Role of Arbitration in Statutory Adjudications

Arbitration is a fast growing mode of alternative dispute resolution. It has an early origin in Ancient Greece and Rome[1]. In Common Law it has the foundation in seventeenth century[2].  In India during the nineteenth century itself a legal frame work was introduced in the field of arbitration[3], but it attained the widest popularity in the recent years only.  A comprehensive law was introduced by the Parliament of India in 1996, by enacting the Arbitration and Conciliation Act, 1996, in terms of universal policy adopted by the United Nations Commission on International Trade Law (UNICITRAL).

          It has statutory recognition not only in the 1996 Act, but also in the Civil Procedure Code, 1908, when section 89 was reintroduced with a mandate to arrange settlement in all kinds of litigations governed by the Code[4]. In Civil Procedure Code, the Civil Judges are obliged to refer a dispute to settlement, if it appears that there is an element of settlement, in the dispute before him. After formulating the terms of settlement, the Civil Judge may refer the matter for a settlement either through arbitration, conciliation, mediation or through a judicial settlement like Lok Adalat.

          The usual method to resolve disputes under Section 89 of the Code is settlement through the Lok Adalats. However, the practical experiences demonstrate difficulties in ensuring the participations of litigants in settlements through these popular forums like Lok Adalat etc. In such a situation the role of Arbitration is significant, as Arbitration is legal technique where in an independent adjudicator resolves the disputes which is binding on the parties to arbitration.

          There are enormous advantages to this system of dispute resolution. One of such merits is that the adjudication is much faster than the traditional judicial proceedings. When the nature of dispute is highly technical and complex one, the utilization of an expert in the field as an arbitrator is highly productive. Such a system of adjudication by using the expertise of an adjudicator is not possible in the traditional judicial process, as it is impossible to mandate the Civil Judge to be familiar with all the subjects.  

          The role of expertised person as arbitrator advanced the recognition of arbitration in statutory adjudications. The term arbitration is familiar in special statutes like Indian Telegraph Act, 1885 and Electricity Act, 2003. As per Section 7B[5] of the Indian Telegraph Act a dispute concerning any telegraph line, appliance or apparatus arises between the telegraph authority and the beneficiary person requires to be adjudicated by an arbitrator appointed by the Central Government.  

          As per Section 158 of the Electricity Act, 2003, if the dispute is referred by the Central Commission[6] or State Commission[7], it shall be resolved either by an Arbitrator appointed by the appropriate Commissions or in other cases by an Arbitrator appointed as per the provisions of the Arbitration and Conciliation Act, 1996. The dispute with regard to compensation payable by an operator[8] is also a subject for arbitration under the Electricity Act, 2003.  In the State Co-operative Societies Act, also there are provisions for statutory arbitration, in case of definite disputes.

          In current times, it is a naked truth that the adjudications under fiscal statutes, which deals with levy and collection of different taxes and duties, are time consuming and notorious for official bias. In practice, the quasi judicial adjudications under the rule of appellate and revisional jurisdictions by the officers of the concerned department are found unreasonable and vitiated by corrupt practices. The present system of quasi judicial adjudication is neither impartial nor productive. There are several instances of loss of revenue to the Government due to mal- practices of the adjudicators appointed under the Statutes. 

          Under the Income Tax Act 1961, Central Excise & Salt Act 1944, different Sales Tax/ Value Added Tax Acts and also in Chapter V of the Finance Act, 1994, which deals with levy and collection of service tax, there are provisions for first tier adjudication with respect to the assessment of tax or imposition of penalties and secondly an adjudication through statutorily instituted appeal/ revision before the appellate/ revisional authority. These two level adjudications are managed by the administrative officials of the department. Such adjudications are neither impartial nor independent, as there is always a regulatory supervision over these adjudicators by the higher officials of the department, to curtail their discretions. The tenure of these adjudicators is variable subject to the pleasure of the head of the department.  

          Another major disadvantage of present adjudicatory system is the lapse of time.  Due to the delay in completion of adjudication, the present system is harmful to either sides of the litigation, the assessee or the revenue. Often the assessee is obliged to compensate the revenue by paying higher rate of interest on arrears and revenue is burden with payment of interest in case of refund of tax/duties.  The simplified nature of arbitration will resolve the hazards of delay in adjudication and will ensure the time bound and impartial adjudication by independence of the adjudicators.  

          In Egypt, the General Sales Tax Act, 1991 provides for arbitration to resolve disputes regarding value, kind and quantity of goods and services taxed or determination of tax under the Act. Article 35 of the Act provides for a preliminary arbitration by two arbitrators, each appointed by department and assessee. In case of non conclusion of preliminary arbitration, the disputes shall be referred to an Arbitral Committee consists of different members including the Chairman, who will be the permanent delegate member appointed by the Minister with other representative members nominated by occupational or professional organization or chamber etc. The significant feature of Egyptian system is that the assessee/ registrant has equal role in adjudication of the disputes through the mechanism of arbitration. 

          Presently the system of arbitration is familiar and confined only in the filed of commerce. The business people largely depend on arbitration, to resolve the disputes regarding contractual obligations.   It is the time to think about adopting the techniques of arbitration in all kinds of statutory adjudications, particularly that in fiscal statutes, to maintain its purity and confidence. After the adjudication of assessment of tax/duty and penal liability of the assessee, the matter shall be referred to an independent arbitrator or arbitration tribunal, on the request of the aggrieved, may be by the assessee or the revenue. By the option to refer the disputes at the instance of the revenue, the suo motu jurisdictions of the higher officers can be concluded, which will, of course relieve those officers from intense administrative works.   

          Sooner a dispute is resolved, cheaper it is for the parties in the dispute. In 1996 Act, certainly there is no time period set for completion of arbitration. The perfection of every system depends on the person who mans it. This lacuna can be answered by incorporating appropriate provisions in the Statutes, which provides for arbitration as system of adjudication.

[1] Coleman Phillipson, “The International Law and Customs of Ancient Greece and Rome”, Macmillan & Co. Newyork (1911)

[2] Arbitration Act, 1697

[3] Arbitration Act, 1899

[4] Section 89 of C.P.C. was repealed by Section 49 of the Act 10 of 1940 and again reintroduced by Section 7 of the Act 46 of 1999 with effect from 1-7-2002.

[5] Section 7B inserted by Section 3 of the Act 47 of 1957 with effect from 1-7-1959.

[6] See Section 79(1) (f) of the Electricity Act, 2003

[7] See Section 86 (1) (f) of the Electricity Act, 2003.

[8] See Section 160 (3) of the Electricity Act, 2003

Dr. Pradeep K.P., LL.M, Ph.D (Law)

Advocate/ Government Pleader (Taxes)

High Court of Kerala