Judicial Intervention under Arbitration and Conciliation Act, 1996
INTRODUCTION:
The act based on the concept “minimum government, maximum governance”, to serve as a tail wind in an economy growing with leaps and bounds, by providing alternative to court litigation, for clearing roadblocks arising in course of business dealings or otherwise, which tend to be undeterred by legal complications that often mar the justice system such as delay which is synonymous with rising opportunity costs. However, so as to not make ADR mechanisms correspond to a partial justice served, judicial intervention is provided for in certain circumstances, as will be discussed, but the efficiency of arbitration proceedings remains intact by the time limit prescribed under section 34 to challenge an award as absolute and un-extendable by court as per section 5 of the Limitation Act, 1963.
SECTION 5:
The Arbitration and Conciliation Bill, 1995 formed with an objective “to minimise the supervisory role of courts in the arbitral process”, culminated as section 5 of the present act. The section prescribes the extent of judicial intervention in certain terms, where the judiciary cannot intervene in the arbitral proceedings except for the circumstances such as:
1. Section 8: Making reference in a pending suit.
2. Section 9: Passing interim orders.
3. Section 11: Appointment of arbitrators.
4. Section 14(2): Termination mandate of arbitrator.
5. Section 27: Court assistance in taking evidence.
6. Section 34: Setting aside an award.
7. Section 37: Entertaining appeals against certain orders.
8. Section 39(2): Directing delivery of award.
In the case United India Insurance Co Ltd v. Kumar Texturisers (AIR 1999 Bom 118), where a party to the agreement sought a declaration of no dispute and that the invocation of arbitral agreement should be restrained. The court observed, that remedies under s. 34 of the Specific Relief Act, 1963, were not available to him nor was the court allowed to intervene under sections 14, 34 or 37 of the ACA 1995, as the parties had agreed to settlement by arbitration.
Similarly, civil courts lack jurisdiction over arbitration matters, especially once the proceedings of the arbitration has commenced (SAIL v. Ramkrishna Kulwantrai, AIR 1999 Cal 295).
Additionally, an arbitration agreement has to be in writing for section 8 to come into play while making a plea for stay of a suit. If no such written agreement is made, then the courts would not be barred from taking up the matter as section 5 would not come into play. Consequently, if an arbitration agreement provides for arbitral reference only in certain events then the court will have jurisdiction in respect of events and matters other than those laid down in the agreement.
Subsequently, by upholding the spirit of ADR legislation, the Supreme Court in Adhunik Steels Ltd v. Orissa Manganese and Minerals (P) Ltd (2007) 7 SCC 125), noted that the court will provide the necessary support and rescue arbitration from the hands of a party who tries to sabotage the process.
COURT ON TERMINATION OF PROCEEDING UNDER SECTION 25:
In Anuptech Equipments Ltd v. Ganpati Coop. Housing Society Ltd. (AIR 1999, Bom 219), an arbitrator was appointed without considering his qualifications, which was contested by the claimant who also sought time for filing of the statement of claim. However, the arbitrator terminated the proceeding as per section 25, citing the claimant’s default in filing his claim. The Act does not make a provision for remedy against such a decision. Therefore, the civil court did not meddle in this matter but the High Court allowed a writ petition under article 226 of the Constitution against the decision by covering the arbitrator under the words “other persons” in that Article.
POWER OF COURT TO REFER PARTIES TO ARBITRATION:
S. 8. Power to refer parties to arbitration where there is an arbitration agreement-
1) Judiciary has the power to refer the parties to arbitration if it is subject matter of arbitration and a party applies for the same, while submitting his first statement on the dispute.
2) However, the request for referring to arbitration will not be complied with if it is not accompanied by the original arbitration agreement between the parties or its copy.
3) Further, an arbitration can be commenced and an arbitral award may be granted despite the fact that an application for the reference of the parties to arbitration is still pending before a judicial authority.
The present Act was legislated to keep the intervention of the courts at bay and reduce their burden. If the courts intervene in the arbitration proceedings, then that would be self-defeating. Therefore, the matter of arbitration should not be litigated upon except for the purposes of making arbitration more effective.
