Previous Table of Content Next
4

Court Processes to Aid Arbitration: What Is the Impact of Recent Amendments?*

Poornima Hatti

Introduction

Indian courts and how long they take to adjudicate matters have now been the discussion of many studies, both within India and outside. Despite this continued attention, no immediate solution to an efficient judiciary is within reach.1 The one recurring theme to avoid delay and the consequent social and economic impact has been to look to alternative dispute resolution (ADR) mechanisms. As far back as 1978, the Law Commission of India, in its 76th report, detailed the history of arbitration in India, including the historical trend towards this form of alternative dispute resolution.2 Every ADR process of course has to gain legitimacy through the existing judicial system to ensure that there is acceptance of the ADR process.

The ADR process has to be efficacious to be accepted as an alternative to the mainstream dispute resolution system. For this to transpire, any support that the ADR process seeks from mainstream litigation also has to be efficacious. If this does not happen, the ADR process would become irrelevant as an alternate to litigation.

Arbitration has been put forth and continues to be an effective alternate remedy in many jurisdictions when compared to mainstream litigation for a number of reasons. Studies show that the businesses over the world prefer resolving disputes, overwhelmingly, through arbitration when compared to litigation.3 For an effective arbitration regime, court support is important. This chapter looks at empirical data collected from courts in the context of cases relating to arbitration and analyses the same in the context of the larger issues of socioeconomic delay plaguing the Indian judiciary.

Role of Courts in Arbitration: Why and How Much?

The role of national courts and arbitration has been stated to be one of true partnership and forced co-habitation. Thus, if arbitration is to work as a truly short alternative to long-drawn litigation, there has to be excellent support from the litigation process. At every instance, persons who have opted for arbitration need judicial support. Such judicial support needs to be clear, steady, and swift. Unfortunately, the situation is that any support that Indian courts have lent to arbitration in itself has been long-drawn and slow, thus frustrating the arbitration process as an alternative. For instance, if parties disagree on the nominees to constitute a tribunal, the option available, particularly in the context of ad hoc arbitration, is to go to court and get help in constituting the tribunal. Unfortunately, this process of getting the tribunal constituted itself can take much longer than anticipated.

The Supreme Court has stated that:

…the primary object of the arbitration is to reach a final disposition in a speedy, effective, inexpensive and expeditious manner. In order to regulate the law regarding arbitration, legislature came up with legislation which is known as Arbitration and Conciliation Act, 1996. In order to make arbitration process more effective, the legislature restricted the role of courts in case where matter is subject to the arbitration. Section 5 of the Act specifically restricted the interference of the courts to some extent. In other words, it is only in exceptional circumstances, as provided by this Act, the court is entitled to intervene in the dispute which is the subject matter of arbitration. Such intervention may be before, at or after the arbitration proceeding, as the case may be. In short, court shall not intervene with the subjectmatter of arbitration unless injustice is caused to either of the parties.4

In this chapter, I examine the issue of judicial delay within the specific context of matters pertaining to arbitration that come up before subordinate courts and whether amendments in the recent past have helped address this issue. I will analyse data from the DAKSH database by evaluating whether the Amendment Act of 2015 accomplishes its desired objective of remedying the delays caused by the Arbitration and Conciliation Act, therefore, rendering arbitration in India a more effective and economically feasible ADR method. The study is restricted to data collected from selected districts between May and September 2018.5

History of Arbitration in India In the Indian context, arbitration was introduced

In the Indian context, arbitration was introduced by the 1st Legislative Council by way of the Indian Arbitration Act, 1899, and was derived from the British Arbitration Act, 1889. This was superseded by the Arbitration Act, 1940, and eventually by the Arbitration and Conciliation Act, 1996 (Act), which ironed out defects that had been observed in the Arbitration Act, 1940. The Act incorporated the provisions of the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration. The Act consolidated and amended laws relating to domestic arbitration, international commercial arbitration, and enforcement of foreign arbitral awards. The idea is that almost every nation across the world is trying to bring similar arbitration legislation to ensure that awards obtained in one country can be enforced in another along the lines of the New York Convention.6

The necessity to enact extensive amendments to the Act was acknowledged within half a decade of the Act coming into force, by way of Report No. 176 on the ‘Arbitration and Conciliation (Amendment) Bill, 2001’ submitted by the Law Commission of India,7 which observed that arbitration proceedings were experiencing severe delay, and specifically quoted the observation of the Supreme Court that the arbitral process was subject to severe delays.8 The Act was subsequently amended in 2005 by the Arbitration and Conciliation (Amendment) Act, 2005, and further amended in 2015 by the Arbitration and Conciliation (Amendment) Act, 2015.

