PARTY AUTONOMY VIS-A-VIS JUDICIAL INTERVENTION IN SETTING ASIDE ARBITRAL AWARD: A QUEST FOR EQUILIBRIUM BY - RITIKA SINGH

PARTY AUTONOMY VIS-À-VIS JUDICIAL INTERVENTION IN SETTING ASIDE ARBITRAL AWARD: A QUEST FOR EQUILIBRIUM
 
AUTHORED BY - RITIKA SINGH
LL.M. [NLSIU, BENGALURU]
 
 
 
Abstract-
A tussle between party autonomy and judicial intervention has gradually become a cornerstone for legal discussions. Parties often resort to arbitration because of sufficient flexibility in conducting arbitral proceedings. However, the frequent intervention of the courts, disguised as judicial supervision, raises concerns such as whether the arbitration proceedings are non-adversarial in true sense. Whether the court is upholding the doctrine of party autonomy to enhance the objective of the Arbitration and Conciliation Act in India. This paper examines the doctrine of party autonomy in light of judicial intervention while setting aside an arbitral award. To address this, the paper explores several sources, including scholarly articles, landmark judgements of the Supreme Court relevant to this issue, and the Arbitration Act of 1996. The paper argued that the courts have expanded judicial intervention while setting aside arbitral awards by interpretating the vaguely defined terms in section 34 of the 1996 Act. Although, 2015 amendment has endeavored to limit judicial intervention, achieving this goal is still a far-fetched dream. The paper concludes that achieving an equilibrium between party autonomy and judicial intervention is a complex issue, as courts are the custodians of both individual rights and interests of society at large. However, the courts should avoid an interventionist approach and instead play a supervisory role to develop arbitration as an efficient alternate dispute resolution mechanism for commercial disputes in India, thereby, contributing in its economic development.
 
Key words- Party Autonomy, Judicial Intervention, Judicial Supervision, Arbitral award.
 
 
 
Introduction-
“Unless otherwise agreed by the parties…”[1]
What would the legislature have intended while incorporating this phrase in the Arbitration and Conciliation Act, 1996?[2] To protect party autonomy and respect contractual freedom in the arbitration proceedings? Parties have been given immense autonomy in resolving their disputes through arbitration. This autonomy encompasses the power to execute arbitration agreement, to submit their disputes to arbitration,[3] choose the arbitrator, determine the procedure to conduct arbitral proceedings, and to waive certain procedural requirements.[4] This flexibility, unlike the adversarial proceedings, in determining the way in which their disputes will be resolved, has captivated parties to opt for arbitration.
 
The Act of 1996 delineates the scope of judicial intervention under section 5 as “…no judicial authority shall intervene except where so provided in this Part.”[5] Despite this, the increase in judicial intervention in domestic arbitration due to liberal interpretation of the provisions, have attracted considerable academic discussions. This paper examines the doctrine of party autonomy in the light of judicial intervention while setting an arbitral award under section 34[6] of the Act. It is crucial to analyze and delineate the extent to which the courts can exercise their jurisdiction in this regard as excessive judicial intervention under the guise of judicial supervision would be a sheer violation of party autonomy. If the extent of intervention by the court is not restricted, it could revert the arbitration landscape to the situation under Arbitration Act, 1940, thus defeating the legislative intent for enacting the 1996 Act. The paper argues that excessive judicial interference in arbitral proceedings not only undermine party autonomy but also transforms arbitration into an adversarial process. Consequently, it could hamper the economic development in India and increase the burden on the courts.
 
