Disputes are part of individuals anywhere in the world. Conflicts arise between the parties when there’s any disagreement, and to solve those disputes earlier people followed the traditional litigation method, that is by filing a suit before the court of law. Due to the significant change in time and technology, the scope for conflicts has widened, and many people opted for traditional litigation as that was the only way to solve the disputes, so the courts were burdened with the cases which resulted in delay in deciding the cases. So to overcome this situation alternative dispute resolution along with different methods has evolved and is now the most preferred by the parties. The alternative dispute resolution is an outside court settlement that is assisted by a neutral and unbiased third party and helps the parties arrive at a quick decision. By choosing alternative dispute resolution methods the disputes get resolved quickly, speedy disposal of matters, time-saving process, and also money for the parties. The different alternative dispute resolution methods are Arbitration, Mediation, Negotiation, and Lok Adalat. Arbitration is the most preferred and used method for resolving the conflicts between the parties. The process for Arbitration is followed according to Arbitration and Conciliation Act, 1996. The act’s main purpose is to settle the disputes between the parties amicably and without any delay, the act also specifies that there should be minimal intervention of the judiciary and the tribunal has the power to decide the matter and pass the award. Only in certain matters under the provisions which the judiciary should involve only in those matters the judiciary can involve. So this article focuses on to what extent the judiciary can be involved in arbitration matters and whether the Court has the power to modify the Arbitral award passed by the tribunal with the decided cases by the Supreme Court.
Understanding the term Arbitration:
Arbitration is one of the methods of alternative dispute resolution, it is an outside court settlement, assisted by a neutral and unbiased third party. In arbitration, the number of arbitrators are odd in the number that is either one or more(odd numbers), who are appointed by both the parties. Once the decision is passed by the arbitrator it is binding on the parties and enforceable, there is no appeal available to the parties. So in arbitration, the arbitrator will act as a civil judge and make the parties come to a final settlement upholding the concerns and issues of both parties.
There are different types of Arbitration:
- Ad Hoc Arbitration: It is a flexible type of arbitration giving the option to parties to conduct proceedings according to their wish, which is different from institutional arbitration. Here the parties mutually agree to solve the disputes, amicably and they mutually agree upon the arbitrator also to decide the matter. The parties and arbitrators mutually and independently decide to follow the procedure of arbitration. This method is widely used by the parties and solves disputes quickly.
- Institutional Arbitration: separate institutes are set up solely for deciding the arbitration or any of the alternative methods. These institutions can be domestic and are set up at the international level. The institutes have their own rules in adjudicating the matters but those rules should be in accordance with the Arbitration and Conciliation Act, 1996 but should not be in conflict with the Act. In these institutions, they have a panel of arbitrators and are recommended to the parties. It’s the choice of the parties to decide whether they shall refer the matter to the institution or to ad hoc.
- Domestic Arbitration: in this type of arbitration, involves the parties from that nation only. That means parties involved in the dispute, both belong to the same nation. The parties must be nationals from the same jurisdiction, and then the domestic arbitration applies.
- International Arbitration: it applies when either one of the parties in the dispute should belong to a foreign country or habitually reside in a foreign country. In the case of a company, then it should have its core control or management should be outside India[1].
Purpose and advantages of Arbitration:
The Arbitration and Conciliation Act, 1996 was based on the UNCITRAL model, that is United Nations Commission on International Trade. The main purpose of the act is to solve the disputes quickly without any delay and make the parties agree amicably and help to reach to an agreement. This is an alternative method and outside court settlement, the main aim of the act is there should be minimal judicial intervention and only in reasonable and exceptional cases only the court can look into the matter. If the judiciary is involved then the main purpose of implementing the act would be defeated and again the burden on the judiciary increases.
The advantages of Arbitration are:
- Party Autonomy: the choice is given to the parties by the act, to select or mutually agree upon the arbitrator to settle the dispute. If the parties mention it in the contract, then it is followed accordingly to the contract.
- Confidentiality: The arbitration process ensures the parties that the information disclosed by the parties to the arbitrator cannot be communicated to the other party unless the party consents to disclose the information to the other party.
- Speedy– disposal: once the parties refer the matter to the arbitration, the arbitrator is bound by the act and he shall pass the award within twelve months mentioned in the act. Unless the issue is complex in nature which might require the time to extend. Otherwise, the arbitrators are bound by the act and pass the award.
- Fairness: the arbitrator who is taking the matter should be unbiased, and neutral and conduct the proceedings in fair manner and he should not be related to either of the parties in any way, if he is related then immediately should disclose to the parties. Because for the fair outcome to the parties without any bias.
- Cost-effectiveness: The arbitration process is the best and most cost-effective method compared to the traditional litigation method, which costs high, as it takes less time to settle the dispute. It also saves the money of the parties and also on unnecessary[2].
