Loopholes in new arbitration law

OUT OF COURT

Though the new Arbitration and Conciliation Act was in place since 1996, some disputes that started when the 1940 Act was in force are yet to be concluded.

The Supreme Court recently dealt with an application in a 16-year-old dispute that is still pending before a civil court (National Aluminium Co Ltd vs Pressteel & Fabrications Pvt Ltd).

In view of the long delay in deciding the dispute, the Supreme Court wanted to grant certain relief to the aggrieved party, but it found that a loophole in the new law tied its hands.

The dispute between the two companies started when the old law was being followed. Both parties moved the Supreme Court then and by agreement appointed an arbitrator. They also agreed that the proceedings would be governed by the new Act.

However, when the award was pronounced, new disputes were raised. First, which Act would be followed when objections are raised about the appointment of the arbitrator? Second, which court would deal with the objections "" the court which appointed the arbitrator as in the old Act or the principal civil court with the original jurisdiction? The Supreme Court answered that the new law would apply.

On the second point, it said that the civil court would deal with the objections. Meanwhile, the Supreme Court discovered that it could not permit the winning side in arbitration to enjoy even part of the fruits of the victory because of a lacuna in the new Act.

Under Section 34 of the 1996 Act, when an award is challenged within the prescribed time, it cannot be executed. It is automatically suspended. There is no discretion left with the court to pass any interlocutory order. It can only adjudicate finally the correctness of the claim made by the applicant. In view of this situation, even the Supreme Court found itself helpless.

About this provision that creates such an unenviable situation, the Supreme Court remarked: "It defeats the very objective of the alternative disputes resolution system to which arbitration belongs."

The judges pointed out that there was a recommendation made by the ministry concerned to Parliament to amend Section 34 of the Act with a proposal to empower the civil court to pass suitable interim orders in such cases.

The Supreme Court urged the government to press for the amendment. "In view of the urgency of such an amendment, we sincerely hope that necessary steps would be taken by the authorities concerned at the earliest to bring about the required change in the law."

The Supreme Court has the discretionary power under Article 142 of the Constitution to pass orders to do "complete justice". The party which had the award in its favour prayed that this power should be used in its favour in view of the long delay in the proceedings.

The Supreme Court found this was also not possible in view of the lapse in the new Act. This was because the new Act provided a specific remedy under Section 34. Since the law is explicit on this subject, the Supreme Court felt it was not proper to exercise its discretionary powers.

Though the new Act has worked satisfactorily and has not raised any legal conundrums so far, some vexed issues have come to light in the Supreme Court. Two years ago, for instance, one bench referred the question of payment of interest on disputed amounts in arbitration cases to the Chief Justice of India for reconsideration.

This is because a five-judge constitution bench and a number of other benches have given differing opinions on this point. The question arose in an arbitration case between the Orissa Irrigation department and a contractor.

The Orissa High Court had awarded interest for the pre-reference period to the contractor of an irrigation project. Therefore, the state government appealed to the apex court. The order for reconsideration was made in this case.

While these might be minor flaws in the law which could be corrected, the main thrust should be to speed up arbitration. The Supreme Court is still seized of cases that hark back to the 1940 Act.