The paper will begin with a brief introduction to the doctrine of party autonomy and judicial intervention in the context of setting aside of arbitral awards and then went on to examine relevant judgements of the Indian Supreme Court regarding judicial intervention. Consequently, the paper will highlight the quest for a balance between these two concepts while setting aside of arbitral award to uphold the interests of justice.
Party autonomy in the context of section 34-
The freedom of parties to tailor different aspects of arbitration proceeding for resolving their disputes is the essence of the 1996 Act. This autonomy is particularly significant when challenging an arbitral award made by the tribunal. Section 34(1) of the Act embodies the concept of party autonomy by providing parties the freedom to challenge arbitral award by filing an application in the court.[7] Most of the grounds enumerated under section 34 are directly or indirectly substantiating the doctrine of party autonomy such as, invalidity of the arbitration agreement in the jurisdiction agreed upon by the parties,[8] non-compliance of the composition or procedure of arbitral tribunal with the arbitration agreement,[9] and the arbitral award was ultra vires to the dispute submitted for arbitration.[10] However, there are also limitations on party autonomy in challenging the award to prevent misuse by the other party and to maintain integrity of the arbitration process. It requires the party filing the application to furnish proof of the ground for challenging the award. Moreover, the Supreme Court in ONGC v. SAW Pipes Ltd.[11] observed that an exception for challenging arbitral award on the ground related to composition or procedure of arbitral tribunal is, the compliance of arbitration agreement with Part-I of the Act.[12] Although majority of provisions in Part-I of the Act grant an overriding effect to party autonomy with the phrase, “unless otherwise agreed by the parties,”[13] such agreement must be in accordance with interests of justice and limitations prescribed by the Act of 1996. 
 
Judicial Intervention in the context of section 34-
Party autonomy is undoubtedly the essence of the arbitration process; however, judicial supervision in arbitration proceedings is unavoidable. It serves as a check against fundamental flaws in the arbitration proceedings and upholds the interests of justice. However, the liberal interpretation of provisions regulating setting aside of awards under Arbitration Act, 1940 had led to excessive judicial interference in arbitration proceedings, thereby, defeating the very purpose of resorting to a non-adversarial process. The legislature incorporated section 34 under the newly enacted 1996 Act, to restrict judicial interference and uphold the finality of arbitral awards by providing limited grounds for challenge. Section 34(1) limits judicial interference in setting aside an arbitral award  by specifying the condition of filing an application by parties to invoke court’s jurisdiction. Additionally, an opportunity of judicial supervision is provided under section 34(2)(b)[14] to prevent justice from being compromised.
 
Arbitral awards are intended to be final,[15] and courts should avoid interfering with them in a mechanical manner. Recourse to the court is provided solely to substantiate the demands of justice and not to adjudicate the dispute on its merits.
 
Judgements regarding Judicial intervention-
Indian courts are largely in consensus with respect to setting aside an arbitral award under section 34(2)(a)[16] of the 1996 Act, which requires the party making the application to furnish proof for challenging the award. However, excessive judicial interference has been reported while setting aside of the award by the court under section 34(2)(b), where courts are empowered with wide discretionary power to interpret the terms such as whether the subject-matter is arbitrable or if the award contravenes Indian public policy. This demands a quest for equilibrium in determining which subject-matter is not arbitrable? What constitutes public policy of India? Courts have sought to govern their wide discretionary power by interpreting these terms in various judgements.
 
The concept of ‘public policy in India’ has been a limitation to party autonomy. Courts have often played an interventionist role while setting aside the arbitral awards for being in conflict with Indian public policy. This issue was addressed in Renusagar Power Co. Ltd. v. General Electric Co.[17] where the court had elaborated the contents of public policy as being contrary to- (i) fundamental policy of Indian law; or (ii) interests of India; or (iii) justice or morality.[18] This was intended to provide some guidance to courts in exercising judicial discretion. However, the intervention took its pace when the hon’ble Supreme Court interpreted this term in broadest sense possible in ONGC v. SAW Pipes Ltd.[19] The court quoted Nani Palkhivala’s opinion, “If the arbitral tribunal does not dispense justice, it cannot truly be reflective of an alternate dispute resolution mechanism. Hence, if the award has resulted in an injustice, a Court would be well within its right in upholding the challenge to the award on the ground that it is in conflict with the public policy of India”[20] to justify setting aside of award on being contrary to public policy. Additionally, the court introduced a new ground in addition to the already existing ones, which is “Patent illegality” and interpreted it to include violations of substantive laws in India.[21] This interpretation was a major setback to party autonomy and objective of the 1996 Act, which allows parties to tailor governing laws according to their specific needs. It expanded the scope of judicial review in setting aside an arbitral award. This judgement undermined the hallmark of arbitration, which is party autonomy. Later, the Supreme Court in Associate Builders v. Delhi Development Authority,[22] discussed ‘patent illegality’ as a ground under section 34. The court in para 42.3 of the judgement observed that patent illegality as a ground is in contravention to section 28(3)[23] of the Act. The court further observed, “Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair minded or reasonable person could do.”[24] It refused to accept errors of substantive laws as a valid ground to set aside the award. This view was further reiterated in Ssangyong Engineering and Construction Company Limited v. NHAI.[25]
 
