Delay and Litigation Cost: Major Roadblocks in Arbitration Process

Overburdened courts, strenuous trials, appeals at every stage and unending delays in the adjudication of commercial suits caused the evolution of the law of arbitration. The purpose was to have an ad-hoc tribunal comprising of specialists to deal with and decide the issues involved in the litigation at a brisk pace.

After the enactment of the Arbitration and Conciliation Act, 1996, the government and the courts have constantly expressed that a pro-arbitration approach should be adopted to meet this basic objective. The enactment of the Amending Act of 2015, which adds Section 29A prescribing the one-year timeline for the publication of Arbitral Awards, is a major step forward in this direction. The Amendment Act of 2015 also made an important addition to Section 36 of the Act to remove the ‘automatic stay’ regime which prevailed earlier as per the law laid down by the Supreme Court in the case of National Aluminium Co. Ltd. v. Pressteel & Fabrications Pvt. Ltd.

The Supreme Court has also aided the said objective by reducing the scope of interference of courts at Section 11 (appointment of arbitrator) as well as at Section 34 (setting aside of award) stages. The High Courts across the country also followed suit in a large number of cases; thereby paving the way for the implementation of arbitral awards and bringing a closure to the dispute. These essential steps have undoubtedly advanced the cause for reference of commercial disputes to arbitration.

The inclusion of an arbitration clause in contracts is gradually becoming the norm across industries, thereby requiring the institution of arbitration to be ready for such a high inflow of disputes. Coupled with this is the foreign investment in the country, which is at an all-time high, and which demands a robust arbitration process.

When the litigating parties agree to refer a dispute to a sole arbitrator, enormous faith is reposed in the arbitral tribunal, as if it were a court of law. The only essential difference is that the fees of the arbitral tribunal are paid by the parties. The parties expect that a tribunal specially constituted for the adjudication of their disputes would invariably decide all the issues in a fair, just and timely manner. However, in the majority of petitions filed under Section 34 challenging arbitral awards, the principal issue being agitated is the non-consideration of facts, documents, evidence and submissions. While it cannot be expected of the arbitral tribunal to deal with every fine argument and every document on record, the award must necessarily consider all the issues, necessary documents relating to such issues and broader submissions of the parties; leaving a little scope for interference in Section 34 petitions. This expectation from the arbitral tribunal is even more crucial when the scope of Section 34 is being minimized by the courts, holding that evidence cannot be reappreciated by the courts.

The principal issue that the parties face even today is delay at every stage of arbitration. The Supreme Court has time and again held that at the stage of Section 11, the only requirement to be satisfied is the prima facie existence of the arbitration clause. Despite this, the pendency of Section 11 petitions before various High Courts is staggering. The delay at the pre-appointment stage is relatively more exhausting for the litigants when compared to civil suits, where there is no such pre-institution delay. The Supreme Court had recently in the case of Shree Vishnu Constructions v. Engineer in Chief, Military Engineering Service observed:

"If the arbitrators are not appointed at the earliest and the applications under Sections 11(5) and 11(6) of the Arbitration Act are kept pending for a number of years, it will defeat the object and purpose of the enactment of the Arbitration Act and it may lose the significance of an effective Alternative Dispute Resolution Mechanism. …The litigant may lose the faith in the justice delivery system, which may ultimately affect not only rule of law but commerce and business in the country."

In this backdrop, the Supreme Court further recorded,

“In that view of the matter, we request all the Chief Justices of the respective High Courts to ensure that all pending applications under Sections 11(5) and 11(6) of the Arbitration Act and/or any other applications either for substitution of arbitrator and/or change of arbitrator, which are pending for more than one year from the date of filing, must be decided within six months from today. The Registrar General(s) of the respective High Courts are directed to submit the compliance report on completion of six months from today. All endeavour shall be made by the respective High Courts to decide and dispose of the applications under Sections 11(5) and 11(6) of the Arbitration Act and/or any other like application at the earliest and preferably within a period of six months from the date of filing of the applications.”  

These observations were made by the Supreme Court after perusing the reports submitted by Registrars of various High Courts on the pendency of Section 11 petitions for over one year. The pendency of Section 11 petitions, even after such observations, has not come down drastically and more focus is required on this aspect.

The second stage of delay is found at the arbitration stage. Though the insertion of Section 29A has largely contained the issue of delay in the process of arbitration, mechanical extensions by the High Courts without appropriately applying the provisions contained in the proviso to Sub-section 4 and Sub-sections 6 and 8 of Section 29A would not further the objective of the Act.

One more major cause for delay in adjudication of arbitrations is that the pool of arbitrators is small across the country, thereby overburdening former judges of the courts with an unmanageable workload. The urgent need is to promote the inclusion of advocates, senior advocates and subject experts in the panels.

The third stage of delay is at the post-award stages provided in Sections 34 and 37 of the Act. The delay at these stages can be reduced by firstly aiding the provisional enforcement of the award subject to the final outcome of the proceedings. The pendency of Section 34 petitions for a prolonged period also demonstrates the failure of the machinery in aiding enforcement of the award. Therefore, there is a need for serious consideration to incorporate a statutory timeframe for the adjudication of applications under Sections 34 and 37.

This takes me to the next major roadblock in arbitrations - the cost of litigation. As has been held by the Supreme Court time and time again, the setting aside of an arbitral award is not the end of the road but only a logical end to an illegal award, which paves the way for a fresh arbitration for an adjudication of the very same dispute before an arbitral tribunal. Though the Act is silent on whether or not the fresh arbitration would take place before the same arbitral tribunal, it is quite discernible that the fresh arbitration would take place. In my opinion, this line of decisions needs a fresher look by the courts insofar as it leads to such an absurdity where a bonafide litigant may have to litigate again for several years in the quest of an enforceable award. Further, because of this, a frivolous claim could be reagitated, leaving the opponent spending again for a costly arbitration. It would also not be out of place to consider remand of proceedings to the arbitrator to pass a fresh award or to direct the refund of arbitral fees to the parties. Otherwise, the entire exercise is rendered inequitable for the litigants.

The increase in the number of arbitrations requires various measures to create an environment of ease of doing business.

About the author: Kunal J Vyas is a Partner at Gandhi Law Associates.

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