ARBITRATION IS NOT A RESOLUTION PROCESS TO AVOID COURTLITIGATION IN INDIA

ARBITRATION IS NOT A RESOLUTION PROCESS TO AVOID COURT
LITIGATION IN INDIA

1. We proceed to discuss whether the parties really intend to avoid Court by signing an arbitration agreement. I fear not. By signing an agreement, parties only go for a private dispute resolution mechanism of their choice. Again, under the scheme of the Act, when an agreement provides for dispute resolution through arbitration, the parties approach the Court for interim orders prior and pending arbitration. For appointment of arbitrator, we approach the Court and for setting aside award as well as for enforcement, we approach the Court.
2. Arbitration as it was intended should be to give choice to the parties to resolve the dispute through the assistance of private individual/s, with law and rule of their choice and place and seat of their choice and only for a limited purpose of enforcement, parties shall approach the Court. The commercial world is always independent as they feel and they want to have choice of their own people to decide their dispute based on their own choice of law and rule, rather than through the System of law. However, the world of administrators, believed that a systematic law and judicial system all round will impose confidence in foreign investment and trade. In fact, it did bring major impact as the introduction of systematic law and judicial system imposed faith in the commercial sector for foreign trade and investment.
3. However, till 2019 only one dispute was referred to arbitration, to regarded it as effective alternative to resolve trade dispute in WTO.
4. Since our topic is not to discuss on arbitration in international trade and commerce, I confine myself to the topic.
5. Arbitration Act is divided into four parts and ten chapters for local arbitration, chapter 1 for New York Convention Awards and chapter 2 for Geneva Convention Awards which falls under Part II.
   We will not discuss about this part in this write-up.
6. Section 5 under the Act specifically deals with extent of Judicial Intervention which will state that any intervention shall be in accordance with Part 1 of the Act.
7. It is interesting to note two Judgements of the Supreme Court one P.Anand Gajapathi Raju Vs. P.V.G.Raju A.I.R 2000 SC 1886 wherein it is held that the Court is obligated to refer parties to arbitration in terms of arbitration agreement. In Yogi Agarwal Vs. Inspiration Clothes A.I.R.2009 SC 1098, the Supreme Court will hold that the defendant did not allege there is arbitration agreement on the subject matter of suit and what was alleged is that the subject matter of the suit and the subject matter of arbitration agreement are similar and therefore there need not be a reference to arbitration. Though later, the Supreme Court has in various judgements had said that at any stage, the Court can refer parties to arbitration based on agreement between parties.
   The expression “claiming through or under” in Sections 8 and 45 is intended to provide a derivative right; and it does not enable a non-signatory to become a party to the arbitration agreement. The decision in Chloro Controls (supra) tracing the Group of Companies doctrine through the phrase “claiming through or under” in Sections 8 and 45 is erroneous. The expression ‘party’ in Section 2(1)(h) and Section 7 is distinct from “persons claiming through or under them”.
   Cox and Kings Ltd. vs. SAP India Pvt. Ltd. and Ors. (06.12.2023 – SC) : MANU/SC/1310/2023 — 2023/INSC/1051
8. Now, whether the parties shall approach the Court for interim measures pending arbitration under Section 9 or approach the arbitrator for interim orders, I feel there is no confusion in view of the language used. Where similar powers are given under both the provisions enabling parties to approach the Court or the arbitrator depending upon their convenience to get the orders (please see Firm Ashok Traders Vs. Gurumukh Das Saluja 2004 (3) SCC 155. However, the reading of Section (3) as rightly discussed, does not intend to say that the Court shall not grant interim orders when arbitration Tribunal has already been constituted.
9. Supreme Court however, has held
   “On a combined reading of Section 9 with Section 17 of the Arbitration Act, once an Arbitral Tribunal is constituted, the Court would not entertain and/or in other words take up for consideration and apply its mind to an application for interim measure, unless the remedy Under Section 17 is inefficacious, even though the application may have been filed before the constitution of the Arbitral Tribunal.
   Arcelor Mittal Nippon Steel India Ltd. vs. Essar Bulk Terminal Ltd. (14.09.2021 – SC) : MANU/SC/0639/2021(2022)1SCC712.
