The number of arbitration disputes reaching the Supreme Court gives the impression that either the law is too weak or the lawyers are too clever. The court delivered more than 45 judgments in 2009 and 40 in 2010. There were five in the past 10 days.
The Arbitration and Conciliation Act 1996 was meant to be an effective alternative disputes resolution mechanism. But this hope has been belied. The Supreme Court lamented last year that “it is unfortunate that arbitration in this country has proved to be a highly expensive and time-consuming means for resolution of disputes,” (Dolphin Drilling Ltd vs ONGC).
Two weeks ago, the Supreme Court decided an appeal case in which the dispute originated in 1995. The issue was whether counter claims can be considered by the arbitrator along with the initial claims. The Bombay High Court said no. On appeal, the Supreme Court ruled that the arbitrator could deal with counter claims also (State of Goa vs Praveen Enterprises). The arbitration route took as long as the congested civil court lane, questioning the efficacy of arbitration.
The object of the Arbitration Act was to “minimise the supervisory role of courts in the arbitral process” and enforce every award as a decree of the court. The award was meant to be final. Last year, the Supreme Court asserted in the case, M/s Ravindra Gupta vs Union of India, that the arbitrator has the last word in a dispute. Neither party can challenge the award on the ground that it was “unreasonable” or the arbitrator had come to a wrong conclusion. The same evidence may lead to different conclusions. It is not for the court to impose its conclusions over that of the arbitrator, the apex court said in the case, MCD vs Jagan Nath. The parties selected the arbitration forum and they should accept the award. Even an award that does not carry reasoning should be accepted by courts unless they are “totally perverse” (Arosan Enterprises vs Union of India). A mere error of law or fact will not suffice (ONGC vs SAW Pipes Ltd).
However, appellate courts are tempted to make full-scale review of the facts and arguments already agitated before the arbitrator. Two weeks ago, the Supreme Court also appeared to have fallen for this weakness. A dispute between Shipping Corporation of India and Mare Shipping Inc was decided by the arbitrator. When the award went against the corporation, it moved the single judge Bench of the Bombay High Court and lost. It appealed to the division Bench and again lost. Undaunted, it moved the Supreme Court. Before dismissing the appeal for the third time, the apex court trawled the whole evidence and disputed facts. If the object of the law and precedents were recalled, the exercise of reviewing the whole evidence, with little reference to legal issues, seemed to be unnecessary to affirm what the single judge had held in the first place.
A frequent dispute that is raised to stall awards is to question the existence of an arbitration clause. Though the bulky contracts are drafted by skilful lawyers, it would surprise even an ordinary person to see how they omit to clarify whether there is an arbitration clause hiding in them. The latest instance is the Supreme Court judgment in State of Orissa vs Bhagydhar Dash. The state government insisted that there is an arbitration clause in the agreement. The Orissa High Court and now the Supreme Court read the contract and found there was none. Years were lost on this count.
The parties may raise several interpretational questions at the preliminary stage. In one weighty judgment last week, the Supreme Court decided the question whether an aggrieved party can bypass the Arbitration Act and move an appeal under the Letters Patent rules of the high court. The issue was so chutnified by the lawyers that at one stage it was to be referred to a larger bench. But the court resisted and shut the door for another appeal (Fuerst Day Lawson Ltd vs Jindal Exports).
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Then there are other snags, like the choice of arbitrators. This dispute might reach the Supreme Court even before arbitration starts. Later there will be wrangles over the conduct of the arbitrators. Interim issues are taken to appellate courts and stay orders are obtained. Legal representatives, and arbitrators themselves, are often not very keen to complete their jobs, because the process is conducted in plush surroundings with plenty of perks.
There was an attempt to refurbish the law in the light of experience of over 15 years, but little has been done to finalise the Amendment Bill. Therefore, the Supreme Court’s comment in the case, Gurunanak Foundation vs Rattan Singh, still rings true: “The way in which proceedings are conducted and without exception challenged in the courts has made lawyers laugh and philosophers weep.”