Extent of Judicial Intervention in Arbitration

Arbitration has emerged as a preferred mode of dispute resolution worldwide, particularly in commercial and cross-border transactions. The Arbitration and Conciliation Act, 1996 (A&C Act) was enacted in India to align with international standards, specifically the UNCITRAL Model Law on International Commercial Arbitration (1985). One of the fundamental objectives of the Act is to ensure minimal judicial intervention, thereby promoting arbitration as an independent and efficient mechanism for dispute resolution.

Despite the legislative intent to restrict judicial interference, courts play an essential role in arbitration at different stages. This article explores the extent of judicial intervention in arbitration, as provided under the A&C Act, 1996, and evaluates judicial precedents that have shaped its interpretation.

Judicial Intervention under the Arbitration and Conciliation Act, 1996

The Arbitration and Conciliation Act, 1996 was enacted with a clear intention to minimise judicial intervention in arbitration. Section 5 of the Act explicitly states that no judicial authority shall intervene in arbitration matters unless expressly provided in the Act. This provision aligns with Article 5 of the UNCITRAL Model Law, emphasising the autonomy of arbitration and ensuring a hassle-free, efficient dispute resolution process.

The Supreme Court of India, in Videocon Industries Ltd. v. Union of India, observed that judicial intervention in arbitration is strictly barred, except for circumstances specifically outlined in the Act. The phrase “no judicial authority shall intervene” ensures that courts do not exercise discretion beyond the scope of the statute.

However, limited judicial intervention is permitted to facilitate and support arbitration rather than obstruct it. Courts play an administrative role rather than an adjudicatory role in arbitration-related matters. The Supreme Court, in Surya Dev Rai v. Ram Chander Rai, stated that while courts have the power to intervene, their exercise of discretion must be guided by judicial conscience, experience, and wisdom. Despite the legislative intent to limit court involvement, unwarranted judicial interference is still observed in practice.

Judicial Authority and Its Role

The term “judicial authority” in Section 5 of the Act has a broader meaning than “court”. It includes tribunals, commissions, and forums that have judicial powers. The Act, 1996 permits judicial authorities to assist arbitration in specific circumstances.

In Regina John M’Evoy v. Dublin Corporation, the court held that a judicial act does not necessarily mean an act of a judge but any competent authority making decisions based on evidence and affecting legal rights. Similarly, in Rex v. London County Council, it was clarified that a judicial authority does not need to be a court in the traditional sense but must exercise judicial functions based on evidence.

The Parsam Homes v. Mr. Anil Sahai case further clarified that judicial authority under Section 5 does not extend to arbitrations held outside India. Courts have repeatedly ruled that the phrase “judicial authority” extends beyond traditional courts to include various legal and quasi-legal bodies.

For instance:

• Consumer Disputes Redressal Forums (District, State, and National Consumer Commissions) have been held to be judicial authorities.
• Company Law Board (now NCLT) was also deemed a judicial authority in Canara Bank v. Nuclear Power Corporation of India Ltd.

Referral to Arbitration (Section 8)

Section 8 of the Act mandates that courts must refer disputes to arbitration if an arbitration agreement exists between the parties. A party must file an application for referral before submitting their first statement on the substance of the dispute. The application must be accompanied by the original arbitration agreement or a certified copy.

The Supreme Court, in Hindustan Petroleum Corp. Ltd. v. Pink City Midway Petroleum, held that if a valid arbitration clause exists, civil courts have no jurisdiction to entertain a suit and must refer the matter to arbitration.

However, referral to arbitration is subject to the fulfilment of certain conditions:

• In Rashtriya Ispat Nigam Ltd. v. Verma Transport Company, the Supreme Court clarified that “first statement on the substance of dispute” does not necessarily mean a “written statement” but rather  asubmission to the court’s jurisdiction.
• The court must determine whether the party seeking referral has waived their right to arbitration.
• Courts will not refer a dispute to arbitration if the conditions under Section 8(2) are not met.

Impact of Pending Applications on Arbitration

Section 8(3) states that the mere filing of a referral application does not prevent arbitration from proceeding. This means that an arbitrator can continue with the proceedings and even pass an award while a referral application is pending before a court. The purpose of this provision is to prevent unnecessary delays caused by judicial intervention.

By reinforcing party autonomy and expediting dispute resolution, Section 8 ensures that arbitration is not stalled by frivolous litigation in courts.

