Delay And Cost Effectiveness In Arbitration: What The Supreme Court Said
Introduction
The Hon’ble Supreme Court in the case of Bombay Slum Development Corporation Private Limited Vs. Samir Narain Bhojwani1 has made relevant observations as to whether arbitration has been cost effective in India. The Court expressed serious concerns regarding the current trend in conduct of arbitration proceedings and the time and cost issues arising from the same. The observations were made by the Apex Court while deciding upon cross-appeals made by the parties against the order dated 07.07.2023 (“impugned judgement”) passed by the division bench of the Bombay High Court (hereinafter referred to as “High Court”) in proceedings under Section 37of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as “Act”). The judgment was delivered by a division bench of the Hon’ble Supreme Court comprising of Justice Abhay S. Oka and Justice Pankaj Mithal on 08.07.2024.
Brief Facts
A Lease Agreement dated 31.03.1993 was executed by Maharashtra Housing and Area Development Authority in favour of Andheri Kamgar Nagar Cooperative Housing Society Limited (“Society”). Thereafter, the Society entered into an agreement on 06.10.1996 with M/s. Aurora Properties and Investments (“Aurora”) as the property developer for implementation of a slum rehabilitation scheme. Under the said scheme, Aurora had to construct rehabilitation tenements for the slum dwellers and project-affected persons free of cost. Aurora could not complete its obligations under the Agreement, hence the Society was constrained to appoint Bombay Slum Redevelopment Corporation Private Limited (“Appellant”) vide an agreement dated 22.09.1999, under which the Appellant agreed to take over the obligations of Aurora under the development agreement dated 06.10.1996 and also agreed to hand over 15,000 square feet of built up area in the redeveloped property to Aurora against Aurora paying the cost of construction at INR 600 per square foot.
Thereafter, on 10.03.2003, an agreement was executed between the Appellant and Samir Narain Bhojwani (“Respondent”), under which the Appellant retained 45% of the total FSI and permitted the Respondent to construct free ale area in the remaining 55% of the land. A deed of confirmation was also executed to register the agreement dated 10.03.2003. Later on, the Appellant, Respondent and Aurora executed a tripartite agreement dated 11.09.2009 under which it was agreed that the Appellant would provide 22,500 square feet of constructed area to Aurora instead of 15,000 square feet, which was agreed under the earlier agreement dated 22.09.2009.
Certain disputes arose between the parties and the Respondent filed an application under Section 11 of the Act for appointment of arbitrator. The arbitrator was appointed and the arbitration proceedings commenced and culminated into an award dated 07.09.2018 (“Award”) in favour of the Respondent herein (Claimant before the Tribunal). The Tribunal granted most of the claims preferred by the Respondent and rejected the counter-claims of the Appellant. The Appellant herein filed an application under Section 34 of the Act before the High Court to challenge the Award. Vide judgement dated 13.09.2019, the Ld. Single Judge of the High Court allowed the application and set aside the Award on various grounds, including perversity, patent illegality etc. Aggrieved by the same, the Respondent filed an appeal under Section 37 (1)(c) of the Act to challenge the judgment of the Ld. Single Judge. The Division Bench of the High Court passed the impugned judgement, whereby the judgment of the Ld. Single Judge was set aside and parties were remanded back to the Ld. Single Judge on ground that several issues were not considered. Further, the Division bench referred to an application filed by third parties which directed that the interim arrangements made earlier by making an appointment of the Court Receiver shall continue for four weeks with a liberty to the parties to seek appropriate interim orders in the restored application under Section 34 of the Act. Aggrieved by the same, both parties preferred the present cross-appeals.