Understanding the Role of Judiciary in Arbitral Awards.
The main purpose of the act is there should be minimal judicial intervention by the court when the matters are referred to the arbitration. According to section 8 of the Act, states that
Power to refer parties to arbitration where there is an arbitration agreement.
(1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.
(2)The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof. Provided that where the original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under sub-section (1), and the said agreement or certified copy is retained by the other party to that agreement, then, the party so applying shall file such application along with a copy of the arbitration agreement and a petition praying the Court to call upon the other party to produce the original arbitration agreement or its duly certified copy before that Court.
(3)Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made[3].
So when there is an agreement between the parties that to refer the matter to arbitration, then the court should direct the parties to arbitration only and not to decide the matter further unless court finds that the agreement is not valid.
The arbitral award once made, it is binding on the parties and they have to enforce the award. But under section 34 an arbitral award can be set aside only under these circumstances,
An arbitral award may be set aside by the Court only if
(a)the party making the application [establishes on the basis of the record of the arbitral tribunal that.
(i)a party was under some incapacity; or
(ii)the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii)the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv)the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v)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 a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b)The court finds that
(i)the subject -matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii)the arbitral award is in conflict with the public policy of India[4].
The Supreme Court in the case S.V. Samudram v. State of Karnataka and Anr[5]. Decided the matter that, the court can modify the arbitral award or not.
Facts of the case:
The appellant got a contract from the Karnataka State Public Works Department to construct an office and residence for the Chief Conservator of forests at Sirsi, for an amount of 14.86 lakhs which was entered in the year 1990. The agreed date to finish the work was on or before 6th May, 1992 which is 18 months from the date of agreement excluding the monsoon season. The work was not completed according to the agreed date as the claimant held the state was responsible for not clearing the bills at every stage and due to the change of sites and delivery of materials for such construction, the arbitrator was appointed and the amount fixed by, there is a delay. As a result, the parties referred the matter to arbitration, the arbitrator was appointed and the amount fixed was 18,06,439/- and the respondents were made liable but the civil judge modified the award.
Issue:
Whether the court can intervene and modify the arbitral award or not?
Decision by the court:
The matter was placed before the Supreme Court, the court held that the order passed by the Civil Judge was not in connection with the statute, and there were no grounds to support under section 34 of the act for the court to intervene. The court further stated that the judge had not been concerned with the contours of section 34 and had held the award perverse and contrary to public policy, the reason stated was the delay by the contractor which could have been avoided, the court further stated that that finding is not supported with any material on record.
The court further stated that if the factoring of cost escalation from 189-1990 and 1992 escalating to 100% was exaggerated, granting a lump sum of 25% of the contract value is not justified and based on this reason, the award cannot be modified by the court. and the interest rate was reduced to 9% from 18% as fixed by the arbitrator. Hence, the court held that the court could not modify the arbitral award as it was not the legislator’s intent and upheld the award passed by the arbitrator[6].
Conclusion:
The main purpose of the arbitration is to settle the disputes quickly and make the parties come to an agreement without any further disputes. The court should not interfere in the arbitration matters, there should only be minimal interference as mentioned for the purposes in section 34 of the act, but not beyond for any of the reasons. As the arbitrator is appointed by the parties, the arbitrator will decide the matter considering claims, and rejections after hearing both the parties, then will come to a final decision which would help the parties. The award passed by the arbitrator cannot be modified because the arbitrator decides the matter with the expertise, legal knowledge and considerations made by the parties, which cannot be simply modified. If modified will completely defeat the purpose of the act and trust in the arbitration process.
[1] Satyaki Deb, What is arbitration, iPleaders Blog (Jun. 4, 2022), https://blog.ipleaders.in/what-is-arbitration/.
[2] Astitva Kumar, Arbitration : the revolution in resolving disputes, iPleaders Blog, (Sept. 24, 2021), Arbitration : the revolution in resolving disputes – iPleaders.
[3] The Arbitration and Conciliation Act, 1996, § 8, No. 26, Acts of Parliament, 1996 (India).
[4] The Arbitration and Conciliation Act, 1996, § 34, No. 26, Acts of Parliament, 1996 (India).
[5] S.V. Samudram v. State of Karnataka and Anr, 2024 INSC 17
[6] Swasti Chaturvedi, A Court Cannot Modify Arbitral Award U/S.34 Of Arbitration & Conciliation Act: Supreme Court, verdictum, (Jan. 5, 2024, 2:30 PM), https://www.verdictum.in/court-updates/supreme-court/sv-samudram-v-state-of-karnataka-neutral-citation-2024-insc-17-arbitral-award-modify-1513555.
Author: M. Syamala
Juris Centre 