Consequently, situation contemplated by Section 8 can arise only at first instance of an opponent and defendant in a judicial proceeding, or, at highest, suo motu at instance of judicial authority, when judicial authority comes to know of existence of an arbitration agreement - in either event, there is no question of court under Section 8 of 1996 Act restraining arbitral proceedings from commencing or continuing (Ardy International Ltd v. Inspiration Clothes & U, (2006) 1 SCC 417).
Further, on the basis of section 8(1) of the Arbitration and Conciliation Act, 1996, it has been provided that if any party to an arbitration agreement files a suit before the court then the other party can apply for the stay of the suit and order for reference to arbitration. The Present Act makes it mandatory for the court to refer the parties to conciliation if so found in the terms of agreement. Discretion of courts was ruled out by the Supreme Court in the case, P. Anand Gajapathi Raju v. P.V.G. Raju ((2000) 4 SCC 539), by stating explicity the order for reference, i.e.,
“1) There must be an arbitration agreement; 2) a party to the agreement brings an action in the court against the other party; 3) the subject-matter of the action is the same as the subject-matter of the arbitration agreement; 4) the other party moves the court for referring the parties to arbitration before submitting the first statement on the substance of dispute.”
At the same time, in view of the phrase “which is the subject-matter of an arbitration agreement”, it is not necessary that the agreement for referring arbitration existed before bringing the matter into the court but would also cover the agreement brought into existence while the action is still pending before court.
However, courts can take up those matters where there is a likelihood that the arbitrator is partial and can lead to a botched outcome in favour of one party to the agreement. As, the Supreme Court in U.P. Coop Federation v. Sunder Bros Delhi (AIR 1967 SC 249), observed that a stay can be granted if there is likelihood of arbitrator being biased or if he is guilty of unreasonable conduct or for similar other reason. Therefore, an action was allowed to be proceeded. At the same time, if the arbitrator plays the role of witness, it would be improper for him to arbitrate, necessitating judicial intervention in certain cases.
However, such a ruling would be applicable only if the substitution of the arbitrator is not possible due to circumstances or terms of the agreement imply that.
SECTION 9:
Powers of the court to grant interim relief:
The above-mentioned section provides for interim relief measures that parties are entitled to in respect of arbitration proceedings. The powers of the court to order interim relief are with respect to the following matters:
1. For appointing a guardian for a person with unsound mind or a minor to represent them in the arbitral proceedings; or
2. To get interim measures by the court with regard to the following:
i) For interim custody or preservation or sale of goods which are the matter of dispute before the arbitrator;
ii) To secure the amount or compensation agreed to by the parties as per agreement which is in dispute before the arbitrator;
iii) For inspection or preservation of the property in dispute or any other question pertinent for the dispute settlement and even authorising any person to enter into the property in possession by any party for obtaining evidence or other information necessary;
iv) Interim injunction can be sought for or with regard to the appointment of a receiver;
v) Any other interim measure which the court may deem fit, and the court is vested with the same powers of granting such interim measures as it has for the purpose of any other proceedings before it.
Therefore, intervention of the court to grant interim relief to the aggrieved parties is to serve justice, equity and ensure proper functioning of the arbitration.
SECTION 11:
Section 11 provides for the procedure of the appointment of the arbitrator. As per the section, if the parties are unable to appoint a arbitrator by the terms of agreement or mutual consent then the Chief Justice of the jurisdictional court (section 11(11), 11(12)) or any person designated by him can appoint an arbitrator.
11. Appointment of arbitrator:
11(4)(b)- if the parties to the dispute are not able to come to an agreement regarding the appointment of the arbitrator then the appointment can be made by the Chief Justice or any person designated by him upon the request of the parties.
11(6)(c)- if a person or institution fails to perform a duty vested with him, then upon the request of any party to the dispute, the Chief Justice can direct the person or institution to take the necessary measure unless the agreement between the parties provides for appointment by a different procedure.
At the same time, the Chief Justice shall have regard to his qualifications while appointing as an arbitrator.
The appointment by Chief Justice naturally ensures due care, competency and impartiality while appointing an arbitrator.