To address these conflicting views and excessive judicial interference, legislature introduced amendments in 2015 under section 34. It expressly added “patent illegality” as a ground to set aside an award, however, refrained from giving it an expansive interpretation in proviso to section 34(2A) to exclude errors of law or reappreciation of evidence.[26] This insertion was based on the recommendations of 246th Law Commission Report. The amendment also enumerated that an award is in conflict of public policy if it involves fraud, corruption, contradiction to fundamental policy of Indian law, or conflicts with most basic notions of morality or justice.[27] Explanation 2 to section 34(2) cautioned that examining an arbitral award on touchstone of violating the fundamental policy of Indian law does not mean adjudicating the  merits of the dispute. Although, legislature has clarified the concept of public policy to some extent, its contents are still subject to wide interpretation. As Burrough J. has rightly quoted in Richardson v. Mellish[28] that public policy is “a very unruly horse, and when once you get astride it you never know where it will carry you.” The supreme court in OPG Power Generation Private Limited v. Enexio Power Cooling Solutions India Private Limited and Ors.[29] observed, “…For lack of any objective criteria, it is difficult to enumerate the ‘most basic notions of justice’. More so, justice to one may be injustice to another…”[30] However, the court clarified that broad interpretation would undermine the intent of legislature. It should be such elementary principle of justice that its violation could be identified by a prudent member who may or may not be judicially trained. It would shock the conscience of judicially trained mind. The court further observed that while exercising power under section 34, the court does not act as an appellate body over the arbitral award. The arbitrator is the ultimate master and its possible view must be respected. It is only when an arbitral award is perverse on an error of fact, it may be set aside. While interpreting ‘perverse’, the court observed that the award would be perverse when on full reading of contract, the view of the tribunal on the terms of the contract is not the possible view.[31]
 
Consequently, a conjoint reading of section 34 reveals that even the examination of an arbitral award by the court on the grounds mentioned under section 34(2)(b)[32] requires application to be filed by the party for setting aside the award. Nevertheless, the terms elaborated by the courts in various judgements are very vague in nature and not well defined, thus, again warranting exercise of judicial discretion. These terms often confuse parties and create difficulty in navigating the grounds on which awards can be set aside under section 34(2)(b). Courts should refrain from setting aside awards in mechanical manner, as if the disputes are ultimately going to be adjudicated in courts, why would parties or tribunal endeavor to resort to arbitration. The court in McDermott International Inc. v. Burn Standards Co. Ltd.[33] rightly observed the importance of minimal supervisory role of courts in reviewing arbitral award to ensure fairness, recognizing that it was a conscious decision of parties to exclude the jurisdiction of courts.[34]
 
Conclusion-
It is imperative that section 34 of the 1996 Act is enacted in a manner that endeavours to maintain equilibrium between party autonomy and judicial intervention in the arbitration proceedings. The section limits party autonomy by requiring proof of the grounds on which a party is challenging the award, while on the other hand it also restricts judicial intervention by stipulating the requirement of application by a party requiring courts’ interference. Judicial intervention should be limited to the extent of preventing prejudice to the parties or substantial injustice. The Arbitration and Conciliation Act, 1996, is enacted for the benefit of parties; hence, judicial interference should also be oriented towards enhancing the interests of the parties as if the parties have desired their disputes to be resolved by the court, they would not have excluded its jurisdiction through an arbitration agreement.
 
The courts as well as the legislature, by clearly outlining the contents of section 34, particularly with regard to non- arbitrable subject-matters and public policy, can address these issues at the initial levels. More precise definitions, avoiding use of vague philosophical terms, could provide guidance to parties when framing arbitration agreements and to arbitral tribunals when making awards, thereby reducing the possibility of arbitral awards being set aside.
 