10. Parties under Section 11 if they have consensus, they appoint arbitrator and proceed with the dispute resolution. When there is no consensus, they approach the Court and as we all know the Court can see the existence of arbitration agreement while appointing arbitrator – The Supreme Court held “
    In view of the discussion above, we arrive at the following conclusions:
    a. The definition of “parties” Under Section 2(1)(h) read with Section 7 of the Arbitration Act includes both the signatory as well as nonsignatory parties;
    b. Conduct of the non-signatory parties could be an indicator of their consent to be bound by the arbitration agreement;
    c. The requirement of a written arbitration agreement Under Section 7 does not exclude the possibility of binding non-signatory parties;
    d. Under the Arbitration Act, the concept of a “party” is distinct and different from the concept of “persons claiming through or under” a party to the arbitration agreement;
    e. The underlying basis for the application of the group of companies doctrine rests on maintaining the corporate separateness of the group companies while determining the common intention of the parties to bind the non- signatory party to the arbitration agreement;
    f. The principle of alter ego or piercing the corporate veil cannot be the basis for the application of the group of companies doctrine;
    g. The group of companies doctrine has an independent existence as a principle of law which stems from a harmonious reading of
    Section 2(1)(h) along with Section 7 of the Arbitration Act;
    h. To apply the group of companies doctrine, the courts or tribunals, as the case may be, have to consider all the cumulative factors laid down in Discovery Enterprises (supra). Resultantly, the principle of single economic unit cannot be the sole basis for invoking the group of companies doctrine;
    i. The persons “claiming through or under” can only assert a right in a derivative capacity;
    j. The approach of this Court in Chloro Controls (supra) to the extent that it traced the group of companies doctrine to the phrase “claiming through or under” is erroneous and against the wellestablished principles of contract law and corporate law;
    k. The group of companies doctrine should be retained in the Indian arbitration jurisprudence considering its utility in determining the intention of the parties in the context of complex transactions involving multiple parties and multiple agreements;
    l. At the referral stage, the referral court should leave it for the arbitral tribunal to decide whether the non-signatory is bound by the arbitration agreement; and
    m. In the course of this judgment, any authoritative determination given by this Court pertaining to the group of companies doctrine should not be interpreted to exclude the application of other doctrines and principles for binding non-signatories to the arbitration agreement.
    Cox and Kings Ltd. vs. SAP India Pvt. Ltd. and Ors. (06.12.2023 – SC)- 2023/INSC/1051
11. In many Government contracts as well as Public Sector undertaking contracts, even after the introduction of Section 12(5) and Fifth Schedule, there is a clause that will state that their employee named in the agreement will be the arbitrator. Courts in many judgments has held that such a clause is invalid and the agreement is valid. But it will be better the advisers to such party can impress upon them to avoid cut, paste and copy from the prior agreements.
12. The Judgment of the Honourable Supreme Court post the amendment in “Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Limited (supra)” was a case where an arbitration agreement had contained a clause which prescribed the procedure for the constitution of the Arbitral Tribunal. The matter related to the agreement which the applicant had with the Delhi Metro Rail Corporation Limited (DMRC). As per the said arbitration clause since the claimant therein had requested the dispute to be referred to Arbitration, names of five persons were forwarded to the party requesting the reference from out of the panel which was maintained by the respondent and out of this the petitioner had to choose one Arbitrator. In the said case since the request was post the amendment, the claimant therein had refused to accept the Arbitral Tribunal nominated by the respondent. The claimant therein approached the Court for appointing a sole Arbitrator under Section 11 (6) read with Section 11 (8) of the 1996 Act. While considering the arguments, the Hon’ble Supreme Court had observed that the very purport of the introduction of Section 12 (5) to the Arbitration Act was the reiterate the twin features of the arbitrator – impartiality and independence, which assumes great significance in the international spheres. The learned Judge had observed so in paragraph 18 extracted herein below:
    “18. Keeping in mind the afore-quoted recommendation of the Law Commission, with which spirit, Section 12 has been amended by the Amendment Act, 2015, it is manifest that the main purpose for amending the provision was to provide for neutrality of arbitrators. In order to achieve this, sub-section (5) of Section 12 lays down that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties or counsel or the subject matter of the dispute falls under any of the categories specified in the Seventh Schedule, he shall be ineligible to be appointed as an arbitrator. In such an eventuality, i.e., when the arbitration clause finds foul with the amended provisions extracted above, the appointment of an arbitrator would be beyond pale of the arbitration agreement, empowering the court to appoint such arbitrator(s) as may be permissible. That would be the effect of nonobstante clause contained in sub-section (5) of Section 12 and the other party cannot insist on appointment of the arbitrator in terms of arbitration agreement.”
13. The learned Judges had also observed that Section 12 was amended to bring it in line with the above referred need. The Bench had further held as follows:
    “20. Independence and impartiality of the arbitrator are the hallmarks of any arbitration proceedings. Rule against bias is one of the fundamental principles of natural justice which applied to all judicial and quasi-judicial proceedings. It is for this reason that notwithstanding the fact that the relationship between the parties to the arbitration and the arbitrators themselves are contractual in nature and the source of an arbitrator’s appointment is deduced from the agreement entered into between the parties, notwithstanding the same non-independence and non-impartiality of such arbitrator (though contractually agreed upon) would render him ineligible to conduct the arbitration. The genesis behind this rationale is that even when an arbitrator is appointed in terms of the contract and by the parties to the contract, he is independent of the parties. Functions and duties require him to rise above the partisan interest of the parties and not to act in, or so as to further, the particular interest of either parties. After all, the arbitrator has an adjudicatory role to perform and, therefore, he must be independent of parties as well as impartial. The United Kingdom Supreme Court has beautifully highlighted this aspect in Hashwani v. Jivraj Hashwani v. Jivraj, MANU/UKSC/0041/2011 : 2011 1 WLR 1872 in the following words: (WLR p. 1889, para 45)”
    “45. … the dominant purpose of appointing an arbitrator or arbitrators is the impartial resolution of the dispute between the parties in accordance with the terms of the agreement and, although the contract between the parties and the arbitrators would be a contract for the provision of personal services, they were not personal services under the direction of the parties.””