The Chief Justice has the power to appoint an arbitrator in the following cases:
1) Where the parties fail to appoint or concur in the appointment of an arbitrator.
2) Where the two arbitrators fail to appoint the third arbitrator.
3) Where the person or institution designated by the parties for appointment fails to act.
However, in order to ensure less intervention by the courts in arbitration, this power has been given the guise of being an administrative power of the Chief Justice rather than a judicial power. Therefore, the Supreme Court in Ador Samia Ltd v. Peekay Holdings Ltd. ((1999) 8 SC 3246), observed that the powers conferred on the Chief Justice are administrative in nature and while discharging its powers under section 11 it does not act as court.
SECTION 14(2):
14. Failure or impossibility to act-
Section 14 provides for substitution of an arbitrator,
a) if he becomes unable to perform his/her duty or
b) causes undue delay in performing it, or
c) Withdraws from his office, or
d) Parties agree to the termination of his/her mandate.
That if a doubt remains regarding the grounds mentioned in sub-section (1), then a party apply to the court for the termination of the mandate or as otherwise agreed to between the parties. Further, this section also provides for intervention of the court.
SECTION 27:
This section provides for taking assistance from court in taking evidence by the party at the behest of the tribunal or by the tribunal itself.
27. Court assistance in taking behest- the arbitral tribunal, or a party with the approval of the Arbitral Tribunal, can apply to the court seeking assistance from it for taking evidence.
Orders of court:
The court may order the evidence be presented before the arbitral tribunal and the same processes are to be issued to the witnesses of a tribunal as those issued in suits before it. These processes are:
i) Summons for the examination of witnesses,
ii) Commissions for the examination of witnesses, and
iii) Summons for the production of documents.
Any person failing to comply with the orders of tribunal shall be liable of contempt of Arbitral tribunal in the same way a person is guilty of contempt of court.
SECTION 34:
This section provides for setting aside of an arbitral award by contesting it before the court. The court can take up such an application on the fulfilment of the conditions mentioned in the section.
34. Application for setting aside arbitral award-
The grounds by which the court can set aside an arbitral award:
a) if a party was incapable due to any reason for being a part of the arbitration; or
b) if the award given is invalid as per the law of land for the time being in force;
c) if the party seeking setting aside of the award was not provided with a proper notice regarding the appointment of an arbitrator or of the arbitral proceedings;
d) if the arbitral tribunal was not composed as per the terms of the agreement.
e) the award violates public policy/ notions of morality and justice of India.
f) making award affected by fraud or corruption or violates section 75/81 of the act
g) prima facie illegality in the award
h) dispute in arbitration is beyond the terms laid down in the agreement between the parties.
i) subject- matter of dispute not capable of being decided by arbitration
j) matter is beyond the scope of jurisdiction of the tribunal
However, an award is not to be set aside merely on the basis of incorrect application of law or by re- appreciation of evidence. Additionally, the limitation period of filing an application under section 34 to set aside the award is 3 months from the date on which the party seeking to set aside the award received the award
STARE DECISIS:
A party cannot challenge the award on the basis of its merits and even the court cannot go into the details of merits of the award. The Supreme Court in Indu Engg & Textiles Ltd v. DDA ((2001) 5 SCC 691) observed, “An arbitrator is a judge appointed by parties and as such an award passed by him is not to be lightly interfered with.”
However, the conduct of the arbitrator can be regulated in accordance with section 34 of the act and the award can be set aside. Similarly, several other remedies can be taken recourse to. So, courts do not go into the merits of the facts of the case and do not in an indirect way take recourse for obtaining the merits of an award. An effect of setting aside an award is that the parties can again refer to arbitration or have the matter decided through court.
The principles to be applied by the court in setting aside an award are:
First, the award should be read as a whole and not minutely.
Secondly, on the interpretation of the contractual documents between members of the same trade as that of parties, the court would accord some deference to the arbitrator’s decision.
The court would set aside only such decision which the court thinks has been wrongly concluded by the arbitrator despite his relevant experience. The question of law is to be looked into by the court on the lines of the reasons stated by the arbitrator in reaching his decisions. The court has to look into the correct application of the law identified by the arbitrator and if the correct application of the law to the facts would have led to a different decision.
