights of a third party in case its rights are being affected as a result of the arbitral award. As the third party is not a party[9] to the arbitration and does not have a locus standi, the said enforcement can happen only on a separate cause of action engaged by the third party and is not covered under the ambit of an arbitration agreement.[10] The right conferred by Section 9 is therefore not a contractual right, as only a party to the arbitration agreement possess the same.[11] Only in the rarest of rare cases, the third party would be competent to claim relief under Section 9 and not otherwise.[12] As locus standi is a significant rationale before granting interim relief under Section 9, the courts must be extra vigilant to not benefit frivolous litigations.     

As the remedy of ‘rectification’ has been taken away in the 1996 Act, the Arbitral Tribunal under the 1996 Act cannot review an Award on its own, the aggrieved party who has suffered on account of the Arbitral Award is required to challenge it according to the Law prescribed, and if the aggrieved party fails to apply under Section 34 for setting aside the Award, then a de novo inquiry cannot arise on its own. Section 34 of the Act provides for setting aside the arbitral award, in two cases when either a party is willing to challenge the award on grounds of prejudice or the Court finds that the award was in conflict with the public policy of India. The aggrieved party can make an application under this section within 3 months and additional 30 days from the date of receipt of the award. Section 34(2)(a) of the Arbitration and Conciliation Act, 1996 provides for numerous grounds on account of which the Court can set aside the arbitral award, including incapacity of parties, invalid or illegal arbitration, no proper notice for appointment of an arbitrator, non-agreement of parties on composition of the tribunal. The court is vested with powers to set aside the award in case of a non-arbitrable dispute or if the award conflicts with the public policy of India.  

AMBIGUITY IN ‘PUBLIC POLICY’ 

The ground of public policy for setting aside the arbitral award under Section 34 of the Act is a ‘judge-made’ ground evolving from common law. A series of precedents shaped the doctrine of public policy as it stands today with regard to setting aside the arbitral award.

The foremost case of Renusagar Power Co. Ltd v. General Electric Company[13] (Renusagar), which questioned the validity of Section 7 (1)(b)(ii) of the Foreign Award (Recognition and Enforcement) Act, 1961 which provided for the non-enforceability of a foreign award in case it contravened the public policy. It was held by the Apex court that “public policy” was to be interpreted as to be the public policy of India, whilst the application of foreign law in a purely municipal legal issue. The court relied on Article I(e) of the Geneva Convention Act, 1927, which recognizes objections by the host country regarding the enforceability of the award if the same contravenes the public policy of the host country. Further, Section7(1) of the Protocol & Convention Act, 1937 which requires that the enforcement of the foreign award must not be contrary to the public policy or the law of India. Therefore, it was concluded that to invoke the bar of public policy the award must invoke something more than mere violation of any domestic law. A test was laid down for the satisfaction of the ‘public policy’ doctrine vis-à-vis, the award should not be contrary to i) fundamental policy of Indian law, ii) interests of India, iii) justice or morality.

The second landmark judgment in the evolution of public policy doctrine in the present context was, Oil & Natural Gas Corporation v. Saw Pipes Ltd[14] (Saw Pipes) the issue of the scope of judicial intervention under Section 34 was decided, as to whether a legally flawed arbitral award could be challenged on the pretext of contravention of provisions of the governing Act. The award was held to be ‘patently illegal’, therefore indirectly staining the public policy. The test to qualify repudiation of public policy in Renusagar was hence expanded to include acts contradicting i) fundamental policy of Indian law, (ii) the interests of India, (iii) justice or morality, (iv) if it is patently illegal. Hence, the thought of public policy was granted enormously wide abstract notions as if it was to ‘shock the conscience of the court’.

The final stone was laid by the Supreme Court in the case of Shri Lal Mahal Ltd. v. Progetto Grano Spa[15](Lal Mahal), where the vague and abstract nature of the expression, ‘public policy’ was challenged in relation to Section 48(2)(b)[16] of the Act with identical terminology. The SC analyzed that Section 34 was of a wider import than Section 48(2)(b) despite having identical terminology. Therefore, the decision limited the inference of ‘public policy’ in the impugned section to not include patent illegality of the award.

