Free hand for arbitrators

MJ Antony / New Delhi January 06, 2010, 0:37 IST in The Business Standard

Courts cannot review the evidence and documents already examined by arbitrators.

Though arbitration is considered to be a speedy and economical route to justice, it has often been proved to be as tedious and costly as regular civil litigation. Appeals under the old Arbitration Act of 1940 are still pending in the Supreme Court despite the fact that a comparatively new law is in place since 1996. Last month, the court decided a dispute which started 16 years ago. The irony is that the award was passed in 1996, and since then it was pending in the Uttarakhand High Court and the Supreme Court.

The more paradoxical aspect of the case (M/s Ravindra Gupta & Co vs Union of India) is that the two courts took so long to determine a legal point which is now taken for granted. Should the courts interfere in the award of an arbitrator? In a long series of judgments, the Supreme Court has strictly limited the role of the courts in arbitration matters and given wide elbow room to the arbitrators. Nevertheless, cases are plenty in which the high courts or subordinate courts have re-examined the facts of the dispute and substituted their decision in place of the arbitrator’s. This was one such case.

The Supreme Court has stated in categorical terms that the arbitrator has the final word in a dispute referred to him. Neither party can challenge his award on the ground that he had come to a wrong conclusion. The logic is that if the parties have selected their own forum, it should be conceded the power of appraisement of evidence. Whether a particular amount should be paid is a decision within the competency of the arbitrator. In the State of Rajasthan vs Puri Construction Co (1994) case, the court had categorically stated that “the arbitrator is the sole judge of the quality as well as the quantity of evidence and it will not be for the court to take upon itself the task of being a judge on the evidence before the arbitrator”.

As early as in 1987, the court had explained in the Municipal Corporation of Delhi vs Jagan Nath case that “it may be possible that on the same evidence the court may arrive at a different conclusion than the one arrived at by the arbitrator, but that by itself is no ground for setting aside the award”. The court cannot investigate into the merits of the case or examine the documentary and oral evidence in the record for the purposes of finding out whether the arbitrator has committed an error of law.

The court cannot even examine whether the view taken by the arbitrator is “reasonable”, an amorphous term which has been discussed by judges for centuries. This is because, as the above judgment conceded, “reason varies in its conclusions according to the idiosyncrasies of the individual and the time and circumstances in which he thinks. An arbitrator acting as a judge has to exercise discretion informed by tradition, methodised by analogy, disciplined by system and subordinated to the primordial necessity or order in social life.”

Some awards explain the reasons for arriving at the decision. According to the Supreme Court, whether the award carries reasons or not, the court should not interfere. In the Arosan Enterprises Ltd vs Union of India (1999) case, the court granted some exceptions to the rule. If the award is “totally perverse” or if it is based on a wrong proposition of law, the court can intervene. “In the event of, however, if two views are possible on a question of law as well, the court would not be justified in interfering with the award,” the judgment pointed out.

In a recent case, ONGC vs SAW Pipes Ltd, the court again emphasised that if the arbitral tribunal had committed a mere error of fact or law, the court would still have no jurisdiction to interfere in the award. If the reference to the arbitrator is in general terms, and the award is based on an erroneous legal proposition, the court can interfere in it. If a specific question of law is submitted for arbitration, an erroneous decision in point of law does not make the award bad unless the court is satisfied that the arbitrator had proceeded illegally.

The new Arbitration and Conciliation Act was passed as civil litigation was found to be wasteful and time-consuming. However, cases under the refurbished law are also taking too long to settle as seen in the chronology of recent judgments. Arbitrators, like enquiry commissions, have a stake in prolonging the dispute. The legal profession ably assists them in the endeavour. Reviving old questions in new garbs is one such tricks of the trade. It only adds to the mass of case law.


One thought on “Free hand for arbitrators

  1. Courts can not reexamine the evidence but test is if acceptence or rejection of some evidence against rule of law which ultimately shift the balance of the case then courts are bound to interfere and examine. Arbitration is alternative choice for speedy disposal nevertheless must act within four corners of law. The test applied to challnge judgements of oridinary civil courts is also applicable to Arbitration proceedings also.

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