The Arbitration and Conciliation (Amendment) Act, 2015 (Amendment) was a consequence of deliberations and study that spanned over a decade comprising inter alia reports, bills, consultation papers, national conferences, and draft papers, submitted by eminent persons and various institutions. The Amendment incorporated the recommendations of Report No. 246 (Report) submitted by the Law Commission of India in August 2014. The Report observed that the Act had ‘come to be afflicted with various problems including those of high costs and delays’ and highlighted the failure of the Act to fulfil its objective—to serve as an efficient (in terms of time and expense) method of alternative dispute resolution. The Report stated that the Act was ‘no better than either the earlier regime which it was intended to replace; or to litigation, to which it intends to provide an alternative’. Consequently, the Amendment incorporated changes to address inadequacies of the Act. Significant among these are the amendments that make the proceedings under the Act time-bound. Another recent set of amendments have come to be passed in 2019, which have seen, inter alia, the setting up of the Arbitration Council of India. The changes introduced by the amendment of 2019, however, will not be the focus of the present discussion.

This chapter examines arbitration-related matters before courts that include (among others) matters under (a) Section 9 for seeking interim measures and (b) Section 34 for setting aside of arbitral award. Section 9 of the Act pertains to applications for interim measures, and is more commonly filed prior to commencement of arbitration proceedings. Section 9, after the Amendment was passed, prescribes a time limit of 90 days to commence arbitration proceedings after obtaining an interim order. The language of Section 9 is fairly widely worded, hence, bringing into its scope a wide range of interim reliefs that can be granted. These reliefs can be granted prior to the constitution of an arbitral tribunal, after the award has been made and prior to the enforcement of the award, and also when a tribunal has been constituted, but any interim relief by a tribunal may not be considered efficacious. Once relief is obtained via the Section 9 route, it is required that parties must approach the relevant arbitrators and constitute an arbitral tribunal within a period of 90 days, unless the court allows for an extension. If one views the various decisions in cases that have been brought to court under Section 9, they include the following types of cases:

  1. Cases securing financial amount: Cases in which one of the parties would like to secure the financial amount in dispute, where courts can direct parties to furnish guarantees.
  2. Symbolic possession of properties: Cases wherein courts have directed parties to take symbolic possession of the properties involved.
  3. Receivers and property disclosure: Courts have also allowed receivers to be appointed over certain properties and have also allowed disclosure of property details in terms of what was owned by a specific party.

Section 34 of the Act relates to applications for setting aside of the order passed by an arbitral tribunal.

The procedure prescribed under Section 34 mandates issuance of notice by a party seeking the setting aside of such an award to the other party to the arbitration proceedings. Section 34 was amended by the Amendment to impose a time limit of one year from the date of issuance of such notice to the date of disposal of application.

Methodology

This chapter relies on data collated by DAKSH across several districts in India from the web-based platform of subordinate courts in India (ecourts. gov.in). The data was collected between May and September 2018. This chapter will compare the statistics of cases filed before December 2015 and from January 2016 onwards in order to assess the impact of the Amendment. For pending cases, the duration for which a particular matter has been pending will be computed between the date on which the matter was filed and the date on which data was collected. Data analysis excludes outliers in order to account for observational error and aberrant data, which would cause significant variance in the computation of averages.

figure 3.4.1.Average Pendency (in Days)

figure 3.4.2.Average Pendency (in Days) of Section 9 Cases

Figure 3.4.2 shows that the average pendency of cases filed prior to the Amendment for matters filed under Section 9 of the Act is greater than the average pendency of cases filed post Amendment by a significant margin. Prior to the Amendment, matters pertaining to Section 9 of the Act remained pending for an average of 1390.2 days. Upon the Amendment having come into force, the average number of days that matters have remained pending has decreased to 232.27 days.

figure 3.4.3.Average Pendency (in Days) of Section 34 Cases

Figure 3.4.3 shows that the average pendency of cases filed prior to the Amendment for matters filed under Section 34 of the Act is greater than that of matters filed post Amendment. Prior to the Amendment, matters pertaining to Section 34 of the Act remained pending for an average of 1,442.77 days. Upon the Amendment having come into force, the average number of days that matters have remained pending has decreased to 421.46 days.

An analysis of the data pertaining to pending cases reveals that the Amendment might have played a role in boosting the efficiency of courts. As a lawyer, it is my opinion that the Amendment has been the primary driver of change in the pace of proceedings before the courts, as judges have often cited the statutorily prescribed limit as a strict deadline.

However, the success of the Amendment is severely limited by the fact that by and large, courts have not strictly adhered to the time limits prescribed in the Amendment. Delays are therefore prevalent, though to a lesser degree, and the average pendency of arbitration-related disputes in courts continues to be a vast and pervasive problem.