    They finally held that the amended provisions places an embargo on a person who is an employee of the party to the dispute to act as an Arbitrator. They have held so in paragraph 24 which is extracted herein below:
    “24. Keeping in view the aforesaid parameters, we advert to the facts of this case. Various contingencies mentioned in the Seventh Schedule render a person ineligible to act as an arbitrator. Entry 1 is highlighted by the learned counsel for the petitioner which provides that where the arbitrator is an employee, consultant, advisor or has any other past or present business relationship with the party, would not act as an arbitrator. What was argued by the learned Senior Counsel for the petitioner was that the panel of arbitrators drawn by the respondent consists of those persons who are government employees or ex-government employees.
    However, that by itself may not make such persons ineligible as the panel indicates that these are the persons who have worked in the Railways under the Central Government or the Central Public Works Department or public sector undertakings. They cannot be treated as employee or consultant or advisor of the respondent DMRC. If this contention of the petitioner is accepted, then no person who had earlier worked in any capacity with the Central Government or other autonomous or public sector undertakings, would be eligible to act as an arbitrator even when he is not even remotely connected with the party in question, like DMRC in this case. The amended provision puts an embargo on a person to act as an arbitrator, who is the employee of the party to the dispute. It also deprives a person to act as an arbitrator if he had been the consultant or the advisor or had any past or present business relationship with DMRC. No such case is made out by the petitioner.”
    The learned Judges were only considering the ineligibility of the Arbitrator as per the provision of Section 12 (5).
    Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Limited
    MANU/SC/0162/2017 : (2017) 3 MLJ 153 : LNIND 2017 SC 63 (2017) 4 SCC 665 : AIR 2017 SC 939
14. The said view was reiterated in the Judgment of the Hon’ble Supreme Court in TRF LTD v. Energo Engg. Projects Ltd. (supra). This Judgement also dealt with the validity of the appointment made by the named person who is also an employee of the respondent Railways.
15. Under Section14 of the Act, the parties can approach the Court to remove the arbitrator as per the provisions of the Act on limited grounds as contained therein.
16. Next provision to approach the Court is provided under Section 34 for the setting aside award. There are various decision which we recall daily are ONGC LTD. VS. SAW PIPES LTD., 2003(5) SCC 705; ONGC LTD., VS. WESTERN GECO INTERNATIONAL LTD., 2014(9) SCC 263; ASSOCIATE BUILDERS VS DDA 2015(3) SCC 49; SSANGYONG ENGINEERING & CONSTRUCTIONS CO. LTD., VS. NATIONAL HIGHWAY AUTHORITY OF INDIA LTD., 2019/INSC/647; MCDERMOTT INTERNATIONAL INC. VS., BURN STANDARD CO. LTD., & ORS – 2006/INSC/1326; DYNA TECHNOLOGIES (P) LTD VS. CROMPTON GREEVES Ltd – 2019/INSC/1395; NATIONAL HIGHWAY AUTHORITY OF INDIA VS P.NAGARAJAU & ORS. 2022/INSC/689;
17. Section 35 speaks about finality of the award — Hindustan Construction Company Limited and Ors. Vs. Union of India (UOI) and Ors.–2019/INSC/1289; Cheran Properties Limited Vs. Kasturi and Sons Limited and Ors.—2018/INSC/394.
18. Section 36 provides for enforcement of award through Courts. See Cheran Properties Limited Vs. Kasturi and Sons Limited and Ors.—2018/INSC/394.
    P. Radha Bai and Ors. Vs. P. Ashok Kumar and Ors.—2018/INSC/896
    Arcelor Mittal Nippon Steel India Ltd. Vs. Essar Bulk Terminal Ltd.—
    2021/INSC/478
19. As normally said the Courts under the Act exercise jurisdiction under Section 42.
20. Lastly, I proceed to sum up by saying that when we are so much dependent on the Court for effective resolution of dispute through arbitration, I do not foresee arbitration as alternative to avoid resolution of dispute through Court of Law. Though Fourth Schedule has provided for payment of fee, the arbitrator can fix his own fee and if the party agree for such fee without knowing the consequence, I fear whether the same can be a ground for challenge.
    This article is written by G.Surya Narayanan, Advocate, High Court, Madras, Associate Member, CIARB, London.