Judicial Intervention Before Arbitration Proceedings

The Arbitration and Conciliation Act, 1996 was enacted to promote arbitration as a speedy, cost-effective, and efficient alternative to traditional litigation. One of the fundamental principles of the Act is minimal judicial intervention, ensuring that courts do not interfere unnecessarily in arbitration proceedings. This intent is explicitly stated in Section 5, which limits judicial intervention only to the extent permitted by the Act.

Scope of Judicial Intervention Under Section 5

Section 5 states:

“Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.”

This provision aligns with Article 5 of the UNCITRAL Model Law, which serves as the basis for arbitration laws worldwide. The purpose of Section 5 is to ensure that courts do not obstruct arbitration unless their role is explicitly mentioned in the Act.

The Supreme Court in Videocon Industries Ltd. v. Union of India held that judicial intervention is expressly barred except in situations explicitly provided for in the Act. This reinforces the idea that courts should play a limited role in arbitration and allow parties to resolve disputes through arbitral mechanisms.

However, courts do have a limited role before arbitration proceedings commence, particularly in the following areas:

1. Referring parties to arbitration (Section 8)
2. Appointment of arbitrators (Section 11)
3. Terminating an arbitrator’s mandate (Section 14(2))

Referral to Arbitration (Section 8)

Section 8 of the Act states that if a valid arbitration agreement exists, a court must refer the dispute to arbitration at the request of a party, provided the request is made before the party submits its first statement on the substance of the dispute.

To invoke Section 8, the party must:

• File an application before submitting its first statement on the dispute.
• Provide the original arbitration agreement or a certified copy.

Case Law: Hindustan Petroleum Corp. Ltd. v. Pink City Midway Petroleum

The Supreme Court ruled that if an agreement includes an arbitration clause, the court must refer the dispute to arbitration, and it has no jurisdiction to entertain the suit.

However, courts will examine whether the conditions under Section 8(2) are met before referring the dispute to arbitration.

In Rashtriya Ispat Nigam Ltd. v. Verma Transport Company, the Supreme Court clarified that the term “first statement on the substance of dispute” does not necessarily mean a “written statement”, but rather a submission to the court’s jurisdiction. If a party has already submitted to the jurisdiction of the civil court, it may lose the right to invoke arbitration.

Furthermore, Section 8(3) clarifies that even if an application for reference to arbitration is pending, the arbitration process can still proceed, and an award may be passed. This provision ensures that arbitration is not unnecessarily delayed by court proceedings.

Appointment of Arbitrators (Section 11)

If parties fail to appoint an arbitrator within the time specified in their agreement, the Supreme Court or the High Court can appoint an arbitrator under Section 11.

Case Law: Datar Switchgears Ltd. v. Tata Finance Ltd.

The Supreme Court ruled that a party’s failure to appoint an arbitrator within the stipulated time allows the other party to seek court intervention.

This ensures that arbitration proceedings are not obstructed due to non-cooperation or delay tactics by one party.

Termination of an Arbitrator’s Mandate (Section 14(2))

Courts may intervene before arbitration begins in cases where:

• An arbitrator becomes incapable of performing duties.
• An arbitrator deliberately delays proceedings.
• The arbitrator’s mandate is challenged due to misconduct.

A party may approach the court to seek termination of the arbitrator’s mandate, ensuring that arbitration proceeds fairly and efficiently.

Role of Judicial Authority in Arbitration

The term “judicial authority” in Section 5 is broader than “court” and includes tribunals, commissions, and other quasi-judicial bodies. Courts have clarified that judicial authorities play a supportive role rather than an obstructive one in arbitration.

In Regina John M’Evoy v. Dublin Corporation, the court held that the term “judicial” refers to any competent authority making decisions based on evidence. Similarly, in Rex v. London County Council, it was clarified that a judicial authority does not necessarily have to be a court, but it must exercise judicial functions.

Several tribunals and regulatory bodies have been recognised as judicial authorities, including:

• Consumer Disputes Redressal Commissions (District, State, and National).
• Company Law Board (now NCLT), as held in Canara Bank v. Nuclear Power Corporation of India Ltd.

These authorities may have jurisdiction over arbitration-related matters, depending on the nature of the dispute.