Arguments of Parties
The Ld. Counsel for the Appellant argued that an appeal under Section 37 was essentially a continuation of the proceedings under Section 34 and the scope of interference under Section 37 was narrower in comparison to Section 34. He further contended that hat while deciding the appeal under Section 37(1)(c), the Court could either set aside the award or affirm the award but could not have remanded the Application under Section 34 for a fresh hearing. It was argued that provisions of CPC with respect to remand did not apply to an appeal under Section 37 of the Act. It was also pointed out that the Ld. Single Judge while allowing the Section 34 application dealt with all the issues canvassed by the parties and the reasons provided in the said judgement were elaborate and detailed and thus, the impugned judgement passed by the Hon’ble division bench was unwarranted and the appeal should have been decided on merits.
Per contra, the counsel for the Respondent prayed for restoration of the Award of the Arbitral Tribunal.
Issue in Question
Whether the Appellate Court while dealing with an appeal under Section 37 (1)(c) of the Act has power to pass an order of remand to the Section 34 Court of the Act?
Observations of the Court
Before deciding on the issue, the Court first referred to the material findings of the Arbitral Tribunal in the Award and then examined the findings of the Ld. Single Judge and noted inter alia that there was a very elaborate consideration of the merits of the challenge to the Award in the judgment of the Ld. Single Judge.
The Court then examined the impugned judgement of the High Court, where certain findings recorded by the Ld. Single Judge had been criticised and eventually, an order of remand was passed directing the Ld. Single Judge to hear the application under Section 34 afresh.
Scope of Section 37
The Court then referred to the celebrated judgement of MMTC Limited Vs. Medanta Limited2, UHL Power Company Limited Vs. State of Himachal Pradesh3 and Konkan Railway Corporation Limited v. Chenab Bridge Project Undertaking4 with respect to the appeal under Section 37(1)(c) of the Act and observed that the jurisdiction of the Appellate Court while dealing with an appeal under Section 37 of the Act is more constrained than the jurisdiction of the Court dealing with an application under Section 34. Interference under Section 37 cannot travel beyond the restrictions laid down under Section 34 of the Act. The Court cannot take 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.
Duty of Appellate Court Under Section 37
The Apex Court further observed that the Appellate Court under Section 37 is duty bound to consider whether the Section 34 Court has circumscribed itself within the parameters laid down in the provisions of the Act and whether the jurisdiction under Section 34 has been exercised rightly or wrongly. While doing so, the Appellate Court exercises the same power and jurisdiction that Section 34 Court possesses and within the same constraints.
Applying the law to the facts at hand, the Court observed that while deciding the application under Section 34 of the Act, the Ld. Single Judge made a very elaborate consideration of the submissions made, the findings recorded by the Arbitral Tribunal and the issue of illegality or perversity of the Award. Detailed reasons while dealing with the alleged patent illegalities associated with the directions issued under the arbitral award had also been recorded. Thus, the job of the Appellate Court was to scrutinize the said findings and decide on merits. In light of the same, the Court noted that the findings in the impugned judgement that the Ld. Single Judge did not address several issues could not be sustained.
Power of Appellate Court to Issue Remand Order
With respect to the power of the Appellate Court to issue order of remand, the Apex Court observed that firstly, the provisions of CPC were not applicable to arbitration proceedings before arbitrator and the Court under Section 34 and Section 37, as reflected in Section 19(1) of the Act. Nevertheless, the remedy of an appeal would not be effective unless there is a power of remand vesting in the Appellate Authority. The Court further noted that the Act did not provide any statutory embargo on the power of the Appellate Court under Section 37(1)(c) to pass an order of remand. However, looking at the scheme of the Act, the Appellate Court could exercise the power of remand only when exceptional circumstances make an order of remand unavoidable. The Court identified some of such exceptional circumstances such as summary disposal of the Section 34 petition without consideration of merits, Respondent not being served notice and interference made with the award etc.
The Court further noted that arbitration is one of the modes of Alternative Disputes Redressal Mechanism provided in Section 89 of the CPC. If the Courts dealing with appeals under Section 37 of the Act start routinely passing the orders of remand, the arbitral procedure will cease to be efficient. It will cease to be cost effective. Such orders will delay the conclusion of the proceedings, thereby defeating the very object of the Arbitration Act. Therefore, an order of remand by Section 37 Court can be made only in exceptional cases where remand is unavoidable.
