Should India have an Appeal on Points of Law from an Arbitral Award?

International instruments on arbitration are typically designed to minimize the role of the judiciary. The UNCITRAL Model Law relegates national courts to a role merely ‘supportive’ in character and ‘corrective’ within the confines of Article 34. The Indian Arbitration and Conciliation Act, 1996 (“the Indian Act”) incorporates the Model Law and in particular, replicates Article 34 even for domestic arbitrations unlike some other common law countries. However, the Indian judiciary has arrogated to itself a far wider jurisdiction to review arbitral awards than was intended by Parliament.[1] The Indian position today is that, an award can be challenged if it is patently against a ‘settled position of law,’ but not if an alternative view of law is possible.[2] This position is not harmonious with the spirit of the Model Law, neither is it in keeping with common law jurisdictions like England, Canada, or Singapore. Unlike the Model Law, these jurisdictions do allow judicial supervision through appeal on points of law in domestic arbitrations.[3]  In my opinion, presently, India ought to lean more towards the common law approach than towards the strict hands-off policy of the Model Law. I firmly believe that India requires a specific provision for appeals to courts on points of law arising out of an arbitral award.

A characteristic feature of the Indian legal system, like any other common law system, is that judicial decisions are a source of law and are considered binding. Judicial precedent has played an important role in the development of commercial law in India, through clarifying codified law and developing uncodified common law. With parties increasingly resorting to settlement of disputes through arbitration and judicial scrutiny of awards precluded, how will the commercial law in India develop? The single-minded focus on limiting judicial supervision in India has not given adequate weight to the role of courts in developing commercial law.

This is not to say that such an appellate provision has been immune to criticism.[4] Notably, in the context of the English Arbitration Act it has even been said that “matter of appeals on questions of law should be confined to the dustbin of history.[5] I respectfully disagree with such extreme views. The principal argument against introducing appellate supervision of courts over arbitral awards is that of ‘party autonomy’. Undoubtedly, the objectives with which parties choose arbitration are finality; saving costs and timely resolution of disputes. It has been argued therefore, that when parties agree to arbitrate, they accept the limitations of the process (for better or for worse)[6] and thereby trade the expanded judicial review in court proceedings for the perceived simplicity, informality and expedition of arbitration.[7]

This argument may not be fully accurate in an Indian context. Parties choose arbitration as a default mode for dispute resolution because trials in India take a significantly long time to conclude[8] and not necessarily because they want to exclude judicial review. Furthermore, are parties really willing to assume the risk of an unfavorable outcome where the position of law is unclear? The reality is that, when parties are faced with such a situation, they resort to backdoor options such as challenging the award on grounds of ‘public policy’ violation. ONGCv. Saw Pipes was a classic example, which led to expansion in the scope of ‘public policy’ to include ‘patent illegality’.[9] Recently, in the Madras High Court, a party successfully challenged the award on this ground on the basis that the tribunal precluded pre-contract negotiations in aid of interpretation of the contract.[10]  A complete preclusion of appeal on point of law is bound to encourage parties to construe open-ended grounds more widely, the consequences of which are obviously more damaging. In my view, therefore, party autonomy itself favours a right to appeal on a point of law provided of course, that, parties are free to exclude it.

Secondly, development of law is not isolated from or inconsistent with the interest of the parties. Judicial precedent promotes certainty and consistency. At the same time, it allows a set of rules to adapt to the needs of a changing society.  Businessmen arrange their affairs on the basis of a reasonable degree of predictability in legal thinking.[11]  Parties conduct themselves under a contract based on their understanding of the law, which often stems from the judicial precedent on similar contractual relationships. Where arbitrations have become a default mode of dispute resolution, absence of an avenue for determination of the law by a court, for situations not previously addressed by codified law, cannot possibly be conducive to commerce. For example, most infrastructure contracts in India are with the government or government-owned entities in standard form providing for dispute resolution by arbitration. The absence of precedent in disputes arising from such contracts most certainly affects the entire industry. In contrast, the shipping industry in England for example has benefited deeply from point of law appeals.[12]   

Thirdly, the aversion to judicial scrutiny stems from fear of parties resorting to dilatory tactics. This however, is a complaint against the abuse of law and not the law itself. There is also the fear of judicial indiscipline resulting in re-opening of arbitrations on insignificant differences in interpretations. These concerns in my view can be allayed by clearly defining the contours within which an appeal on a point of law shall lie.[13] Besides, the current pro-arbitration trend in the Indian judiciary gives hope that courts will use such appellate power scrupulously.[14]

The State’s interest in development of law and party autonomy are not necessarily antithetical. I believe that providing a non-mandatory provision for appeal on points of law through appropriate legislation would, in the Indian context, achieve the correct balance and harmonize the two.