Judicial Intervention During Arbitration Proceedings

The Arbitration and Conciliation Act, 1996 allows limited judicial intervention to ensure that arbitration proceedings function smoothly without undue delays. While the general rule under Section 5 restricts judicial involvement, Section 9 provides an exception by granting courts the power to issue interim reliefs to protect the rights of parties.

Interim Reliefs Under Section 9

Section 9 plays a crucial role in arbitration as it empowers courts to grant interim measures to protect the subject matter of arbitration. These measures are analogous to the arbitrator’s powers under Section 17, which also allow for interim protection. However, the purpose of these sections differs:

• Section 9 applies when a party seeks court intervention before the formation of an arbitral tribunal or when the tribunal lacks the necessary powers to enforce relief.
• Section 17 applies after the tribunal has been constituted, enabling arbitrators to issue interim reliefs.

For a court to grant an interim measure under Section 9, the following conditions must be met:

1. Prima Facie Case – The applicant must establish a valid claim showing potential success in arbitration.
2. Irreparable Loss – The party must demonstrate that failure to grant relief would cause irreparable harm that cannot be compensated in damages.
3. Balance of Convenience – Courts must weigh the comparative hardship between the applicant and the opposing party to determine if granting relief is justified.

Role of Courts in Preventing Misuse of Section 9

The Supreme Court, in Sundaram Finance Ltd. v. NEPC India Ltd., clarified that Section 9 should not be misused to frustrate arbitration. Courts must ensure that interim reliefs facilitate arbitration rather than obstruct it.

The objective of Section 9 is to protect parties’ rights during arbitration. It is neither a separate suit nor a contractual right but rather a preventive measure to maintain the effectiveness of the arbitral process. Courts must exercise judicial discretion in granting or refusing ad interim injunctions, following the same principles used in civil suits for temporary relief.

Judicial Intervention After the Arbitral Award

Judicial intervention is most commonly observed after arbitration proceedings when parties seek to challenge or enforce an arbitral award. Section 34 of the Arbitration and Conciliation Act, 1996 provides for limited grounds on which an arbitral award can be set aside. However, courts have interpreted these provisions extensively, sometimes leading to increased judicial intervention despite the Act’s clear intent to limit court interference.

Setting Aside an Arbitral Award (Section 34)

Section 34 allows parties to challenge an arbitral award on specific legal grounds, ensuring that arbitration remains an effective dispute resolution mechanism while safeguarding fairness in the process. However, it is not an appeal mechanism but rather a supervisory measure to ensure arbitrators adhere to legal principles.

Grounds for Setting Aside an Award (Section 34(2)(a))

A party seeking to set aside an arbitral award must establish one or more of the following:

1. Incapacity of a Party – If one party was legally incapable of entering into an arbitration agreement.
2. Invalid Arbitration Agreement – If the arbitration agreement is not valid under applicable law.
3. Lack of Proper Notice – If the party was not given due notice about the arbitral proceedings.
4. Award Exceeds the Scope of Arbitration – If the arbitrator decided on matters beyond what was submitted for arbitration.
5. Improper Composition of Tribunal – If the arbitral tribunal was not constituted as per the arbitration agreement.

The Supreme Court in Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd. ruled that courts should not interfere with an arbitral award simply because another interpretation of facts is possible. Courts should respect the arbitrator’s findings unless the award is completely perverse.

Similarly, in McDermott International Inc. v. Burn Standards Co. Ltd., the Supreme Court held that courts do not have the power to correct errors in an award but only to set it aside on limited grounds.

Public Policy as a Ground for Setting Aside an Award (Section 34(2)(b))

An arbitral award can also be set aside if:

1. The subject matter is not arbitrable under Indian law.
2. The award conflicts with the public policy of India.

The concept of “public policy” has led to extensive judicial interpretation, making it one of the most contested grounds for setting aside arbitral awards. Courts have expanded and redefined public policy, leading to broader judicial intervention than originally intended.

