Interim Measures under Arbitration & Conciliation Act

logo

Interim Measures under Arbitration & Conciliation Act

(Author: Dr Shailesh N Hadli )

 Arbitration and Conciliation Act is effective and inttergative part of Alternative dispute resolution system accepted universally. Arbitration and Conciliation Act 1996 repealed old Arbitration Act existing in India and incorporated law relating to domestic arbitration, international commercial arbitration and law relating to conciliation. The new Act was enacted on the lines of the United Nations commission on International Trade Law (UNCITRAL) for ensuring a fair and efficient settlement of disputes in an international commercial contract. Whenever there is an ambiguity in arbitration matters, our Courts have relied on UNCITRAL rules for interpretation and application of the provisions of new act.

 Need for Arbitration?

The new Act minimized the intervention of courts and it provided that final award passed is binding on parties and is enforceable as if it were a decree, if it is not set aside on challenge u/s 36. The arbitrators are vested with powers for deciding matters such as law to be applied, procedure to be followed for evidence, jurisdiction, venue, interest etc. As these factors contribute to speedy arbitral process, it is quite common to find arbitration clause in commercial agreements.

Arbitration Procedure:

Arbitration process starts when parties to agreement fail to amicably resolve their disputes or differences and aggrieved party issues a notice for referring the dispute/claim to the arbitrator (Section 21). After the arbitral Tribunal is constituted, claimant will state facts of his case submit his claim and seek relief. Respondent will file his counter claim or his defence to the claim. Arbitrator passes an award on completion of arbitration proceedings.

Award under Arbitration:

As per definition of arbitral award appearing in Section 2(e), an arbitral award includes an interim award within its ambit. Section 31(6) provides that the arbitral tribunal may, at any time during the proceedings make an interim award on any matters with respect to which it may make a final award. A question that arises in the minds of everyone is that whether interim measures can be treated as  an interim award especially when such measures of protection are ordered by the Tribunal. The author is of the view that such measures will amount to granting of interim award. This view is subscribed from the definition of arbitral award as defined u/s 2 (e) of the new Act.

With the above background, it is now appropriate to shift the focus of this article to the interim measures /relief provided under the New act and their effectiveness. The sections that deal with interim relief are Section 9 and Section 17. Both these are compared for ascertaining the ground reality of these measures.

Interim relief Under Arbitration:

Under the Arbitration Act, 1940,a party could commence proceedings in a Court by moving an application under Section 20 for appointment of an arbitrator and simultaneously it could move an application for interim relief under the Second Schedule read with Section 41(b) of the old Act.  Under the  New Act 1996,  Section 9 empowers the court to order a party to take interim measure or protection when an application is made. Besides this Section 17 gives power to the Arbitral Tribunal to order interim measures unless the agreement prohibits such power.

Interim relief u/s 9

A plain reading of the section 9 indicates that a party may before or during the arbitral proceedings or at any time after making of the arbitral award but before it is enforced in accordance with Section 36, may apply, to the court for interim measure of protection. Prayers for interim measures of protection may include:

– Appointment of a guardian for a minor or person of unsound mind

– Preservation or interim custody or sale of goods, if goods are of perishable nature

– Securing the amount of claims

– Allowing inspection or interim injunction or appointment of receiver

– Any other relief’s as the court may in its discretion may deem proper considering the circumstances of the case.

 

Interim relief u/s17

Let us now examine the powers of Arbitral Tribunal u/s 17. If the arbitration agreement does not prohibit, Arbitral Tribunal at the request of a party, may order the other party to take such interim measures of protection as it may deem necessary in respect of subject matter of dispute. In the process, it can order for providing appropriate security in exercise of its power. This power also has to be exercised within the terms of reference or arbitration agreement. It is very strange that Section 17 although permits Arbitral tribunal to pass interim order, it does not give any power to Tribunal to enforce its order. Also there is no  section in the  new Arbitration Act which ensures  enforcement of interim orders passed by the Tribunal or  to treat  interim order as an enforceable decree like that of final award. In other words, the power of the tribunal is limited and any interim award necessarily has to merge with the final award for attaining enforceability.

In UNCITRAL model law similar power is given to arbitral tribunal under Article 16 and 21 of Arbitration Rules.

 

Section 9 and Section 17:

Analysis of Section 9 and Section 17 would lead us to the following conclusions:-

– The new arbitration Act empowers the arbitral tribunal to pass orders for giving interim relief while such power is not vested under the Old Act.

– Powers under Section 17 can be exercised only after the arbitral tribunal is constituted and it stats functioning.

– Powers of court under section 9 are wide as the words “before,  during or after  indicate so. A party can approach the court to seek interim measures of protection even before the arbitration commences.