Objects and Reasons of the Arbitration Act
The Court observed that one of the main objectives of the Act was “to make provision for an arbitral procedure which is fair, efficient and capable of meeting the needs of the specific arbitration; and to minimise the supervisory role of courts in the arbitral process”. The Court also emphasized that while passing the Arbitration Amendment Bill in 2015, the Legislature had stated that one of the key objectives was to “provide that the arbitral tribunal shall make its award within a period of twelve months from the date it enters upon the reference and that the parties may, however, extend such period up to six months, beyond which period any extension can only be granted by the Court, on sufficient cause” and “to provide that application to challenge the award is to be disposed of by the Court within one year”.
Delay and Cost Effectiveness
Before parting with the judgement, the Court noted some serious concerns regarding conduct of arbitral proceedings and how they have become synonymous with bulky pleadings and evidence and very long, time consuming submissions leading to very lengthy awards. The Court also noted that there is a tendency to rely upon a large number of precedents, relevant or irrelevant, which often leads to long hearings before the Courts in Section 34 and Section 37 proceedings. The Court referred to the case at hand and observed that it was beyond comprehension as to how there could be 151 grounds in an application under Section 34 and 164 grounds in an appeal under Section 37. It also noted that one of the contributing factors was that more than 35 decisions were relied upon by the parties before the Ld. Single Judge.
The Court noted “23. In many cases, the proceedings under Sections 34 and 37 are being treated as if the same are appeals under Section 96 of the CPC. When members of the bar take up so many grounds in petitions under Section 34, which are not covered by Section 34, there is a tendency to urge all those grounds which are not available in law and waste the Court’s time. The time of our Courts is precious, considering the huge pendency. This is happening in a large number of cases. All this makes the arbitral procedure inefficient and unfair. It is high time that the members of the Bar show restraint by incorporating only legally permissible grounds in petitions under Section 34 and the appeals under Section 37. Everyone associated with the arbitral proceedings must remember that brevity will make the arbitral proceedings and the proceedings under Sections 34 and 37 more effective. All that we say is that all the stakeholders need to introspect. Otherwise, the very object of adopting the UNCITRAL model will be frustrated. We are not called upon to consider whether the arbitral proceedings are cost effective. In an appropriate case, the issue will have to be considered. Arbitration must become a tool for expeditious, effective, and cost effective dispute resolution.”
Conclusion
After recording its reservations on the length and verbosity of pleadings in arbitration appeals, the Court concluded that the remand was completely unwarranted in the present case for the reason that the Ld. Single Judge had elaborately dealt with the merits of the case in the Section 34 application. However, the Court noted that in the present case, they did not have the benefit of a reasoned judgement rendered by the Appellate Court in Section 37 dealing with all the issues dealt with by the Ld. Single Judge while deciding the application under Section 34 of the Act. Accordingly, the Apex Court did not have the scope of power to look at the arbitral award and the findings recorded by the Section 34 Court and exercise the jurisdiction of the Section 37 Court. Based on the aforesaid, the impugned judgment of the Division Bench was set aside and the Division Bench was requested to decide the appeals on merits after considering the arbitral award and the decision of the Ld. Single Judge in Section 34 proceedings.
Analysis
The Hon’ble Supreme Court by way of this judgement has shed light upon a very important aspect of the smooth conduct of arbitration proceedings, which is cost effectiveness. It is of utmost importance that the arbitration appeals are confined to the statutory grounds mentioned under the provisions of the Act and are not verbose and extremely lengthy. This would not only save time and money of the litigants but also promote arbitration as a preferred mode of dispute resolution. Such an attempt to minimize the pleadings and save the time of the court will also aid in mitigating the delays caused at the post-award stages and realization of the award amount by the successful litigant.
Disclaimer: This article was first published in the S&A Law Offices - 'Indian Legal Impetus' newsletter in July 2024.