Disposed Cases

Prior to the Amendment, matters pertaining to arbitration were disposed within an average period of 548.85 days, as seen in Figure 3.4.4. Post the Amendment, arbitration matters have been disposed of significantly more expeditiously, at an average of 199.5 days.

figure 3.4.4.Average Days to Disposal

figure 3.4.5.Average Days to Disposal of Section 9 Cases

Similarly, as seen in Figure 3.4.5, applications filed under Section 9 of the Act were being disposed of within an average period 296.46 days prior to the Amendment. This has shown remarkable improvement post the Amendment, and the average period of disposal has shrunk to 143.43 days. The present data measures the duration between the date of filing and the date of disposal, as opposed to the date of passing of the interim order and the date of commencement of arbitration proceedings. However, based on my observation and experience as a lawyer, I surmise that the time taken between the date when the interim order is passed and date when arbitration commences has also reduced—the effect of the Amendment in speedier disposal of applications filed under Section 9 prompting parties to move forward to the next stage of resolution expeditiously. While this is not a comparative observation, it is significant in the context of the 90-day limit imposed by the Act.

As seen in Figure 3.4.6, the average duration has decreased from 721.67 days for matters filed prior to December 2015 to 328.48 days post December 2015.

I am of the considered opinion that since the statute, on account of the Amendment, prescribes a strict time limit of one year between date of issuance of notice to date of disposal of application, there has been a significant decrease in the average duration required to dispose of applications under Section 34 of the Act. From the data provided earlier, it is evident that there has been a decrease in the average duration of pendency as well as disposal. While there remain several possible extraneous factors that might have resulted in this decrease, from the standpoint of legal practitioners, having observed proceedings pertaining to arbitration over the course of over a decade, it is apparent that courts have been mindful of the Amendment. More often than not, the Act in its amended form serves as a tool to conclusively establish a strict deadline on the proceedings.

figure 3.4.6.Average Days to Disposal of Section 34 Cases

Impact

The preceding section highlights the marked difference in the duration of court proceedings for cases filed post the Amendment and prior to the Amendment. However, while the Amendment has been a positive driver of change, procedural delay is rampant and remains an institutional problem that negates the very purpose of arbitration as an ADR mechanism. In this context, it becomes necessary to set out the negative and wide-ranging socio-economic impact of such delay, especially in the context of arbitration being intended to circumvent such impact.

Judicial delay comes at great economic cost, especially in the corporate-commercial sphere. India is ranked 100 out of 189 countries in the World Bank rating or Ease of Doing Business 2017. India is ranked 178 among 189 countries on ease of enforcing contracts. Contract enforcement plays a significant role in the economy and has serious impact on cash flow. A strong contract enforcement regime would boost productivity. A survey conducted by Boehm and Oberfield concluded that reducing court congestion would improve industrial productivity by around 5 per cent.9 The study further observed that weak enforcement often created situations wherein parties choose to purchase from trusted suppliers or altogether cease purchasing materials by ‘vertically integrating and making the components themselves, or by switching to a different production process’.

The former Chief Justice of India, T.S. Thakur, stated that in relation to ‘Make in India’ foreign investment in India would require a judicial system capable of handling cases and disputes that may arise out of such investments. He stated, ‘[e]fficacy of the judicial system is so vitally connected with the development of this country.’10 According to the 2005 World Bank Enterprise Survey data, of the firms surveyed, 12.5 per cent were party to court cases during the period 2001–2004. Of these firms, about 22.5 per cent stated that poor contract enforcement was a constraint to doing business. Slow courts are more expensive for litigants. Contract enforcement can take years to be resolved, which could result in parties avoiding making investments in India or participating in surplus-generating transactions.11

To contextualise this data, both Section 9 and Section 34 of the Act can be examined. An application for grant of interim measures frequently results in the courts granting the interim measure sought. With respect to disputes involving contract enforcement, this could prevent certain portions of the contract from being enforced, which would have an impact on cash flow. This would have wideranging impact on the functioning of the affected party, from payment of salaries to employees, to not being able to pursue or fulfil other transactions. Once an interim order is passed, the order would be in effect for a maximum of 90 days before the court, unless the court grants an extension, and the interim measure would then be considered further by the arbitral tribunal. Failure of the court to dispose of applications filed under Section 9 increases the overall time taken to resolve the dispute.

Similarly, once arbitration is concluded, more often than not, an application is filed under Section 34 of the Act, seeking for the award to be set aside. When court proceedings under this Section get delayed—and often, such proceedings can span years—they completely vitiate expeditious arbitration proceedings. The affected party is denied timely relief due to judicial delay.

