Arbitration is private dispute resolution procedure chosen by the parties instead of heading towards the courts for the resolution of their inter-se disputes.

As per American Dictionary:

It is the formal process of having an outside person or persons, chosen by both sides to a disagreement, to end such disagreement.

As per Business English:

A process in which an independent person makes an official decision that ends a legal disagreement without the need for it to be solved in court:

Though the concept of arbitration is growing and changing the time scape in India day by day, owing to its swiftness in resolving disputes between parties, albeit there are few instances where it may have failed owing to various factor but still it proves to be a successful medium of dispute resolution system with minimal interference of the courts during the process of arbitration is also one of its high points.

Now a days we hardly find any agreement without an arbitration clause in the event of dispute arising between parties to an agreement. The various kinds of arbitrations on the basis of jurisdiction are such as Domestic, International, International Commercial, Institutional, Ad-hoc, Fast Track are majorly happening in India.Though the most commonly used mode of arbitration in India remains the Ad-hoc arbitration, however with effluent of time and the new areas of disputes, governments stress on foreign direct investments now Institutional arbitration is also picking up day by day.

Another important factor that the parties are choosing arbitration over the traditional style of litigation, the Courts being overburdened with huge backlog of cases, thus slowing down the decision making process, which in turn impacts the overall growth of the industry, discouraging the foreign investors investing money in India, especially in case of disputes arising in commercial transactions, wherein timeline for dispute resolution play an important role.

Brief History:

The law of Arbitration in India was earlier governed substantially by three enactments, namely, Arbitration Act, 1940, the Arbitration (Protocol & Convention) Act, 1937, and the Foreign Awards (Recognition & Enforcement) Act, 1961. The 1940 Act containing General Law and had outlived its life thus necessitating the coming into being of The Arbitration and Conciliation Act, 1996.

The 1996 Act withstood the test of judicial scrutiny in Babar Ali Vs. Union of India (2000)2 S.C.C. 178, wherein the Hon’ble Supreme Court held:

“We find that there is no question of the Arbitration and Conciliation Act, 1996 being unconstitutional or in any way of fending the basic structure of the Constitution of India, as the High Court has rightly observed that judicial review is available for challenging the award in accordance with the procedure laid down therein. Only because the question of jurisdiction of the Arbitrator is required to be considered after the award is passed and not at any penultimate stage by the appropriate court, it cannot be a ground for submitting that such an Order is not subject to any judicial scrutiny. The time and manner of judicial scrutiny can legitimately be laid down by the Act passed by Parliament. The challenge to the vires of the Act was rightly rejected by the High Court. We fully endorse that view.”

In sync with the modern times certain amendments were carried out for further streamlining of the 1996 Act in 2015, the highlights of which are as under:

• It introduced timelines to make arbitration more effective for delivering the awards and fast tracking the process of arbitration proceedings.
• Interference by Courts in arbitration proceedings has been minimised.
• Doing away with the concept of automatic stay on arbitration award by mere filing of an application under section 34 challenging the award.
• Interference of Courts is further limited by the definition of public policy as one of grounds available for challenge under section 34.
• To safeguard assets in India involved in arbitrations, seats of which are outside India, applications can be filed seeking interim reliefs during the the arbitration proceedings.

The amending provisions of the 2015 Amendment Act was discussed in detail by the Hon’ble Supreme Court in BCCI v. Kochi Cricket (P) Ltd., (2018) 6 SCC 287 wherein the it was held:

“Section 36 as amended in 2015, applies to pending Section 34 applications even in arbitrations, which commenced prior to 23-10-2015 i.e. date of coming into force of Amendment Act, 2015, as Section 36 is a procedural provision. The Rule of automatic stay of operation of award on filing of Section 34 application, even in absence of an order of stay/imposition of conditions by court as per unamended Section 36, held, is no longer applicable.

As far as Section 34 is concerned, the position is well­settled by now that the Court does not sit in appeal over the arbitral award and may interfere on merits on the limited ground provided under Section 34(2)(b)(ii), i.e. if the award is against the public policy of India. As per the legal position clarified through decisions of this Court prior to the amendments to the 1996 Act in 2015, a violation of Indian public policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of India, conflict with justice or morality, and the existence of patent illegality in the arbitral award. Additionally, the concept of the “fundamental policy of Indian law” would cover compliance with statutes and judicial precedents, adopting a judicial approach, compliance with the principles of natural justice, and Wednesbury reasonableness. Furthermore, “patent illegality” itself has been held to mean contravention of the substantive law of India, contravention of the 1996 Act, and contravention of the terms of the contract.

It is only if one of these conditions is met that the Court may interfere with an arbitral award in terms of Section 34(2)(b)(ii), but such interference does not entail a review of the merits of the dispute, and is limited to situations where the findings of the arbitrator are arbitrary, capricious or perverse, or when the conscience of the Court is shocked, or when the illegality is not trivial but goes to the root of the matter. An arbitral award may not be interfered with if the view taken by the arbitrator is a possible view based on facts. (See Associate Builders v. DDA, (2015) 3 SCC 49). Also see ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705; Hindustan Zinc Ltd. v. Friends Coal Carbonisation, (2006) 4 SCC 445; and McDermott International v. Burn Standard Co. Ltd., (2006) 11 SCC 181).

It is relevant to note that after the 2015 amendments to Section 34, the above position stands somewhat modified. Pursuant to the insertion of Explanation 1 to Section 34(2), the scope of contravention of Indian public policy has been modified to the extent that it now means fraud or corruption in the making of the award, violation of Section 75 or Section 81 of the Act, contravention of the fundamental policy of Indian law, and conflict with the most basic notions of justice or morality. Additionally, sub­section (2A) has been inserted in Section34, which provides that in case of domestic arbitrations, violation of Indian public policy also includes patent illegality appearing on the face of the award. The proviso to the same states that an award shall not be set aside merely on the ground of an erroneous application of the law or by re­appreciation of evidence.

12. As far as interference with an order made under Section 34, as per Section 37, is concerned, it cannot be disputed that such interference under Section 37 cannot travel beyond the restrictions laid down under Section 34. In other words, the Court cannot undertake an independent assessment of the merits of the award, and must only ascertain that the exercise of power by the Court under Section 34 has not exceeded the scope of the provision. Thus, it is evident that in case an arbitral award has been confirmed by the Court under Section 34 and by the Court in an appeal under Section 37, this Court must be extremely cautious and slow to disturb such concurrent findings.
13. Having noted the above grounds for interference with an arbitral award, it must now be noted that the instant question pertains to determining whether the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration. However, this question has been addressed by the Courts in terms of the construction of the contract between the parties, and as such it can be safely said that a review of such a construction cannot be made in terms of re­assessment of the material on record, but only in terms of the principles governing interference with an award as discussed above.
14. It is equally important to observe at this juncture that while interpreting the terms of a contract, the conduct of parties and correspondences exchanged would also be relevant factors and it is within the arbitrator’s jurisdiction to consider the same. (See McDermott International Inc. v. Burn Standard Co. Ltd. (supra); Pure Helium India (P) Ltd. v. ONGC, (2003) 8 SCC 593, D.D. Sharma v. Union of India, (2004) 5 SCC 325).”

Rightly said:

I can imagine no society which does not embody some method of arbitration. – Herbert Read