– Court’s powers are wide and have supremacy in granting interim relief. However interference of court when Tribunal is constituted is minimum.

Judicial precedents:

Let us now refer to some important judgments for understanding the effectiveness or limited effectiveness of Section 17.

No power to Arbitral tribunal to enforce its orders u/s17

Supreme court of India in the case of M D Army WHO Vs Sumangal services (p) Ltd reported in AIR 2004 SC 1344  observed thateven under S. 17 of the 1996 Act the power of the Arbitrator is a limited one. It cannot issue any direction which would go beyond the reference or the arbitration agreement. Even under S. 17 of 1996 Act, an interim order must relate to the prot, ection of subject-matter of dispute and the order may be addressed only to a party to the arbitration. It cannot be addressed to other parties. Even under S. 17 of the 1996 Act, no power is conferred upon the Arbitral Tribunal to enforce its order nor does it provide for judicial enforcement thereof.

Relief u/s 9 can be granted even before commencement of arbitration

In the case of M/s. Sundaram Finance Ltd. v. M/s. NEPC India Ltd., AIR 1999 SC 565, Supreme Court was to examine the issue whether u/s 9 of the Arbitration and Conciliation Act, 1996, the Court has jurisdiction to pass interim orders even before arbitral proceedings commence and before an arbitrator is appointed. SC held that it is not necessary that arbitral proceedings must be pending or at least a notice invoking arbitration clause must have been issued before an application under Section 9 is filed.

 

Interim measure u/s 9 and u/s 17 are distinguishable

In Firm Asok Traders  Vs Gurumukhdas Saluja AIR2004 SC 1433, the Apex court observed  that Section 17 would operate only during the existence of the Arbitral Tribunal. During that period power conferred on Arbitral tribunal u/s 17 and power of  court u/s 9 may over lap to some extent but so far as the pre and post the arbitral proceedings are concerned, party seeking interim measure of protection has to approach only court.

 

Conclusion: While drafting arbitration clause, one should keep in mind whether the arbitral tribunal should be given the power to grant interim relief or not. If arbitration clause provides for such power to arbitral Tribunal, then one need not approach the court for such relief. But there exists a doubt about its enforceability, if it is not complied with by the party. Courts can be approached only if interim relief as prayed is refused u/s 37(2)(b) but not for enforcing the interim relief granted by the arbitrator.

 

Arbitration: The potential Alternative Dispute Resolution

Abstract

 The Alternative dispute resolution is an option for traditional judiciary proceeding. The difference between ADR and judiciary are many. Comparatively ADR is best way of dispute resolution. The judiciary have burden of pending cases. The ratio per judge is very serious. The ADR includes mainly three methods like Arbitration, negotiation and Conciliation. In west ADR is very popular way of dispute resolution. The benefits of ADR are numerous like saving time, costs, result oriented, speedy; maintain confidentiality and cooperative approach that maintain company’s relation and employer- employee relation too.

 Introduction

India is second most populating country in the world. In limited sources and limited machineries there is lack of efficiency,transparency and swiftness. And Indian judiciary is no exception to this presumption.

The Indian government said approximately 3.2 crore cases were pending in high courts and subordinate courts across the nation while 56,383 cases were pending in the Supreme Court.

It also said 74% of the total 3.2 crore cases were less than five years old. Similarly, 20,334 out of the 56,383 pending cases in the apex court were less than one year old.[1]

The current judges numbers are 14,576 as against the sanctioned strength of 17,641.

 So the ratio will be like that[2]

 

Pending cases in India Judges number Ratio per judges
3,12,80,000 14,576 2,145

 So we need an alternative method which solves disputes with more economical and efficient and speedily. Alternative Dispute Resolution (ADR) means methods of resolving a dispute which are alternatives for litigation in the courts. It includes mainly arbitration, mediation, conciliation, negotiation.

 What is ADR?

 In General meaning

It is a familiar method of dispute resolution with flexibility in procedures, rules and regulations.

 Arbitration

Arbitration is a structure of alternative dispute resolution of a legal method for the resolution of disputes outside the courts, where the parties to a dispute appoints its one or more persons called as Arbiters,Arbitrators or Arbitral tribunaland such decision is known as The award

 Some important statistics: Use and effectiveness of Arbitration as a mechanism

Of ADR: American case study (source: National Arbitration Forum, Washington)

 78% of people find faster recovery in Arbitration

83% of people find Arbitration equally or more fair

59.3% of people find Arbitration less expensive

84.6% of people find ADR equally or more suitable for insurance/reinsurance sector[3]

 Mediation

ADR also include mediation a type of settlement negotiation prepared by an impartial and independent third party and non-binding resolution by experts. The examples of ADR are commercial disputes, consumer and employment matters. Arbitration can be either voluntary or compulsory and can be either binding or non-binding.

