Though most of us tend to think that the bulky contracts drafted by ingenious lawyers leave no loopholes between the lines, disputes arise over basic issues. For instance, there is considerable case law on whether there was an arbitration clause at all in the whole agreement. Lawyers on each side, and judges up the ladder of the judicial pyramid, grope for the clause as if searching for a black cat in a dark room. The buck stops only at the Supreme Court, not necessarily because it is right, but because it is final.
Earlier this month, the story was repeated in two cases where the judges of the Karnataka High Court found an arbitration clause in the works contract while their brethren in the Supreme Court did not find any. Lawyers on both sides cited several judgments, which are deployed like mercenaries in wars, but the court relied on another set of decisions to deny the arbitration clause (Karnataka Power Corp vs Deepak Cables Ltd).
When disputes arose over payment, the construction firm moved the high court for appointing an arbitrator. The corporation resisted the move, arguing that there was no arbitration clause in the agreement. The Karnataka judge concluded that an arbitration clause could be discerned from the wording of the contract, though it was not expressly stated. The court, therefore, appointed an arbitrator. This led to the appeal to the Supreme Court. The pendulum swung again and it decided that there was no arbitration clause.
This is not a rare case by any means. Several arbitration disputes, especially between government and public authorities on the one hand, and private contractors on the other, hinge on the existence of the relevant clause. This creates business for the lawyers, sometimes the litigation expenses overrunning the outlay for the contract itself.
In one leading case, Jagdish Chander vs Ramesh Chander, disputes arose after a failed partnership. The question was whether there was an arbitration clause in the partnership deed. It turned on the interpretation of the sentence, which read that if any dispute arose, "it shall be mutually decided by the partners or shall be referred for arbitration if the parties so determine". The answer is not easy as it seems. The Delhi High Court read it as an arbitration agreement and, therefore, appointed a retired judge as an arbitrator. However, on appeal, the Supreme Court declared that it was not an arbitration clause.
The reasoning was that it was "a provision which enabled arbitration only if the parties mutually decided after due consideration as to whether the disputes should be referred to arbitration or not. In effect, the clause requires the consent of the parties before the disputes can be referred to arbitration".
Judicial minds work in ways ordinary people cannot fathom. In one case, Wellington vs Kirit Mehta, the contract between the parties said that any dispute "may be referred to arbitration". There was a row over whether it constituted an arbitration agreement. Finally, the Supreme Court decided that it was not an arbitration agreement. The word "may" could not be construed as "shall".
Faced with such recurring instances, the court has set a few guidelines. Some of them: while there is no specific form of arbitration agreement, the words used should disclose a determination and obligation to go to arbitration and not merely contemplate the possibility of going for arbitration. Where there is merely a possibility of the parties agreeing to arbitration in future, as contrasted from an obligation to refer disputes to arbitration, there is no valid and binding arbitration agreement.
Some other clauses that required interpretation by the Supreme Court include these: "In the event of dispute, the parties may also agree to refer the same to arbitration" or "if any dispute arises, they should consider settlement by arbitration." You may toss a bitcoin, if you can, for an answer. These are teasers that make the legal profession grow fat.
Finding an arbitration clause is for starters. There is a long winding road to the final award, which can again be challenged in the courts on various grounds. This makes arbitration, touted as a cheap and speedy alternative disputes resolution mechanism, illusory.
The Supreme Court itself has commented on the state of affairs. In the judgment, Sanjeev Kumar vs Raghubir Saran, it explained how "time-consuming and disproportionately expensive" arbitration is in this country. The court stealthily opened the door of the plush hall where the proceedings are conducted to give us a peek at what happens there: "Two sessions in a day is treated as two hearings for the purpose of charging fee; or a session for two hours is treated as full session; or non-productive sittings are treated as fully chargeable hearings. If there are three arbitrators from different cities and they are accommodated in five-star hotels, the cost per hearing may easily run into Rs 1 million to Rs 1.5 million [Rs 10 lakh to Rs 15 lakh] per sitting." It is not just lawyers who don't want litigation to end, the arbitrators beat them at this game.
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