Achieving an equilibrium between party autonomy and judicial intervention is a complex issue, as courts are the custodians of individual rights and interests of society at large. However, the court should not resort to interventionist approach and instead play a supervisory role to develop arbitration as an effective alternate dispute resolution mechanism for commercial disputes, thereby, contributing in economic development of India. Striking an equilibrium between part autonomy and judicial intervention will enhance India’s position in preferred options while choosing arbitration seats. It will also attract foreign companies for doing business in India by reassuring them with an alternative settlement of dispute mechanism that respect their autonomy.
 
References-
Statutes:
1.      The Arbitration and Conciliation Act, 1996.
2.      The Arbitration and Conciliation (Amendment) Act, 2015.
3.      The Arbitration Act, 1940.
Case Laws:
1.      Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49.
2.      McDermott International Inc. v. Burn Standards Co. Ltd., (2006) 11 SCC 181.
3.      Oil & Natural Gas Corporation Ltd. v. SAW Pipes Ltd., (2003) 5 SCC 705.
4.      OPG Power Generation Private Limited v. Enexio Power Cooling Solutions India Private Limited and Ors, (2024) 9 SCR 490.
5.      Patel Engineering Ltd. v. North Eastern Electric Power Corporation Ltd., (2020) 7 SCC 167.
6.      Renusagar Power Co. Ltd. v. General Electric Co., AIR 1994 SC 860.
7.      Richardson v. Mellish, (1824) 2 Bing 229.
 
Books:
1.      JB SARAF ET AL., LAW OF ARBITRATION AND CONCILIATION (10th ed. 2023).
 
Journal Articles:
1.      Aloke Ray et. al., Indian Arbitration at a Crossroads, 2 Global Arbitration Review (2007).
2.      Bhavya Goswami, Evaluation of Applicability of Judicial Intervention in Arbitration Proceedings: Arbitration and Conciliation Act, 1996, 19 Supremo Amicus 179 (2020).
3.      Sunday Fagbemi, The doctrine of party autonomy in international commercial arbitration: myth or reality, 6 JSDLP (2016).

[1] The Arbitration and Conciliation Act, 1996, No. 26, Acts of Parliament, 1996 (India).
[2] Id.
[3] The Arbitration and Conciliation Act, 1996, §7, No. 26, Acts of Parliament, 1996 (India).
[4] Id.
[5] The Arbitration and Conciliation Act, 1996, §5, No. 26, Acts of Parliament, 1996 (India).
[6] The Arbitration and Conciliation Act, 1996, §34, No. 26, Acts of Parliament, 1996 (India).
[7] Supra note 6.
[8] The Arbitration and Conciliation Act, 1996, § 34(2)(a)(ii), No. 26, Acts of Parliament, 1996 (India).
[9] The Arbitration and Conciliation Act, 1996, § 34(2)(a)(v), No. 26, Acts of Parliament, 1996 (India).
[10] The Arbitration and Conciliation Act, 1996, § 34(2)(a)(iv), No. 26, Acts of Parliament, 1996 (India).
[11] Oil & Natural Gas Corporation Ltd. v. SAW Pipes Ltd., (2003) 5 SCC 705.
[12] Id.
[13] Supra note 1.
[14] 34. Application for setting aside arbitral award.-(2) An arbitral award may be set aside by the court only if…(b) the court finds that—(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force of (ii) the arbitral award is in conflict with the public policy of India.
[15] The Arbitration and Conciliation Act, 1996, § 35, No. 26, Acts of Parliament, 1996 (India).
[16] The Arbitration and Conciliation Act, 1996, § 34(2A), No. 26, Acts of Parliament, 1996 (India).
[17] Renusagar Power Co. Ltd. v. General Electric Co., AIR 1994 SC 860.
[18] Id.
[19] Supra note 11.
[21] Supra note 11.
[23] 28. Rules Applicable to substance of dispute.- (3) While deciding and making an award, the arbitral tribunal shall, in all cases, take into account the terms of the contract and trade usages applicable to the transaction.
[25] Ssangyong Engineering and Construction Company Limited v. NHAI, (2019) 15 SCC 131.
[27]The Arbitration and Conciliation Act, 1996, § 34(2), No. 26, Acts of Parliament, 1996 (India).
[29] OPG Power Generation Private Limited v. Enexio Power Cooling Solutions India Private Limited and Ors, (2024) 9 SCR 490.
[30] Id.
[31] Id.
[32] Supra note 14.
[34] Id.