 Conciliation

The parties to a dispute have the same opinion to make use of the services of a conciliator, who then meets with the parties individually in an effort to resolve their outstanding issues by way of improving interactions, interpreting issues, providing technical assistance, exploring probable solutions result in a negotiated settlement. 

Ithas no legal status, no power to seek evidence or take witnesses testimony, no decision, and no award. 

 History:

 In Mahabharata, when both parties were strong-minded to decide the clash in battle fields,
Lord Krishna made efforts to resolve the conflict.

 The notion of private arbitration can be found back to the Roman and Canon law. Arbitration as a dispute resolution mechanism was used in Common Law since the 14th Century.

Importance after the 19th Century, with the advent of trans-national trade and commerce.

 panchayatsystem works in the villages. The Indian system places a lot of importance on resolution of disputes by negotiation which is only conciliatory.

Arbitrating on property disputes and torts.Panchayat is a representative body of the members of a particular village which consists the elder most people or the most respected and experienced elder. One of the most important functions of these panchayats is the dispensing of justice.[4]

 The best example where conciliation played an integral role is of the highly politically sensitive case of the Beagle channel dispute over the ownership of certain islands in the entrance to the channel between Chile and Argentina. The mediator was the Vatican. The process was remarkable because it was flexible enough to accommodate the changing political environments in both countries and the mediator used a range of tools to great advantage. This process served to protect a fragile peace between the countries and ultimately allowed them to create an agreement that has lasted until this day[5].

 Indian perspective:

Features of Arbitration & Conciliation Act 1996

The object of Arbitration Act is to run quick redress to commercial dispute by private Arbitration.

Arbitration Agreement [section 7]- The base of an arbitration is the arbitration agreement between the parties. the provision of arbitration can be made at the time of entering the agreement itself, so that if any dispute arises in future, the dispute can be referred to arbitrator as per the agreement. Even refer a dispute to arbitration after the dispute has arisen. The agreement must be in writing and signed by both parties. It can be in form of exchange of letters, document, telex, telegram etc.

 Appointment of Arbitrator

[Section 11(3)] The parties can mutually appointing the arbitrator/s as per arbitration agreement. If parties fail to agree then each party will appoint one arbitrator and appointed two arbitrators will appoint the third arbitrator who will act as a presiding arbitrator.

 [Section 12(1)] An arbitrator is to be independent and impartial. If there are some situations due to which his independence or impartiality can be challenged, he must disclose the circumstances before his appointment.

Otherwise Appointment of Arbitrator can be challenged on grounds

(a)Circumstances shows that a justifiable doubts as to his independence or impartiality

(b)[Section 12(3)] He does not hold the qualifications agreed to by the parties.The challenge to appointment has to be decided by the arbitrator himself.

 Arbitral Proceedings

[Section 18] All Parties should be treated equally by the Arbitral Tribunal. Full opportunity shall be given to each party.

[Section 19(1)] The Code of Civil Procedure, 1908 or Indian Evidence Act, 1872 is not bounded to Arbitrational tribunal. The parties are free to agree on and decide the procedure to be followed by the Arbitral Tribunal.

 Procedure, Place and Language

[Section 19(3)] Unless parties agree on the procedure to be followed,  Arbitral Tribunal has full powers to decide the procedure.

[Section 19(4)] The Tribunal also has authorities to decide the acceptability, importance, materiality and weight of any evidence.

[Section 20] Place of arbitration will be decided by mutual agreement. if the parties failto agree, then will be decided by tribunal.

[Section 22] language to be used in arbitral proceedings can be decided bymutually. Otherwise, Arbitral Tribunal can decide.

 Submission

The parties should Submit Statement of Claim, points of issue and relief or remedy sought and defense in respect of these particulars.

[Section 23] Such claim or defense can be amended any time. All relevant documents must be submitted.

 Hearings

Arbitral Tribunal can decide the mode of hearing. It will be oral hearing or on the basis of documents and other materials. but if one of the parties demands, the hearing shall be oral. [Section 24] Adequate advance notice of hearing should be given to both the parties.

 The award

The decision of tribunal is known as the award. And  it will be by majority.             

[Section 29] Such arbitral award shall be in writing and signed by the members of the tribunal.    

And also should be dated and place of tribunal. Copy of award should be given to each party. [section 31(6)] Tribunal can make interim award also. The award can be correct within appropriate time.

 Costs

[Section 31(8)] The arbitration tribunal can decide the cost of proceeding and also share of each party. If the parties refuse to pay the costs, the Arbitral Tribunal may refuse to deliver its award.

 Benefits

What are the Benefits to Alternative Dispute Resolution?