Evolution of Public Policy Interpretation

• Renusagar Power Co. Ltd. v. General Electric Co. – The Supreme Court ruled that an award violates public policy only if it:
  1. Contravenes the fundamental policy of Indian law.
  2. Is against justice and morality.
  3. Harms the interests of India.
• ONGC Ltd. v. Saw Pipes Ltd. – The Supreme Court expanded the definition of public policy to include “patent illegality.” This case significantly increased judicial intervention, allowing courts to set aside awards based on incorrect application of law.
• Phulchand Exports Ltd. v. OOO Patriot – The public policy exception was further expanded, opening the floodgates for excessive judicial scrutiny of arbitral awards.
• ONGC v. Western GECO International Ltd. – The Supreme Court laid down three key tests to determine a violation of fundamental policy:
  1. The arbitrator must adopt a judicial approach.
  2. The tribunal must adhere to principles of natural justice.
  3. The award must not be so unreasonable that no fair-minded person would reach the same conclusion.

2015 Amendment and Public Policy Restriction

To curb excessive judicial intervention, the 2015 amendment to the Act restricted the public policy exception. Under the new Explanation in Section 34(2)(b), an award conflicts with public policy only if:

1. It was affected by fraud or corruption.
2. It violates fundamental principles of Indian law.
3. It is against morality or justice.

This amendment significantly reduced judicial interference, ensuring that courts do not revisit the merits of an arbitral award.

Case Law Post-2015 Amendment

In State of Jharkhand v. HSS Integrated SDN & Anr, the Supreme Court held that if an arbitral award is a plausible interpretation of the contract, courts must not interfere under Section 34.

The Supreme Court in National Highway Authority of India v. Progressive-MVR further reinforced that courts must uphold arbitral decisions unless they suffer from extreme perversity.

Enforcement of Arbitral Awards (Section 36)

Once the time limit for challenging an award under Section 34 has passed, or if the challenge is rejected, the award becomes final and enforceable as a civil court decree under Section 36.

A domestic award is enforced directly after the expiration of the three-month challenge period, unless the court grants an extension of 30 additional days.

A foreign arbitral award, governed by the New York Convention or Geneva Convention, can only be refused enforcement if it meets the grounds specified under Section 48 of the Act.

Limitation on Second Appeals (Section 37(3))

Under Section 37(3), a second appeal is not allowed in matters concerning setting aside or enforcing arbitral awards. However, parties may approach the Supreme Court under Article 136 of the Constitution, ensuring that arbitration disputes are not endlessly litigated.

Judicial Intervention in Appealable Orders (Section 37)

Section 37 allows courts to hear appeals against certain arbitral decisions, including:

• Refusal to refer parties to arbitration (Section 8).
• Granting or refusing interim relief (Section 9).
• Setting aside or refusing to set aside an award (Section 34).

However, no second appeal is permitted, except in cases reaching the Supreme Court.

The Role of Public Policy in Judicial Intervention

One of the most debated grounds for judicial intervention is the “public policy” exception under Section 34. The concept of public policy remains ambiguous, leading to varying interpretations.

Key Judicial Developments

• Renusagar Power Co. Ltd. v. General Electric Co.: Limited the definition of public policy to:
  • Fundamental policy of Indian law.
  • Justice and morality.
  • Interest of India.
• ONGC Ltd. v. Western GECO International Ltd.: Expanded public policy to include “judicial approach” and “natural justice violations”.
• 2015 Amendment to the Act:
  • Narrowed public policy exceptions to include only fraud, corruption, or fundamental legal violations.
  • Prevented courts from reviewing awards on merits.

Case Law: Ssangyong Engineering v. NHAI

The Supreme Court ruled that incorrect legal interpretation alone does not justify setting aside an award.

Doctrine of Separability & Judicial Intervention

The doctrine of separability ensures that an arbitration clause remains valid even if the main contract is void.

Judicial Interpretation

• Earlier Rulings (e.g., Jagdish Kaur case): Courts held that if the contract is void, the arbitration clause is also void.
• Recent Rulings (e.g., Vidya Drolia case): The Supreme Court upheld separability, emphasising limited judicial intervention.

Conclusion

The Arbitration and Conciliation Act, 1996, strongly emphasises minimising judicial intervention to ensure arbitration remains an efficient and effective dispute resolution mechanism. However, courts have an important role in ensuring fair proceedings, assisting arbitration where necessary, and reviewing awards in exceptional cases.

Judicial intervention should be exercised cautiously, only within the framework provided by the Act. The 2015 amendments have helped streamline arbitration by limiting court interference, but continued judicial discipline is crucial to maintaining India’s status as an arbitration-friendly jurisdiction.

With evolving case law and legislative reforms, India is moving towards a pro-arbitration approach, ensuring that judicial intervention remains an exception rather than the rule.