The burden of proof lies on the party contesting the award to prove the grounds where the law was not correctly applied in reaching the decision by the arbitrator.
In the case of Kershaw Mechanical Services Ltd. v. Kendrick Construction Ltd. ((2006) 4 All ER 79 (QBD)), only one question was a question of law in the appeal raised by the claimant. The court found that the law was correctly applied and the right conclusion was reached to. Therefore, the plea was dismissed.
Recently, Supreme Court laid down circumstances which limited intervention by courts in modification of arbitral award under sections 34 and 37 of the Arbitration and Conciliation Act, 1996 (Gayatri Balasamy Vs ISG Novasoft Technologies Ltd, 2025) besides those stated under section 34, 37 of the act, as follows:
a) Where award is severable;
b) For correcting typographical or clerical errors;
c) Post award, interest can be corrected in some circumstances;
d) Article 142 of Constitution can be used by Supreme Court to modify awards to do complete justice in a case before it, though it should be exercised with caution.
Further, when award is challenged as writ petition before the Higher Courts for being violative of any fundamental right, the Supreme Court in this regard noted (SEROSOFT SOLUTIONS PVT. LTD. VERSUS DEXTER CAPITAL ADVISORS PVT. LTD. (2025 LiveLaw (SC) 14)), “interference under Article 226/227 is 'permissible only if the order is completely perverse i.e. that the perversity must stare in the face.”
SECTION 37:
Section 37 lists those conditions or circumstances where a party can file an appeal of the arbitral award. Measures granted under section 9, the arbitral award set aside under section 34, accepting plea under section 16 and interim measure granted under section 17, all of which fall within the ambit of section 37 and can be appealed against. However, no second appeal shall lie for an order passed under this section but a party will have the right to appeal in the Supreme Court.
In Mohinder Singh & Co. v. Board at Trustees of the Port of Bombay ((2009) 4 SCC 86), the High court disposed of the appeal for an award by giving an unreasoned order which was set aside by the Supreme Court and the High Court was directed to dispose of the appeal, after due hearing and by passing a reasoned and speaking order.
As already mentioned before, following orders of the court can be appealed against:
1) An interim measure granted or rejected under section 9
2) An order set aside or refused to be set aside under section 34
APPEAL AGAINST ORDERS OF ARBITRAL TRIBUNAL (S. 37(2))
- Appeals lie against the orders passed by the tribunal by virtue of section 17 which provides for interim measures.
- Orders under section 11 cannot be appealed against.
Similarly, every order of a tribunal cannot be subjected to appeal, only those orders which fall within the ambit of section 37(2) can be appealed against. In Arun Kapoor v. Vikram Kapur (AIR 2002 Del 420), observations of the sole arbitrator which did not grant any interim measure were held to be not an order which could be appealed against.
SECTION 39(2): LIEN ON AWARD FOR COSTS:
The cost of arbitration can be decided by the parties involved in their agreement, wherein,the tribunal under section 39 is entitled to lien on arbitral award and can demand deposits of the costs. 39(2) provides that if the arbitral tribunal demands payment to be made before delivering an award and a party to the tribunal makes an application before the court regarding the same. The court can then enquire about the matter and award the tribunal with the costs that the tribunal is entitled to and the balance shall be refunded to the applicant (Vijaya Minerals v. Bikash Chandra Deb, AIR 1996 Cal 67). If the award does not contain a provision for costs then the court by its order can make one as it may deem fit.
CONCLUSION:
With the act of 1996, the clauses of the arbitration have been strengthened and the tribunal has been given wider powers than were previously granted. The main objective of the alternative dispute resolution is to streamline dispute resolution by minimising the interference of courts and to reduce the costs that litigation entails. ADR seeks to amicably reach a common ground between the parties to the dispute. Further, to enforce the awards of the tribunal, the 1996 act has granted the tribunal with powers similar to those of the courts. However, in several cases, recourse to the court may be sought by the parties under circumstances provided for under the act, in order to reach to a more just and equitable decision.