The Indian government appears to be very serious about reducing the burden on courts by encouraging people, industry, business, and commerce to use Alternative Dispute Resolution approaches such as mediation and arbitration rather than going to court and spending money, time, and relationships.

Arbitration is an Alternative Dispute Resolution (ADR) process in which disputants refer their dispute to a mutually appointed arbitrator and accept the decision without further discussion. The Arbitration and Conciliation Act (the Act) of 1996 permits such an approach and encourages disputants to resolve their disputes through an arbitrator. The country's highest court has stated several times that the Act is intended to provide for a quick and inexpensive alternative mode of resolving disputes with minimal court intervention. The arbitration award is final, binding, and the courts are not authorised to interfere and modify the award.

The finality of awards promotes the growth of industry, business, and commerce, as well as the prompt resolution of property and other civil disputes. The Government of India is thus eager to encourage ADR for national and international dispute resolution.

In addition to the stated objectives, the Act's intentions are to provide speedy, timely, and cost-effective justice in civil and arbitrable matters, as well as to reduce court interventions when an arbitrator issues an award. Also, ADR law aims to make justice more accessible and reduce the burden on courts, which currently have over 4.48 crore (nearly 45 million) cases pending from District Court to Supreme Court, 1.08 crore of which are civil disputes and 3.40 crore of which are criminal cases. According to the National Judicial Data Grid, these cases have been pending for anywhere from one year to more than 30 years.  

Act prohibits judicial intervention 

The distinction between an arbitration award and a court judgement is that, in the latter case, an aggrieved party approaches a court unilaterally, whereas in the former case an arbitrator is appointed with mutual consent by disputing parties, and the dispute arises from an arbitration clause in an agreement or parties mutually decide to refer their dispute to an arbitrator, implicitly agreeing to abide by the arbitrator's decision. In a court case, the parties are unaware of who will be the judge, whereas in arbitration, the parties know their arbitrator, who is a neutral third party. As a result, the Act only allows for limited judicial intervention when an award violates Indian public policy.

Various high courts and the Supreme Court have pointed out that judicial interference, if any, is provided solely through Sections 34 and 37. Ironically, the advocates representing the parties take the decided arbitration cases to the courts, and the courts delay deciding the case under Section 34, despite the fact that it is a summary trial. This causes unnecessary delays in justice, costs for courts and advocates, and disruptions in relationships, ultimately defeating the purpose of arbitration as an effective ADR method outside of court.

Section 5 of the Act expressly prohibits judicial intervention once an award has been passed by an arbitrator who is  appointed in accordance with the provisions of the Act, and if judicial intervention is required, an aggrieved party must move the court with jurisdiction over the matter and request that the award be set aside. However, in a slew of decisions, the Supreme Court has categorically stated that courts should not overturn an award simply because an alternative view on facts and contract interpretation exists. The courts must exercise caution and defer to the Arbitral Tribunal's decision, even if the reasoning provided in the award is implied, unless the award depicts perversity that is unpardonable under Section 34 of the Arbitration Act."

In a judgement on 27 September 2024, Justice Pamidghantam Sri Narasimha, and Justice Pankaj Mithal of Supreme court of India have reiterated that “The award as such cannot be touched unless it is contrary to the substantive provision of law; any provision of the Act or the terms of the agreement”. The honourable justices further stated that one of the main grounds for interference or setting aside an award is where the arbitral award is in conflict with the public policy of India i.e. if the award is induced or affected by fraud or corruption or is in contravention with the fundamental policy of Indian law or it is in conflict with most basic notions of morality and justice.

The apex court in the referred case says that  the scope of the intervention of the court in arbitral matters is virtually prohibited, if not absolutely barred and that the interference is confined only to the extent envisaged under Section 34 of the Act. The appellate power of Section 37 of the Act is limited within the domain of Section 34 of the Act. It is exercisable only to find out if the court, exercising power under Section 34 of the Act, has acted within its limits as prescribed thereunder or has exceeded or failed to exercise the power so conferred. The Appellate Court has no authority of law to consider the matter in dispute before the arbitral tribunal on merits so as to find out as to whether the decision of the arbitral tribunal is right or wrong upon reappraisal of evidence as if it is sitting in an ordinary court of appeal. It is only where the court exercising power under Section 34 has failed to exercise its jurisdiction vested in it by Section 34 or has travelled beyond its jurisdiction that 13 the appellate court can step in and set aside the order passed under Section 34 of the Act. Its power is more akin to that superintendence as is vested in civil courts while exercising revisionary powers. 

The Supreme Court of India says that the arbitral award is not liable to be interfered unless a case for interference as set out in the earlier part of the decision, is made out. It cannot be disturbed only for the reason that instead of the view taken by the arbitral tribunal, the other view which is also a possible view is a better view according to the appellate court. “It is also well settled that even if two views are possible there is no scope for the court to reappraise the evidence and to take the different view other than that which has been taken by the arbitrator. The view taken by the arbitrator is normally acceptable and ought to be allowed to prevail.”

Avoid unnecessary delay in justice

Therefore, the advocates accepting client requests to file an application with an appropriate court, as well as courts accepting such applications, should exercise extreme caution because the sanctity of the Act is being called into question for no apparent reason. If, prima facie, it appears to both the counsel filing an application under Section 34 or 37 or to the court that the award is not against Indian public policy, that the parties were not incapacitated, that the arbitration agreement was valid, that the parties making the application were given proper notice, that the arbitration award dealt with only the dispute and sought relief, then the question of moving an application under Section 34 of the Act is not raised. Courts should also consider this at the time of filing an application to avoid unnecessary delay in justice.

Lawyers must also remember that proceedings under Section 34 of the Act are summary in nature and are different from a full-fledged regular civil suit. As a result, Section 37 of the Act has a much narrower scope than an ordinary civil appeal. As a result, it is their responsibility to appeal to the courts for prompt resolution, even if they file cases under Sections 34 or 37 of the Act. The Government of India should establish and make functional the Arbitration Council of India and the Mediation Council of India to encourage institutional ADR, regulate such institutions, and reduce burden on courts in the country.

(The author is a former International Senior Advisor, UNDP. Views are personal. He can be reached at poemrao@gmail.com )