Several vague provisions in the Arbitration and Conciliation Act, not to speak of the arcane terms in the bulky contracts, make this field a corporate lawyer's delight. The 1996 Act modelled on the United Nations Commission on International Trade Law or UNCITRAL has run deep into legal muddle as seen from recent judgments of the high courts and the Supreme Court. By drawing every little issue to the courts, arbitration has become another tier in civil litigation.
Last week, the Supreme Court delivered a typical judgment in which the dispute started around 1995, the award was delivered in 2005, the first challenge before the single judge of the Delhi High Court was decided in 2006 and the appeal before the same court was decided in 2012 (Associate Builders vs DDA). The journey is probably not over; there are two more last-mile leaps to correct errors, if any, committed by the judges before - a review petition and a "curative petition".
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The Act limits appeals against arbitral awards in Section 34. However, that wordy provision has not deterred appeals and the Associated Builders judgment cites some 20 precedents on this question. An award can be challenged if it is against the "fundamental policy of Indian law or interest of India or contrary to justice and morality." These are elastic phrases that can be moulded into any shape in the hands of the judges in individual cases.
For instance, there is a lengthy discussion on what is "morality", a woolly idea, which is playing havoc outside the court. The Indian Contract Act also uses this word and it means only "sexual morality". In the context of arbitration law, the judgment clarified that morality would mean "the enforcement of an award, say, for specific performance of a contract involved in prostitution." The judges further clarified that the court would interfere with such awards "only if something shocks the court's conscience." A discussion on what is the "fundamental policy of India" and what is against the "interest of India" is as murky as the air in the Chief Justice's court (which was found to have four times more than the permitted levels of pollution last Friday).
Despite the bar on court interference, the Supreme Court hears and decides a score and more appeals in arbitration cases every year. The high courts have their own heavy dockets. Appointment of arbitrators, for instance, is the first contentious issue. In the recent Reliance KG gas price row, this process took nearly two years, with one long Supreme Court judgment hastily withdrawn because some facts were overlooked by the judges.
Then a question is often raised whether there is an arbitration clause at all in the contract. Even the best draftsmen are not free from errors, negligence or deliberate mystification. Another recurrent disagreement is over the jurisdiction of the arbitral tribunal. Other nettlesome issues that stall arbitration till the courts deliver the last word are: the conduct of the arbitrators, the governing law in international contracts and enforcement of foreign awards.
The Law Commission, in its 246th report on amendments to the existing law, has made several suggestions, including a fixed fee structure to beat the soaring cost of arbitration. The proposed schedule of model fee would be as impracticable as the little known one for Supreme Court lawyers. There are nearly a hundred proposals to improve the 1996 Act.
An earlier attempt to update the law on the basis of the 176th report failed since the amendments were passed by the Rajya Sabha in 2003, but the standing committee wanted to improve on the Bill, which ultimately lapsed. Another opportunity has come now to infuse faith into arbitration but the moot question is whether it would meet the same fate as its predecessor.