 Time

In India, an average time for a case to be disposed is varies case to case. In civil cases it took 10 to 15 years averagely, some time even more. There were cases which took hundreds of years also. In ADR the proceeding in very flexible and informal, so it took very little time to resolved matters. And save a lot of time compare to court proceedings. So speedy proceeding is one on best feature of ADR.

 Money/ COST

One of the main reasons that parties wish to resolve their disputes outside of the courts is cost. Alternative dispute resolution usually costs much less than litigation. thelitigation’s fee and cost in court are very high due to its long and unending procedure.  And there is no balance between cost and benefit to parties

Whilethe ADR proceedings are time framed and speedy, the cost of ADR is comparativelow and efficient.the parties can save their money by choosing ADR.

 Results

In various situation parties themselves doubted could ever be settled or not? Yet, as with most disputes, even extremely charged, exceptionally complex disputes can be resolved through negotiations when both of the parties appreciate the risks of losing power over the end result.

 In Minnesota, many high-stakes cases of great complexity have been resolved through ADR, including securities fraud class actions, large business disputes, merger and acquisition claims, RICO claims, environmental disasters, and international transactions.[6]

 The success of ADR was acknowledged by the American Bar Association’s Standing Committee on Dispute Resolution:

 “The use of ADR to resolve all pending litigation following the L’Ambience Plaza construction collapse in Bridgeport, Connecticut within 20 months of the disaster, a process that involved five judicial bodies, more than 44 plaintiffs, approximately 40 potential defendants, several government agencies, and nearly 200 attorneys, represents a dazzling display of the potential impact of the sophisticated use of ADR in complex cases.”

 

— J. Michael Keating, Jr., ABA Dispute Resolution Kit (1989)[7]

 Confidentiality

Disputes resolved by courts are in public hearing. Even judgments pronounced are also public document. So it is publically accessible. While in ADRallproceedingswere conducted in private and stay strictly confidentiality.

Outstanding issues and undisclosed facts of proceeding are assured to be kept Confidentiality through an ADR mechanism.

 Company Relations

Company relationshipseven employer-employee relationships that might or else be vanished through the ill will that often characterizes legal actioncan be conserved.

 Global Jurisdiction

Global disputes can be solvedas per rules agreed in agreement, thereby avoiding the ambiguity inherent in being subjected to the jurisdiction of foreign courts.[8]

 Speed
In judiciary the dates are scheduled by courts where in ADR dates can be scheduled by the parties and the panelist on agrees to meet. Compared to the court process, ADR is as fast as the parties want it to be.

 Control
the parties can control some of the process like selecting what method of ADR they want to opt, appointment the panelist for their proceeding, the span of the process.

In a mediations case, even the result. Different to the court proceeding, where the legal system and the judge control every aspect while ADR is much more flexible.

 Mutual Approach
ADR proceeds in a more informal, flexible way. This maintainsaoptimistic business relationship between the parties. With mediation, specifically, the result is cooperation between the parties.[9]

 Conclusion

No doubt, the ADR is future of dispute resolution. The judiciary proceeding is strict, particular and time consuming. The judiciary has limitation of human resource,inordinance delay,costs, lack of infrastructure and technology, and old proceeding laws.

While on other hand speedy, cost efficient, time framed and various features. ADR is coming up as a alternative option for traditional judiciary proceeding.


[2] http://articles.timesofindia.indiatimes.com/2010-03-06/india/28143242_1_high-court-judges-literacy-rate-backlog,PTI Mar 6, 2010, 06.05pm IST

 

[3]http://www.icadr.org/news-speechcjhc.html

[4]http://arbitrationandconciliation.org/

[5]http://indialawjournal.com/volume1/issue_3/article_by_isha.html

[6]http://library.findlaw.com/1995/Jun/1/126578.html

[7]http://library.findlaw.com/1995/Jun/1/126578.html

[8]Ibid.

[9]http://www.ibabc.org/idrsbc/benefits.html

PUBLIC POLICY SETTING ASIDE ARBITRAL AWARD

Vivek Kerketta

Introduction

Public policy is an attempt by the government to address a public issue. The government, whether it is city, state, or federal, develops public policy in terms of laws, regulations, decisions, and actions. There are three parts to public policy-making: problems, players, and the policy.

The problem is the issue that needs to be addressed. The player is the individual or group that is influential in forming a plan to address the problem in question. Policy is the finalized course of action decided upon by the government.

It is this lack of definition and certainty of the concept which has led to judicial statements against the extension of public policy. The doctrine of public policy is somewhat open-textured and flexible, and this flexibility has been the cause of judicial censure of the doctrine. By far, the most famous expression of disapproval against public policy is its description as a ‘very unruly horse’ which ‘you never know where it will carry you’.