The ambiguity and blanket protection of the term ‘public policy’ was criticized in numerous judgments that followed. The defense of public policy cannot be used as a shield protecting judicial intervention in matters of arbitration. Various counter-claims included court must assume only a supervisory role by reviewing arbitral awards to ensure fairness.[17] The object of the 1996 Act itself is to radically curtail the judicial intervention in arbitration awards except in the circumstances as contemplated in the provisions of the Act, by vesting such enormous powers of judicial intervention in Section 34; the judiciary is violating the legislative intent.[18] It must be noted that the arbitrator is no less than a judicial authority and the view taken by the arbitrator in judicial capacity is no less than that taken by the judge, therefore his plausible view must not be interfered with in a judicial proceeding under Section 34 of the Act,[19] which was reiterated in the case of State of Jharkhand v. HSS Integrated SDN & Anr.[20]    

SIGNIFICANT AMENDMENTS

2015 Amendment

The 2015 Amendment in the Act brought about significant changes in the concept of ‘public policy’ under the Arbitration Act, drawing suggestions from the 246th Law Commission Report. An amendment was made to the Sections 2A[21] and 34(2),[22] by adding Explanation 2. The amendment restricts the scope of judicial intervention in arbitral proceedings by limiting the definition of public policy. The Amendment Act restricted the grounds of setting aside international arbitral awards solely on:

  • Induced or affected by fraud or corruption
  • Contravention in the fundamental policy of Indian Law
  • In conflict with notions of morality and public justice

Therefore, the court cannot act as an Appellate Court to examine the legality of the arbitral award, nor can it examine the factual merits of the claim.[23] As factual merits could not be questioned, the record of an arbitrator was to be held to be sufficient to furnish compliance with Section 34.[24] This was reiterated as cross-examination of persons swearing such affidavits/ records is not allowed unless absolutely necessary.[25] Further, the Amendment Act provided that proceedings for setting aside could be initiated only after due notice to the parties. Furthermore, Arbitration and Conciliation (Amendment) Act, 2015 was held to be prospective in nature and operation.[26]  Post amendment, the mere initiation of proceedings under Section 34 would not automatically operate as a stay of the arbitral award. The aggrieved party is required to file a separate application seeking stay of the award and the Court may grant a stay of the award by imposing conditions.

The position of the term ‘public policy’ has been further clarified in the recent judgment of Ssangyong v. NHAI[27] (Ssangyong) to not include the ‘fundamental policy’ under Section 34, relying on the 246th Law Commission Report. However, with such a firm stance, the overall efficacy of remedy under Section 34 may be objected. The judgment is noteworthy while analysing the applicability of Section 34 as it unmistakably stated that ‘under no circumstances can the Courts interfere with an arbitral award on the ground that justice was not served in the opinion of the Court as the same would clearly contradict the ethos of Section 34.’[28]

On one hand where the Ssangyong endeavours to restrict the scope of ‘public policy’, the 2020 judgment of NAFED v. Alimenta[29] (NAFED) seems to elaborate it. The judgment included export policy within the ambit public policy, stating the contravention of the former will inevitably contravene the latter. On the face of it, the judgment seems to be against the precedents, however, one argument of the judgment is found on the premise that it is highly fact-based. Even though the judgment has accredited a lot of criticism in the short span after delivery to not have considered the judgment of Vijay Karia[30]. However, it must not be overlooked that the NAFED judgment seeks to define the ‘public policy’ in Section 48 of the Act which has a very distinct pose than the use of term under Section 34.

2019 Amendment

The threshold under the erstwhile Section 34(2)(a)  for the setting aside of arbitral awards by the court was that the applicant has to furnish proof of the circumstances enumerated therein for the Court to set aside the award. The ‘furnishing of proof’ led to the prolongation of setting aside proceedings serving as an obstacle for the enforcement of domestic awards. The amendment in Section 34(2) removes the requirement of furnishing proofs to substantiate the ground(s) for setting aside the award. Instead, by virtue of this amendment, the applicant needs to establish the ground(s) for setting aside of the award based on the record of the arbitral tribunal which may ensure that proceedings under Section 34 are conducted expeditiously. It was held that proceedings under Section 34 of the Act are summary in nature.[31] Furthermore, the court held that under Section 34 (2A) of the Arbitration Act, a decision which is perverse while no longer being a ground for challenge under “public policy of India”, would certainly amount to patent illegality appearing on the face of the award.[32] The court while deciding the application for setting aside an arbitral award decided that the court will not ordinarily require anything beyond the records before the arbitrator. If otherwise pertinent to the issue, the records can be brought before the Court by the way of affidavits by both parties.[33]

CONCLUSION

Conclusively it can be said that the legislative intention behind alternative dispute resolution was never to encourage interference from the judiciary perhaps that was the reason arbitration awards were classified to be binding on the parties. However, it must not be forgotten that the judiciary is expected to be the safe-keeper of the fundamental rights of the citizens; therefore, if genuine and gross violations in the arbitral award render the parties without a remedy, the courts must not be restricted to intervene in the arbitration proceedings. Standing the evolution in time and necessary amendments, the Arbitration and Conciliation Act, 1996 has proven to be a living document. 