Conclusion

In the words of Lord Mustill:

Ideally, the handling of arbitral disputes should resemble a relay race. In the initial stages, before the arbitrators are seized of the dispute, the baton is in the grasp of the court; for at that stage there is no other organisation which could take steps to prevent the arbitration agreement from being ineffectual. When the arbitrators take charge they take over the baton and retain it until they have made an award. At this point, having no longer a function to fulfil, the arbitrators hand back the baton so that the court can, in case of need, lend its coercive powers to the enforcement of the award.12

Courts play a crucial role with respect to arbitration, and the success of the arbitration regime in India is contingent upon courts acting expeditiously within the statutorily prescribed time frame. While this author is of the opinion that the Amendment has been successful in curbing judicial delay, this success is severely limited by the fact that the strict time frames prescribed by the Act are not being met. The data analysed in this chapter clearly indicates that the Act is not being enforced strictly, and this judicial delay has a negative socio-economic impact.

Notes

* The author wishes to acknowledge the research and support of Pooja Kini, Associate, Samvād: Partners, in preparing this article. I would like to particularly acknowledge her for data analysis.

  1. Ministry of Finance. 2019: ‘Ending Matsyanyaya: How to Ramp up Capacity in the Lower Judiciary’, in Economic Survey 2018–2019, pp. 109–114.
  2. Law Commission of India. 1978: Seventy Sixth Report on Arbitration Act, 1940. New Delhi: Government of India, pp. 2–8, available online at http://lawcommissionofindia.nic.in/51-100/Report76.pdf (last accessed on 30 August 2019).
  3. Adrian Hodis. 2018: ‘2018 International Arbitration Survey: The Evolution of International Arbitration’, Queen Mary University of London, available online at http://www.arbitration.qmul.ac.uk/research/2018/ (accessed on 30 August 2019).
  4. Union of India v. Varindera Constructions Ltd.: (2018) 7 SCC 794, para 12.
  5. Data has been compiled across the districts of Ambala, Amritsar, Balodabazar, Bathinda, Beed, Bengaluru, Bengaluru Rural, Bhiwani, Buldhana, Chikballapur, Coimbatore, Cuddalore, Dakshina Kannada, Darjeeling, Dharmapuri, Fatehbad, Ferozepur, Gadag, Ganjam, Gurdaspur, Gurugram, Hassan, Haveri, Hoshiarpur, Idukki, Jaipur, Jalandhar, Jalpaiguri, Jashpur, Jhajjar, Jharsuguda, Kalahandi, Kannur, Kapurthala, Karnal, Kolhapur, Kollam, Koraput, Kottayam, Kozhikode, Krishna, Kurukshetra, Latur, Ludhiana, Madhubani, Mallapuram, Mandya, Mansa, Mayurbanj, Moga, Muktsar, Mysuru, Nashik, Nellore, Nuapada, Pallakad, Panchkula, Panipat, Pathanamthitta, Pathankot, Patiala, Pune, Puri, Raichur, Rewari, Rohtak, Rupnagar, Sambalpur, Sangrur, South 24 Paragnas, Theni, Thiruvananthapuram, Toothukudi, Tiruchirapalli, Thrissur, Thiruchirapalli, Tiruvallur, Vijayapura, Virudhanagar, Vishakapatnam, and Warangal.
  6. Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958.
  7. Law Commission of India. 2001: Report No.176 on Arbitration and Conciliation (Amendment) Bill, 2001. New Delhi: Government of India, available online at http://lawcommissionofindia.nic.in/arb.pdf (last accessed on 30 August 2019).
  8. Law Commission of India. 2001: Report No.176 on Arbitration and Conciliation (Amendment) Bill, 2001. New Delhi: Government of India, paragraph 1.8, p. 16, available online at http://lawcommissionofindia.nic.in/arb.pdf (accessed on 30 August 2019).
  9. Johannes Boehm and Ezra Oberfield. 2019: ‘(Un)ease of doing business: How congested courts hinder firm productivity’, VoxDev, 7 February, available online at https://voxdev.org/topic/institutions-politicaleconomy/unease-doing-business-how-congestedcourts-hinder-firm-productivity (accessed on 30 August 2019).
  10. The Times of India, 2016: ‘An Overworked Chief Justice T.S. Thakur Breaks Down in front of PM Modi’, The Times of India, 24 April.
  11. Amrit Amirapu. 2016: ‘Justice Delayed is Development Denied: The Effect of Slow Courts on Economic Outcomes in India’, Ideas for India, 22 August, available online at https://www.ideasforindia.in/topics/governance/justice-delayed-is-development-denied-the-effect-of-slowcourts-on-economic-outcomes-in-india.html (accessed on 30 August 2019).
  12. Lord Mustill. 1993: Comments and Conclusions in Conservatory Provisional Measures in International Arbitration, 9th Joint Colloquium. ICC Publication.