Other expressions of disdain include descriptions such as “a treacherous ground for legal decision” and “a very unstable and dangerous foundation on which to build until made safe by decision”. However, in the second half of the 20th century, the positive function of the court in matters of public policy increasingly gained recognition. In fact, Lord Denning stated, “With a good man in the saddle, the unruly horse can be kept in control. It can jump over obstacles. It can leap the fences put up by fictions and come down on the side of justice.”

The public policy in relation to international commercial arbitration is that The UNCITRAL Model Law Commission stated in its report that the term “public policy” comprises “fundamental principles of justice”. It was understood that the term public policy which was used in the 1958 New York Convention and many other treaties, covered fundamental principles of law and justice in substantive as well as procedural respects. Thus, instances such as corruption, bribery, or fraud and similar serious cases would constitute a ground for setting aside an award.

 Public Policy for India

Public Policy

“It is never argued at all, but when other points fail” said by Burrough. J

The 1996 Act S. 34(2) (b) (ii) provides that if the award is in conflict with public policy of India it can be set aside. However the term “public policy” has not been defined anywhere in the act. Simplistically speaking, the expression “public policy” connotes some matter which concerns the public good and public interest. An attempt to define public policy was made by Winfield when he identified it as “a principle of judicial legislation or interpretation founded on the current needs of the community”. However, current needs being a changing concept, it is impossible to pigeon hole the same.

There are two conflicting positions with respect to ‘public policy’ which is especially witnessed in English decisions, usually referred to as the ‘narrow view’ and the ‘broad view’. According to the ‘narrow view’, courts cannot create new heads of public policy while the ‘broad view’ permits judicial law making. Indian courts over the years, till the infamous ONGC verdict has been inclined towards a narrow interpretation of the term public policy.

Public Policy means the principles and standards regarded by the legislature or by the court as being of fundamental concern to the State the whole of the society. The Supreme Court attempted by the following explanation of the concept:

The phrase “public policy of India” occurring in section 24(2) (b) is not defined in the Arbitration Act. The concept ‘public policy’ is considered to be vague, susceptible to narrow or wider meaning in the context in which it is used. Hence, it should be given meaning in the context and also considering the purpose of the section.

According to section 23 Indian Contract Act state that- What considerations and objects are lawful and what not – “The consideration or object of an agreement is lawful, unless -It is forbidden by law or is of such nature that, if permitted it would defeat the provisions of any law or is fraudulent; of involves or implies, injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy.”- In Gurmukh Singh v. Amar Singh , demonstrated that the agreement between appellant and the respondent was only to participate an action of evacuee property. There was no intention either to bring down the price or to defraud the government to sell the same at lower price. Therefore the object of the agreement was not opposed to public policy, a priori, it was not valid under section 23 of the Indian Contract Act.

The act does not define the expression ‘public policy’ opposed to public policy of a particular government. It connotes same matter which concerns public good and interest. The phrase ‘public policy of India used in section 34 in context is required to be given a wider meaning. The concept of public policy connotes some matter which concerns public good and public interest. What is for public good or interest or what would be injurious or harmful to public good or interest has varied from time to time. An award which is, on the face of it, patently in violation of statutory provision cannot be said to be public interest.

Setting Aside of Arbitral Award and Relation with Public policy

In the Arbitration and Conciliation Act, 1996, provides as:-

a. Section 34 (2) (b) (ii) states that arbitral award may be set aside or remitted to the arbitral tribunal for reconsideration by the country if it finds that Arbitral Award is in Conflict with public policy of India. It further explains that an award is conflict with public policy with Public Policy of India if the making of award was induced or affected by fraud, corruption or was violation of section 75 or 81

b. Section 48 (2) (b) enforcement of foreign arbitral award as defined article 44 of (New York Convention Award)may be refused if court finds enforcement would be contrary to the Public Policy of India. The provision also explains that an award is in conflict with Public Policy of India if it was induced or affected by fraud or corruption.

c. Section 57 (1) (e) also states that order that foreign award as defined article 53 (Geneva Convention Award) may be enforceable, it shall be necessary that the enforcement of is not contrary to Public Policy or Law of India.

The enforcement of an award as to be refused as being contrary to public policy if it is contrary to the fundamental policy of Indian law, country’s interest and its sense of justice and morality.

 Ground for aside Arbitral Award:

Fraud- The term ‘fraud’ has been defined in section 17 of the Indian Contract Act 1872, which reads as:

Fraud means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, which intent to deceive another party thereto or his agent, or to induce to enter into the contract-

– The suggestion, as to a fact, of that which is not true by one who does not believe it to be true.

– The active concealment of a fact by one having knowledge or belief of the fact.

– A promise made without any intention of performing it.

– Any other act fitted to deceive.

