Power Of Court To Refer Parties To Arbitration

INTRODUCTION 

Over the past ten years, arbitration has been increasingly popular on both a national and worldwide scale. An agreement to arbitrate a dispute is one that the parties make either before or after it arises. This allows for a swift and confidential resolution of the conflict. But limited judicial court interference in the arbitration proceedings is essential to its success. The reputation of the Indian judiciary is unimpressive when it comes to judicial interference in arbitration proceedings, which has repeatedly proven to be a significant roadblock for many things, but not limited to, obtaining FDI, India being selected as an appropriate seat in international commercial arbitrations, etc.

With this in mind, the Parliament passed the Arbitration and Conciliation Act, 1996 (hence referred to as "act"), which ensures that judicial authorities' unwarranted involvement in arbitration processes is always limited. Section 5 of the statute provides the clearest evidence of this.

No judicial authority shall intervene in subjects controlled by this Part, anything included in any other legislation now in effect, save as provided in this Part, according to Section 5 of the Arbitration and Conciliation Act of 1996.

No judicial body shall intervene in topics covered by part 1 of the act, regardless of what is stated in any other law now in effect; the only exception to this rule is where the said interference is provided for in part 1 of the act. It follows that the ability of courts to interfere has been severely limited, save for instances when it is specifically stated in the legislation.

SECTION 8

Section 8 deals with the power of the judicial authority to send parties to arbitration. It states that a judicial authority before which an action is brought in a matter that is the subject of an arbitration agreement shall, unless it finds that prima facie, refer the parties to arbitration, if a party to the arbitration agreement or any person who claims through or under him, so applies not later than the date of submission his first statement on the substance of the dispute.

Section 8 (2) states that the original arbitration agreement or a properly certified duplicate of it must be included with the application referred to in sub-section (1).

The party applying for arbitration under subsection (1) must submit the application along with a copy of the arbitration agreement and a petition asking the court to order the other party to produce the original arbitration agreement if either the original arbitration agreement or a certified copy thereof is not available to the party applying for the reference to arbitration and the other party has retained the original arbitration agreement or certified copy.

Section 8 (3) provides that arbitration may be initiated or continued, and an arbitral award may be given, notwithstanding that an application has been made under subsection (1) and that the matter is pending before the judicial authority.

If the conditions of section 8 are satisfied, it is the court's bounden duty to refer the parties to arbitration whenever a lawsuit is filed in a civil court and the base of that lawsuit is a contract in which the parties had freely and voluntarily agreed to settle their dispute through arbitration.

When Section 8 of the Act is compared to Article 8 of the UNCITRAL Model Law, the position of Section 8 of the Act becomes even more evident. According to Article 8, a court may decide against referring parties to arbitration if it is determined that the arbitration agreement is invalid, ineffective, or unable to be carried out. The fact that Section 8 has deviated shows how broad and inclusive the statutory mission is.

The terms "unless it deems that the agreement is null and void, inoperative, and incapable of being performed" do not appear in section 8, which instead refers to "judicial authority" in a broad sense. This distinction makes it quite evident that the legislators purposefully gave judicial courts less authority over section 8 petitions in order to facilitate the arbitration procedure and prevent needless judicial interference.

Despite the fact that the situation is so obvious, this clause has often been interpreted differently by our courts, which has caused a lot of confusion.

When the requirements of section 8 are met, regardless of the current situation, courts have taken the literal interpretation approach and have interpreted the clause as it is intended to be, referring the dispute to arbitration. However, there have been cases where the courts have completely disregarded legitimate precedents, interpreted a part hazily, refused a reference, and otherwise deviated from the legitimate line of precedents. Furthermore, the deviation is not the only issue; in one case, the SC actually went so far as to establish a few exceptions to the rule, which is entirely incorrect in my opinion. In the event that there had been a need for such exclusions, the legislature would have added them to the act itself.

CASE LAW

Swiss Timing Ltd v. Commonwealth Games 2010 Organising Committee

Facts

• No judicial body shall intervene in topics covered by part 1 of the act, regardless of what is stated in any other law now in effect; the only exception to this rule is where the said interference is provided for in part 1 of the act. 
• It follows that the ability of courts to interfere has been severely limited, save for instances when it is specifically stated in the legislation. The arbitration provision in the Agreement was subsequently used by the petitioner. When the Respondent refused to name an arbitrator, the Petitioner applied to the Supreme Court of India for the arbitration to be appointed on behalf of the Respondent and the presiding arbitrator under Sections 11(4) and 11(6) of the Arbitration and Conciliation Act, 1996 (the "Act").
• The Respondent contested the petition, among other things, on the grounds that the Agreement was void ab initio due to claims of fraud made against officials of the Petitioner, and as a result, the arbitration agreement between the parties did not stand and was vitiated. 
• The Respondent further argued that a case involving allegations of fraud, corruption, and serious malpractice could only be resolved by a court through the furtherance of detailed evidence; as a result, such a dispute could not be decided by arbitration, and as a result, the Court should dismiss the petition without appointing an arbitrator. The Respondent based this argument heavily on the Supreme Court's ruling in N. Radhakrishnan v. Maestro Engineers.

Judgement:

The Respondent's objections were overruled by the court, and an arbitrator was chosen.

• The Court held that, regardless of claims of fraud, the arbitral tribunal could decide on all such allegations, including whether there was fraud, corruption, or any other act that rendered the contract defective or voidable. In this regard, the court acknowledged the concept of competence-competence entrenched in Section 16 of the Act, namely, that an arbitral tribunal is competent to rule on its own jurisdiction, including judging on any challenge with regard to existence or legality of the arbitration agreement.
• Furthermore, an arbitration clause that is a component of a contract is an agreement apart from the other terms of the contract; as a result, even if the contract were found to be void, that would not automatically mean that the arbitration clause was also void.
• On this basis, the Court also stated that, in its opinion, the decision in N. Radhakrishnan was per incuriam, as it had not taken into account two prior decisions of the Supreme Court, namely, Hindustan Petroleum Corporation v. Pinkcity Midway Petroleums3 and P. Anand Gajapathi Raju v. P.V.G. Raju4, in which the Supreme Court acknowledged the competence of the arbitral tribunal to rule on its own jurisdiction as well as the independence and ongoing existence.
• The Court also referred to the requirements of Section 5 of the Act, which restricts court interven Ation, and acknowledged that the court's function was to "assist the arbitration process."
• According to the Court's ruling, all disputes, including the question of whether the primary contract was void or voidable, might be addressed to arbitration if Sections 5 and 16 were interpreted together. Otherwise, using the bogey of the underlying contract being void would be a useful tool at the disposal of the unscrupulous parties to avoid arbitration.

CONCLUSION

In my opinion, this impasse regarding whether or not to submit a dispute for arbitration under Section 8 of the Act should be resolved, and the courts should promote arbitration by submitting the case for arbitration when all of Section 8's requirements have been met rather than stopping the arbitration process altogether for no apparent reason or based on arbitrary grounds such as accepting arguments regarding the arbitrability of the dispute or the existence of other legal actions against the party.

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