Stumbling blocks in arbitration

Longstanding maladies plague this disputes resolution mechanism; law alone cannot make it attractive

The government, corporations and the legal profession have been trying hard over decades to make India attractive as an arbitration centre. But London, Singapore and other foreign hubs continue to be cited in contracts as prime choices. There are several reasons for this, like inadequate infrastructure facilities here, uncertainty in laws, unconscionable delays and ambiguous judicial pronouncements. The New Delhi International Arbitration Centre Bill 2018 was passed by the Lok Sabha a year ago to remedy some of these but is not likely to be in force too soon.

Meanwhile, a glance at the judgments delivered by the Supreme Court and high courts points to some serious deficiencies in the arbitration process, despite significant changes made in the Arbitration and Conciliation Act in 2015. The appeals which reach the apex level are symptomatic of the problems.

One recurring point of discord is the choice of arbitrators. The SC has written several judgments against compulsorily making bureaucrats and officials of public sector enterprises as arbitrators in their own causes, but the practice continues. Though the amended law has two schedules barring certain persons acting as arbitrators, this issue is often the first hurdle. The parties wrangle over the choice of the arbitrator, casting doubts over his independence and impartiality. The courts have not cleared the confusion over it. 

“The fact that an arbitrator is an employee of one of the parties is not by itself a ground to raise a presumption of bias or lack of independence on his part,” the SC stated in its judgment, Sp Singla Constructions vs State. The court has ruled that an engineer retired from the Public Works Department can act as an arbitrator in a dispute between the department and a contractor (PWD Haryana vs GF Toll Road Ltd). On the other hand, the Jharkhand high court observed in a case that leaving a private firm at the mercy of officials against whom claims are made would add insult to injury and affect the credibility and impartiality of the whole process (Sahil Projects vs Eastern Railway). 

There is no reservoir of professionals trained in the art of arbitration. So the choice falls on retired judges. The SC has observed in a judgment that such judges are not only costly but also tend to drag the process. One session ends by deciding the date for the next meeting at another posh venue. A few weeks ago, one retired judge was disqualified by the Rajasthan high court as he demanded Rs 75 lakh for accepting the assignment.  

The conduct of the parties, especially government entities sitting on huge litigation funds, has received acerbic remarks. The Delhi high court imposed heavy fine on National Highways Authority of India (NHAI) for rendering “yeoman disservice” to the object of the Act. In another NHAI case, the court wrote: “We find this court inundated by challenges against arbitral awards by PSUs seeking re-appreciation of the findings of the arbitrator. Such litigation defeats the very purpose of the Act.” 

It is not uncommon to find government entities fighting each other in arbitration. The SC efforts to stop such fratricidal battles failed years ago. An oversight committee of the government to stop the urge to splurge public money on futile litigation has wound up, leaving government arms free to hold each other by the throat.

Delays in the arbitration give the process a bad name. In one case, Essel Infra Projects Ltd was frustrated by delays and sought SC help to speed up the process. But it only prescribed non-mandatory suggestions.

The court appointed a new umpire in a two-decade old tax dispute between Hyundai and ONGC.

Legalese can also suspend the process. A dispute on the interpretation of ‘venue’ and ‘seat’ of arbitration has been referred to a larger bench by the SC. Most of us believe that top lawyers who draft contracts would leave no loopholes in contracts. But judges have been made to search for an arbitration clause in several agreements. They discover it in oral assurances and correspondence between the parties and unsigned documents. 

These are specimens which highlight what ails arbitration. There are rows of them. The proposed Bill has touched upon the theoretical aspects but even if it is passed it cannot tackle the problems at the level of implementation.