References

[1] Fair Air Engineers Pvt. Ltd. V. N.K. Modi AIR1997SC533

[2] Consumer Protection Act, 1986

[3] Shri Balaji Traders v. MMTC Ltd. [1999] 34 CLA 251

[4] Sundaram Brake Linings Ltd vs Kotak Mahindra Bank Ltd (2010) 4 Comp LJ 345 (Mad)

[5] Article 5:  This Law shall not affect any other law of this State by virtue of which certain disputes may not be submitted to arbitration or may be submitted to arbitration only according to provisions other than those of this Law.

[6] Secur Industries Ltd vs M/S Godrej & Boyce Mfg. Co. Ltd. (2004) 3 SCC 447

[7] P. Anand Gajapathi Raju v. P.V.G. Raju, (2000) 4 SCC 539

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

[9] Sec. 2(h) of the Arbitration and Conciliation Act, 1996 defines ‘Party’

[10] Harita Finance Ltd. vs ATV projects India ltd., 2003(2)ArbLR376

[11] Firm Ashok Traders and Ors. vs. Gurumukh Das Saluja and Ors., AIR 2004 SC 1433

[12] L & T Finance Limited vs. C.T. Ramanathan Infrastructure Pvt. Ltd. A. No. 5314 of 2012

[13] Renusagar Power Co. Limited v. General Electric Company; 1994 Supp (1) SCC 644

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

[15] Shri Lal Mahal Ltd. v. Progetto Grano Spa, 2013 (4) CTC 636

[16] Section 48 in The Arbitration and Conciliation Act 1996 Conditions for enforcement of foreign awards,

 (2) Enforcement of an arbitral award may also be refused if the Court finds that— (b) the enforcement of the award would be contrary to the public policy of India.

[17] McDermott International Inc. v. Burn Standard Co. Ltd 2006(5)ALT1(SC)

[18] Indian Oil Corporation Ltd. V. Langkawi Shipping Ltd, 2005 (2) Bom CR 458

[19] National Highway Authority of India v. Progressive MVR, (2018) 14 SCC 688

[20] (2019) 9 SCC 798

[21] Explanation to sec. 2A -An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiate by patent illegality appearing on the face of the award:

Provided that an award shall not be set aside merely on the ground of an erroneous application of law or by reappreciation of evidence. 

[22] Explanation to sec. 34(2)- For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian Law shall not entail a review on the merits of the dispute. 

[23] Venture Global Engineering LLC and Ors v Tech Mahindra Ltd. and Ors [2017] 13 SCALE 91 (SC)

[24] Sandeep Kumar v. Dr. Ashok Hans, (2004) 3 Arb LR 306

[25] Emkay Global Financial Service Limited v. Giridhar Sondhi, Civil Appeal No. 8367 of 2018

[26] BCCI v. Kochi Cricket Pvt. Ltd., (2018) 6 SCC 287

[27] Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India (NHAI), Civil Appeal No. 4779 of 2019, Supreme Court

[28] Ibid

[29] National Agricultural Co-operative Marketing Federation of India (NAFED) v. Alimenta S.A Civil Appeal No. 667 of 2012, delivered on April 22, 2020

[30] Vijay Karia & Ors. Vs. Prysmian Cavi E Sistemi SRL & Ors. Civil Appeal No. 1544 of 2020

[31] M/s.Canara Nidhi Limited v/s. M. Shashikala & Ors. 2019 SCC OnLine SC 1244

[32] Sangyong Engineering & Construction Co. Ltd. v/s. National Highways Authority of India, 2019 SCC OnLine SC 677

[33] M/s Emkay Global Financial Services Ltd. V. Girdhar Sondhi (2018) 9 SCC 49

 

 

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The legislative intention behind alternative dispute resolution was never to encourage interference from the judiciary perhaps that was the reason arbitration awards were classified to be binding on the parties. 

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Undue delay in passing Arbitral Award in violation of Public Policy?

A clause for Alternate dispute resolution (ADR) is incorporated in a contract to ensure avoidance of lengthy and costly legal procedures. Undue delay in arbitration procedure tends to vitiate this essential objective that ADR seeks to achieve.  Further, the ADR process is designed to minimize the interference of courts, however, it is more of fiction as parties unhappy with the outcome of the process take the legal recourse as a dilatory tactic. Therefore, it is essential that arbitral awards are set aside only when there is a grave injustice or is unreasonable on the face of it[I].

 

Some light was shed on the issue recently by the Hon’ble Madras High Court in the case of Mr. K. Dhanasekar v Union of India and Ors[ii]. The court set aside an arbitral award on an application made to it under section 34 of the Arbitration and Conciliation Act, 2015 holding that undue and/or inordinate delays in passing an award are in fact violative of public policy.