[1] See Bhatia International v. Bulk Trading S.A. andanother, (2002) 4 SCC 105; Venture Global Engineering v.Satyam Computer Services Limited and Another,  (2008) 4 SCC 190; See also Oil & Natural Gas Corporation Ltd. v. SAW Pipes Ltd., (2003) 5 SCC 705.
[2] See Numaligarh Refinery Ltd. v. Daelim Industrial Co. Ltd. (2007) 8 SCC 466; Kwaility Manufacturing Corporation v. Central Warehousing Corporation, (2009) 5 SCC 142; Oil and Natural Gas Corporation Limited v. Astra Construction Private Limited, 2013 (2) GauLR 464.
[3] For example, Section 69 of the English Arbitration Act, 1996 or Section 49 of the Singapore Arbitration Act, 2001 or Section 31 of the British Columbia Arbitration Act, 1996 (Canada).
[4] See Saville L.J. The Arbitration Act 1996 and its Effect on International Arbitration in England (1997) 63 Arbitration 104 at 108.
[5] Michael J. Needham, Appeal on Point of Law arising out of an Award, (1999) Arbitration  65(3), 205-211.
[6] Pioneer Shipping Ltd v. BTP Tioxide Ltd (The Nema), [1982] AC 724; Hayes Forest Services Limited v. Weyerhaeuser Company Limited, 2008 BCCA 31.
[7] See Stephen L. Hayford, Law in Disarray: Judicial Standards for Vacatur of Commercial Arbitration Awards, 30 Ga.L.Rev. 731, at 747-48 (1996).
[11] R.M Goode, Commercial Law in the Next Millenium, The Hamlyn Lectures (London: Sweet & Maxwell, 1998).
[12] See Robert Finch, London: still the cornerstone of international commercial arbitration and commercial law?, (2004) Arbitration 70(4), 256-266; See also Isabella Shipping v. Shagang Shipping (The Aquafaith) [2012] EWHC 1077 (Comm). See also Transfield v. Mercator (The Achilleas) [2008] UKHL 48.
[13] For example, Section 69 of the English Arbitration Act, 1996 or Section 49 of the Singapore Arbitration Act, 2001 or Section 31 of the British Columbia Arbitration Act, 1996 (Canada).

Comments

Post a Comment

Popular posts from this blog

Competition Law - Presumption in Section 3(3) contd..

I have in my earlier posts,( here , here and here ) proposed argumets which may be made in favour of the the presumption being irrebuttable. I will now present the arguments  from the other side. Argument 1- Presumption Rebuttable . One of the principles of Interpretation of Statutes is that another statute may be referred to while interpreting a statute when the two are similar i.e. when they are statutes in pari materia  ( Harshad S. Mehta v. State of Maharashtra , (2001) 8 SCC 257) It has been held by the Supreme Court in State of Madras v. A Vaidyanath Aiyer , AIR 1958 SC 61, that it is not necessary that the entire subject-matter in the two statutes should be identical before any provision in one may be held to be in pari materia with some provision in the other. In this case, Section 4 of the Prevention of Corruption Act, 1947 which directs that on proof that the accused has accepted any gratification other than the legal remuneration, it shall be presumed unless the con
Read more

NOMINEE v/s LEGAL HEIRS

The Hon'ble Bombay High Court in its very recent decision, Harsha Nitin Kokate Vs. The Saraswat Co-op. Bank Limited & Others , held that position of a nominee under section 109A of the Companies Act is not merely that of a trustee for the estate of the deceased, and it further held that, "  on the death of the share holder, the nominee would become entitled to all rights in the shares to the exclusion of all other persons ." This means that, the nominee will be made the beneficial  owner thereof and all the rights incidental to ownership of shares would follow i.e. the right to transfer, pledge or hold the shares. The court based its decision on the express provisions of the section which provide as follows: ­S. 109A. Nomination of shares – (1) Every holder of shares in, or holder of debentures of a company may, at any time, nominate, in the prescribed manner, a person to whom his shares in or debentures of, the company shall vest in the event of his death. (2)
Read more

Retrospective Operation of PWDV Act

Amongst the many conflicting decisions arising out the application of Protection of Women Against Domestic Violence Act, one of them, is in respect of the operation of the Act. The Andhra Pradesh High Court held that the PWDV Act does not apply retrospectively and that an action under the Act can lie only if the acts of domestic violence are committed on or after 26 Oct 2006, i.e. the date on which the Act came into force. Similarly, a Delhi Metropolitan Court  and a JMFC in Goa also took the view that this Act will not be applicable if the acts complained of have been committed prior to the passing of the Act. On the other hand the Bombay High Court and Madras High Court have taken a different view. They held that, the court is competent to take cognizance of the act of domestic violence committed even prior to the Act came into force and pass necessary protection orders. The Act can be applied retrospectively to take cognizance of the act of violence alleged to have been committed
Read more