Explanation- Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence is in itself, equivalent to speech.

Fraud is a term that should be reserved for something dishonest and morally wrong and such wrong, and much mischief is done as well as much pain inflicted by its use where ‘illegally’ and ‘illegal’ are the real appropriate expression. Chief Justice Edward Coke said, ‘fraud avoids all judicial acts ecclesiastical or temporal. Fraud however is inconsistent with claim of right made in good faith to do the act complained of.

The decision of Supreme Court in SP Chengalvaraya Naidu v. Jagannth, provides an example where it set aside a decree obtained by a party concealing a vitally relevant document from trail court. Here, a plaintiff had obtained the preliminary decree for partition of property, without disclosing to the trail court the release deed with respect to the property executed by him in favour of his employer. The court held that non-disclosure of the release deed before the court was tantamount to plain fraud on the court vitiating the decree.

Corruption-

The Explanation to section 34(2) (b) (ii), clarifies that an award induced or affected by corruption in addition to fraud will be liable to be set aside as being in conflict with the public policy of India. The expression ‘corruption’ has been defined either in the Indian Contract Act, 1872. Corruption of an arbitrator means ‘moral obliquity’ it is a false and misleading metaphor to speak of an arbitrator honest mistake, whether it is of excess or defect, as ‘constructive corruption.’ There is a general principle of law that a domestic award or a foreign award which is induced or affected by corruption, is invalid as well as unenforceable and it cannot sanctioned by the courts.

It is not easy to define corruption, it is not necessary that the arbiter should have been bribed, nor is it necessary that there should be some other form of venality or gross immorality or flagitious conduct.

In Air Corporation Employees Union v. DV Vyas the high court pointed out that the hospitality of the Corporation accepted by the Chairman could not be considered to be formal or niggardly not merit attention. Chandrachud, J said that ‘courts have always zealously upheld the principles that it is not merely sufficient that justice is done but that justice must seem to be done. Though the word ‘corruption’ was not used, the award was quashed for the mere fact that this type of hospitality was accepted.

Confidentially-

Under section 75 of the Arbitration and Conciliation Act, 1996, this provides that ‘now standing anything contained in any other law for the time being in force on India, the conciliator and the parties shall keep confidential all matters relating to the conciliation proceedings.

The provision of this section extended to the application of public policy of India in section 34(2) (ii), the explanations to which for the Avoidance of any doubt, declares that without prejudice to the generally of the expression ‘public policy of India’, if an award inter alia, is in ‘violation of section 75 of the 34(2) (ii), the words ‘conciliator’ and ‘conciliation’ used in section 75 shall have to be substituted for the words ‘arbitrator’ and ‘arbitration.’

Domestic arbitration’ of international commercial arbitration’ is not a public affair; it is essentially a process of private nature. In the language of Stephen Bond, J said- ‘the users of international commercial arbitration, i.e. the companies governments and individuals who are parties in such case, places the highest value upon confidentially as a fundamental characteristic of international commercial arbitration. The features of international commercial arbitration which attracted parties to it, as opposed to litigitation, confidentially of the proceedings and the resulting award would not enter into the public domain were almost invariably mentioned’.

Inadmissibility of evidence in other proceedings-

The explanation to section 34(2) (b) (ii), by reference the provision of section 81 in it. The provision mandates; ‘the parties shall not rely on or introduce as evidence in arbitral or judicial proceedings, whether or not such proceedings relate to the dispute that is subject of the conciliation proceedings-

– Views expressed or suggestion made by the other party in respect of a possible settlement of the dispute.

– Admission made by the other party in the course of the conciliation proceedings.

– Proposals made by the conciliator.

– The fact that the other party had had indicated his willingness to accept a proposal for settlement made by the conciliator

Thus, without prejudice to the generally of the expression ‘public policy of India’ as used in section 34(2) (ii), an award is in conflict with the public policy of India’, if it is violation of the provision of section 81 of the Act.

Misconduct- Section 30 of the Arbitration Act, 1940 provided that an arbitral award was liable to set aside where ‘an arbitrator or umpire has misconduct himself or the proceedings’. Though the term ‘misconduct’ was not defined in that Act, nevertheless misconduct, as crystallized by the judicial decision, covered a wide range of errors on the parts of the arbitrator.

“An award can be set aside for misconduct if the arbitrator has received bribes, or if he is secretly interested in the subject matter of the dispute. Misconduct may exist where no improper motives are imputed to the arbitrator. It is misconduct, for example, to make an award on a illegal contract.”

Misconduct was before the Supreme Court in V.G.Gorege v. Indian Rare Earths Ltd, a case of misconduct exists where the amount awarded by the arbitrator is contrary to his findings.

