Libertatem Magazine

Impossibility of Fair Arbitration Proceedings in India

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The Parliament through Amendment has substituted and inserted several clauses in The Arbitration and Conciliation Act, 1996. Namely, an application of referring a matter to an arbitration agreement has been found invalid, if the application so referred under the Act, is not accompanied by an original or duly certified copy of the agreement. However, that shall not mean that an arbitration clause in an agreement is void ab initio merely because there is a dispute on the validity of the agreement. Therefore a dispute, in which validity of agreement forms an integral part, is not where an Arbitrator is competent to decide, however, a party to the contract can maintain an application under Section 33 of the Act. This is in line with the addition of the proviso clause in Section 8(2) through the Amendment of 2016.

Hence, the notary or certification of an agreement must be then irrelevant to measure the validity of an arbitration agreement or the arbitration clause. Thus, either of the parties can, after confirmation from the Arbitrator that there exists a dispute on the validity of the question of the existence of a contract, can approach the Court under Section 27 of the Act to compel the evidence under the provisions of Indian Evidence Act. 

However, one question that still exists is the unenforceability of any such agreement in the arbitral proceedings. Prima facie it may appear that as per the provision of Section 27 when read with Section 17, an arbitrator can compel either of the parties to produce before the proceedings the original agreement with the arbitration clause. However, should either of the parties have fabricated the claims of existence of any such agreement then, quite simply, through the laws in effect in India, there is no such recourse available to the Courts or the Tribunal or either of the parties to ensure swift and efficient justice. Arbitration when referred to the Tribunal by a Court rests under the presumption that both the parties to the proceedings have no ulterior motives to harass the other via the process of the Law. 

In this regard, when the validity of the existence of a contract is in question, or through the frustration of provisions of Limitations Act evidence cannot be compelled, emphasis must be laid on the nature of the case and the conduct of the parties throughout the proceedings. Arbitration proceedings, by their very nature, and as given in the objective clause of the UNICTRAL Model as well as the objective clause of the amended Act are comparatively informal out of Court proceedings. However, through the clever use of the Act, the Limitation Act as well as the Code of Civil Procedure, there exists a loophole in the justice delivery mechanism that litigants have to consistently approach one Court or the other in a case of a malicious suit. It has become a tool of habitual litigants to harass the other party in a way of enmity.

In that regard, it is pertinent to measure the impossibility or unenforceability of a Contract, or an Arbitration agreement or arbitration clause through the jurisprudence laid down by the Hon’ble Supreme Court in Indian Contract Act. 

Through the provisions of Section 16 when read with Section 7 of the Act and the Doctrine of severability of contracts, the Tribunal has been made competent to decide the scope of its own jurisdiction. However, in the same act, specifically through Section 5, and without defeating the provisions of the Act, a judicial authority is supposed to keep minimal intervention in an Arbitration proceeding. Thus, when a presumption of the existence of a contract or the clause for arbitration reasonability exists within the mind of the Tribunal, there is no recourse available to parties but to keep approaching the Courts, keep changing the Tribunal or give up the suit altogether.

Thus, it has become necessary that we look to the jurisprudence of a Contract when applying the provisions of Section 16. 

Section 2(e) of the Indian Contract Act lays down the essentials of an agreement to be a set of promise(s) that form consideration for each other, when read with Section 2(h) it is evident that any such agreement that can be enforced by a Court of law is a contract. Therefore, all arbitration agreement clauses that are severed by the applicability of Section 16 read with Section 7 of the Act must then contract. To measure the validity of such contracts, Section 23 of the Indian Contract Act is of the idea that the object of an agreement must be lawful, i.e., it mustn’t be forbidden by law or is of such a nature that if permitted would defeat the provisions of any law, or most importantly, the Court regards it as immoral or opposed to public policy. 

Application of the provisions of the Indian Contract Act insofar as the validity of an agreement is in question, it can be reasonably ascertained that all Arbitration agreement or clauses that the Tribunal declares as a valid agreement and hence effectively considering it as a Contract if it rules favorably on its jurisdiction is inapplicable in the eyes of the law. But via the doctrine of Section 5 and minimal intervention of the Judicial Courts, the Courts have become incompetent to take cognizance over the matter and hence litigants are lost within the process of the law to effectively ensure justice. 

Thus, the objective and the application of the Arbitration and Conciliation Act, 1996 is wholly out of alignment with each other. It is thus, against the principles of natural justice to propagate injustice through the poor application of the law and the Parliament must redraft and amend the effected provisions or the Hon’ble Supreme Court must declare it ultra vires to the Constitution insofar as the applicability of Article 13 must allow it do so. It is thus, no wonder that India ranks 163 in the enforcement of contracts which forms a basis for ease of doing business in countries. 

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