 

Factual Matrix:

 

The Petitioner, an engineering contractor, entered into an agreement with the Respondent, Southern Railways, for the collection and supply of 50 mm size machine crushed hard granite ballast for railway track doubling purposes. Certain disputes arose between the parties, and in accordance with the provisions of the contract which provided for settlement of disputes by arbitration, an arbitral tribunal consisting of three arbitrators was constituted. The learned arbitral tribunal dismissed the claim of the claimant in its entirety and allowed the counterclaim of the respondent. Challenging the same, the Petitioner approached the Hon’ble Madras High Court.

The Petitioner, inter alia, contended that there was a severe delay in passing the award. The arbitral tribunal passed the impugned award after a period of 3 years and 7 months which was not a reasonable time period. The Respondent countered that the learned arbitral tribunal, upon hearing the parties at length and upon consideration of all facts and circumstances, had passed the impugned award. Further, the delay in passing the award had not caused any prejudice to anyone and therefore, the award must not be set aside.

 

Issue:

 

Whether inordinate delays in passing an arbitral award was sufficient cause to set aside the impugned award.

 

Judgment:

 

The Hon’ble Court observed that the fact that there were delays in passing the impugned award was not disputed. What was disputed was whether such delay warranted the interference of the Hon’ble Court in setting aside the award.

To answer the question, reliance was placed on the decision of the Hon’ble Delhi Court in the case of Harji Engineering Works Pvt. Ltd. v Bharat Heavy Electricals Limited[iii], wherein the Hon’ble Delhi High Court had held that an arbitrator was required to make and publish an award within a reasonable period of time, and in the event that there is a delay, the same had to be adequately explained. The lack of any satisfactory explanation to such delays would be prejudicial to the interests of the parties. The Hon’ble Delhi High Court also held that the parties to an arbitration agreement had the right to be satisfied that the arbitrator was conscious of and had taken into consideration all contentions and claims before adjudicating on the claim. An inordinate delay from the last date of hearing would not provide such satisfaction to the parties.

The Hon’ble Madras High Court, adopting the same rationale found that arbitrators are likely to forget the contentions and pleas raised by parties during the course of arguments. Further, unexplained delay in passing an arbitral award was violative of the public policy of India and therefore liable to be set aside.  

       

Conclusion:

 

The Hon’ble High Court has proceeded on the assumption that the arbitrators must have forgotten the arguments placed by the parties, despite the fact that written submissions were placed on record by each party. Additionally, Section 29A introduced by the Arbitration Amendment Act, 2015 (further amended in 2019) has prescribed a time limit of 12 months from the date of completion of pleadings, within which period, the Arbitrator must necessarily make the award.  Although the amendment is not applicable to the case at hand (Consequent to the decision of the Supreme Court in Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd. and Ors[iv] on the retrospective application of the Arbitration Amendment Act, 2015), however, a similar case today would reach the same fate because of these set timelines. The said decision, as well as the amending provision, have the tendency of acting as a tool for the losing party to have the arbitral award set aside on procedural ground rather than on merits. These also increase the interference of the court which might result in unnecessary delays which the amending provision or the decision basically condemns. Further, with the 12 month or 18 months limit (if extended by the parties), the delay might not happen in ADR proceedings but may happen in the legal proceedings which the parties seek to avoid by opting for the ADR mechanism in the first place. In addition, court interference or dependence would hamper the confidentiality that parties seek to achieve through the ADR process. This is violative of the sanctity of arbitral awards and goes against the very fabric of the Arbitration and Conciliation Act itself.

Finally, the Arbitration Council being set up through the 2019 amendment, to undertake necessary measures to promote and encourage the ADR mechanism and to frame policy and guidelines for uniform professional standards, must take cognizance of this. Although provisions for penalizing arbitrators have not been provided in the amendment, the Arbitration Council should consider making regulations on the same to ensure compliance. This might provide an impetus to the overall arbitration process and ensure timely resolution in a fair and equitable manner while avoiding the interference of the court.

References:

 

[i] Oil and Natural Gas Corporation Ltd., v. Saw Pipes Ltd., [2003 (5) SCC 705]

[ii] O.P. No. 4 of 2015 and O.A. No. 31 of 2015 at http://164.100.79.153/judis/chennai/index.php/casestatus/viewpdf/489701

[iii] [2009 (107) DRJ 213]

[iv] (SLP (C.) No. 19545-19546 of 2016)

 

 

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The Hon’ble High Court has proceeded on the assumption that the arbitrators must have forgotten the arguments placed by the parties, despite the fact that written submissions were placed on record by each party. Additionally, Section 29A introduced by the Arbitration Amendment Act, 2015 (further amended in 2019) has prescribed a time limit of 12 months from the date of completion of pleadings, within which period, the Arbitrator must necessarily make the award.

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