“The arbitrator may be a most recpectable person, but even so, his conduct cannot be reconciled to general principles. A judge must not take upon himself to say whether evidence improperly admitted had or had not any effect upon his mind. The award may have done perfect justice, but upon general principles it cannot be supported.

Legislatative Perspective

The Principle of public policy has been stated by Lord Mansfield in Holman v.Johson in following language:

The principle of public policy is this: ex dolo malo non oritur actio. No court will lend its aid to a man who founds his cause of action upon immoral or illegal act. If from the plaintiff own stating or otherwise, the cause of action appear to arise ex trupi causa, or the transgression of positive law of country, there the court says he has no right to be assited.

Public policy targets protection and promotion of public welfare. It is the principle of, under which freedom for contract or private dealings is restricted by the law for the good of community.

The general concept of public policy comprehends a wide range of topics categorized under certain heads. Agreement may offend against public policy by tending to prejudice of state in time of war (trading with enemies, etc), by tending to the perversion or abuse of municipal justice or in private life by attempting to impose inconvenient and unreasonable restriction on free choice individual marriage or their liberty to exercise any lawful trade or calling.

In the Indian constitution also in preamble it is well said “WE, THE PEOPLE OF INDIA, having solemnly resolved to constitute India into a SOVEREIGN SOCIALIST SECULAR DEMOCRATIC REPUBLIC and to secure to all its citizens: JUSTICE, social, economic and political; LIBERTY of thought, expression, belief, faith and worship; EQUALITY of status and of opportunity; and to promote among them all FRATERNITY assuring the dignity of the individual and the unity and integrity of the Nation.”

The Sovereign, Socialist, Secular, Democratic, Republic all this status comes only when good policy is formed and its enacted by the Government. The American President George Washington said- By the people, for the people, of the people, the public policy should be made in such a way that it benefits or works for the people only. It must be made for interest of the society.

Under Indian Constitution the Fundamental Right in Right to Freedom article 19 (4) restrict the right of the individual if the any existing law in so far as it imposes, or prevent the State from making any law imposing, in the interests of the sovereignty and integrity of India or public order or morality, reasonable restrictions on the exercise of the right conferred by the said clause.

Thus fundamental right can also be restricting if the public policy is against the interest of the society or individual because it disturb and violates the sovereignty and integrity of a country. So the policy must be made by seeing or needs the rights and duties of the individual and society.

The section 23 says that the consideration or object of an agreement is lawful, unless- It is forbidden by law or is of such nature that, if permitted it would defeat the provisions of any law or is fraudulent, of involves or implies, injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy.

Therefore, the contract i.e. (agreement) between the parties should be made in such way that it does not oppose the public policy which hampers the interest of the society and individual.

 

 Judicial Intervention

The Indian legislature and judiciary have a fundamental choice to make- to respect party autonomy and finality of arbitral awards as envisaged by the 1996 Act or impose judicial supervision on arbitration and revert to the days of the 1940 Act. This choice will shape the course of Indian arbitration for the next decade and beyond.

In recent years, all over the world, a shift has been encouraged from litigation to alternative methods of dispute resolution such as arbitration, mediation, and conciliation etc., in an attempt to overcome the problem of inordinate delay in disposal of cases that litigation entails. In India especially, the attempt of the parliament which aims to bringing about cost-effective and expeditious resolution of disputes and further preventing multiplicity of litigation by giving finality to an arbitral award.

Prior to the enactment of the 1996 Act there was widespread discontent over the excessive judicial intervention allowed by its predecessor, the 1940 Act. The 1940 Act permitted courts to set aside an arbitral award where “the award had been improperly procured or otherwise invalid.”

The 1996 act attempted to rectify this problem by limiting the basis on which awards could be challenged to a few narrow grounds (which mirrored those found in the UNCITRAL model law and New York Convention on the Recognition and enforcement of Foreign Arbitral Awards).

The recent decision of the Apex Court in ONGC vs. Saw Pipes where a broad interpretation was given to the expression ‘public policy’, has given an unexpectedly different dimension and direction to S. 34. The objective behind this research is to examine the merits of having a broader notion of public policy in connection with setting aside arbitral award and also to look into the possible problems that could crop up due to this, especially the effect on finality of arbitral awards.

In case where the validity of the award is challenged, there is no necessary of giving a narrower meaning to the term “public policy of India”. Om the contrary, wider meaning is required to be given so that a “patently illegal award” may set aside.

Principles lay down under Section 34 states that an award may be set aside if it is contrary to:-

• Fundamental policy of Indian law,

• The interest of India,

• Justice or morality,

• If it is patently illegal.

In Renusagar Power Plant Co. Ltd. v. General Electric Co. the court in view of the absence of a workable definition of “international public policy” found it difficult to construe the expression “public policy”. In the Renusagar case, while giving narrow meaning to the expression ‘public policy of India’ the Apex Court observed that “It is obvious that since the Act is calculated and designed to subserve the cause of facilitating international trade and promotion thereof by providing for speedy settlement of disputes arising in such trade through arbitration, any expression or phrase occurring therein should receive, consisting with its literal and grammatical sense, a liberal construction.”

The court further declared “patent illegality” to mean that the award is contrary to the substantive provisions of law or the provisions of the 1996 Arbitration Act or against the terms of the contract. Thus “error of law” was now included as a ground to set aside the award, thereby making the provision of S. 34 an appellate provision rather than one to be used as an application to set aside the award. In order to justify adding “error of law” as a ground to set aside the award, in light of a contrary precedent in place, the court distinguished between the two cases on the ground that while Renusagar was dealing with a foreign arbitral award, the award in the instant case is a domestic one and thus “error of law” could be used as a ground to set it aside. In light of this reasoning, it can be safely assumed that the court did not intend S. 34 to apply to foreign arbitral awards and the separate provision provided in the Act i.e. S. 48 was to apply in these circumstances

The Supreme Court distinguished Oil & Natural Gas Corporation Ltd v. Saw Pipes Ltd. from that of Renusagar Power Co. Ltd v. General Electric Co. on the ground that the Renusagar judgment was in context of a foreign award, while the ratio of SAW Pipes would be confined to domestic awards only.

The most recent decision of the Supreme Court on the subject of setting aside an award on the ground of public policy under Section 34 is Venture Global Engineering Vs. Satyam Computer Services Ltd. Based on the earlier judgment in Bhatia International v. Bulk Trading S.A. and Anr., the Supreme Court in this case held that it is open to the parties to exclude the application of the provisions of part I by express and implied agreement, failing which the whole of part I would apply.

The Supreme Court in its judgment of ONGC v. Saw Pipes Ltd has ruled that an arbitral award can be challenged under Section 34 of the 1996 Act on the ground that it violates the public policy of India, inter alia, because it is contrary to the fundamental policy of Indian Law, justice and morality or is ‘patently illegal’.

The arguments against setting aside awards based on an expansive reading of “public policy” turn on questions of the importance of party-autonomy and minimal judicial interference. It is on this basis that the decision in ONGC v. Saw Pipes has been heavily criticized. However, a refusal to set aside an illegal award under the guise of party autonomy effectively mean that parties are allowed to do indirectly what they cannot do directly.

This was in contrast to the Apex court’s observations in Narayan Prasad Lohia v. Nikunj Kumar Lohia 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, the 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) of the Act.

Renusagar was a case of private international law involving enforcement of a New York Convention foreign arbitral award governed by the Foreign Awards (Recognition and Enforcement) Act, 1961 of India which was based on the principle of speedy enforcement of arbitral awards with minimum court interference..

The court in Venture Global Engineering vs. Satyam Computer Services Ltd. wherein the court held that it is permissible to set aside a foreign award in India by applying the provisions of S. 34 of Part I of the Act i.e. it held that unless otherwise agreed upon by the parties, Part I of the act also applies to foreign awards which could thus be set aside for violating Indian statutory provisions and for being contrary to Indian public policy.

 

 

 Conclusion

The scheme of the Arbitration and Conciliation Act, 1996 is very clear- to minimize court interference in the arbitral process and to ensure speedy enforcement of arbitral awards without the intervention of courts on unlimited grounds and aforementioned judgments have adopted a very strained interpretation of the Act. In such a situation to allow an expansive reading of ‘public policy’ would nullify the entire purpose. Finality being the most attractive and unique feature of arbitration has been struck at its very roots by the expansive interpretation of the term ‘public policy’ by the ONGC court, as a result of which arbitration as it now stands in India is just another step in the appeal process.

Further, the challenging of International awards and their setting aside on the ground of them being against the public policy and by applicability of Part I of the Act posses a potential threat to the basic foundation of International Commercial Arbitration. However, there are two legislative proposals before the Indian Parliament which indicate that the legislature did not intend to include “error of law” as a public policy ground under S.34 (2) (b) (ii) of the Act. Both the April 2001 Bill and December 2003 Bill, have proposed amendments to the 1996 Act as follows:

“34 A (1) In the case of an arbitral award made in an arbitration other than an international arbitration (whether commercial or not), recourse to the following additional grounds can be had in an application for setting aside an award referred to in sub-section (1) of section 34, namely–(a) that there is an error which is apparent on the face of the arbitral award giving rise to a substantial question of law …”

To sum up, it can be said: “Public Policy can be a ‘double-edged sword’ in arbitration- ‘helpful as a tool, dangerous as a weapon’.”