Report No. 176
2.2.1 'Extent of Judicial Intervention':
Section 5 of the Act Section 5 corresponds to Art. 5 of the Model Law but has a non-obstante clause added at the beginning of the section. It is to be noted that the important purpose of Art. 5, according to the UN Commission, was not to negate court intervention altogether or cut down the proper role of courts but to list out, in the national law, all the situations which permit court intervention and exclude any plea based on a remedy outside the Act or based on a residual power of the national courts. (See paras 62 and 63 of the UN Commission's Report (1985) on the Adaptation of Model Law). These paragraphs are worth quoting and read as follows:
"In advancing the second objection, it was emphasized that article 5 expressed an excessively restrictive view as to the desirability and appropriateness of court intervention during an arbitration. It was to the advantage of businessmen who engaged in international commercial arbitration to have access to the courts while the arbitration was still in process in order to stop an abuse of the arbitral procedure.
Furthermore, a limitation of the authority of the courts to intervene in arbitral proceedings might constitute an unwarranted interference in the prerogatives of the judicial power, and might even be contrary to the constitution in some States. Finally, even if the authority of the court to intervene in supervision of an arbitration might have to be limited, the court should have a broader power to act in aid of the arbitration. It was suggested, as a possible means of softening the extremely rigid character of Article 5, to give the parties to an arbitration the authority to agree on a more extensive degree of court supervision and assistance in their arbitration than was furnished by the Model Law.
In response to the second objection, it was pointed out that resort to intervention by a court during the arbitral proceedings was often used only as a delaying tactic and was more often a source of abuse of the arbitral proceedings than it was a protection against abuse. The purpose of Article 5 was to achieve certainty as to the maximum extent of judicial intervention, including assistance, in international commercial arbitrations, by compelling the drafters to list in the (Model) Law on international commercial arbitration all instances of court intervention.
Thus, if a need was felt for adding another such situation, it should be expressed in the Model Law. It was also recognized that, although the Commission might hope that States would adopt the Model Law as it was drafted, since it was a model law and not a convention, any State which might have constitutional problems could extend the scope of judicial intervention when it adopted the Model Law without violating any international obligation." Article 5 of the Model Law reads:
"in matters governed by the law, no court shall intervene except where so provided in this law". Corresponding section 5 of the 1996 Act contains a non-obstante clause which reads as follows:
"Section 5: Notwithstanding any thing contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part". The important question is as to what is the meaning of the words 'in matters governed by this part' and 'intervene'. Do they mean 'intervention only after the arbitrators are appointed or only during the continuance of proceedings before the arbitral tribunal?
In the view of the Commission, the above words have to be liberally construed keeping in mind the broad purpose of sec. 5. The purpose is to keep court intervention restricted to the situations expressly indicated in the Act and to exclude all other remedies. The exclusion is not confined to the stages after the arbitral tribunal is appointed nor to the period during the pendency of the arbitration proceedings alone.
The remedies excluded are those that may be otherwise available, right from the stage of interim measures under sec.9 before the commencement of arbitration and also at the stage of reference to arbitration under sec. 8 in pending actions or at the stage of appointment of arbitrators under section 11 applications. In the view of the Commission, where, for example, orders under sec. 9 relating to interim measures are passed by a civil court as defined in sec. 2(1)(e), the remedies under sec. 115 C.P.C. or under Letters Patent or High Court Acts are excluded. This is the effect of section 5.
Then again, if in a matter filed before a Judicial authority, an application under sec. 8 for reference is allowed or dismissed by the said authority all remedies to challenge the same under sec. 115 C.P.C. or under Letters Patent or the High Court Acts or by resort to the special remedies under the statute applicable to the Judicial authority are excluded. Similarly, under sec. 11 of the Act, if arbitrators are appointed by the High Court or not appointed, then such orders will not be amenable to Letters Patent or the High Court Acts, if they are passed by any single Judge of the High Court. It is proposed to add an Explanation in section 5 at the end to make this position clear as stated hereunder:
"Explanation:- For the removal of doubts, it is hereby declared that the expression 'any other law for the time being in force' shall always be deemed to include,-
(a) the Code of Civil Procedure, 1908 (5 of 1908);
(b) any law providing for internal appeals within the High Court;
(c) any enactment which provides for intervention by a judicial authority in respect of orders passed by any other judicial authority."
Thus the result of the "non-obstante" clause will be to override 'any other laws' and interference under any law is prohibited. The policy of the Act being least court intervention, the Commission is of the view that the non-obstante clause need not be deleted. In fact even with its deletion, the result will not be different in view of the words 'except where so provided in this Part'. Instead an Explanation as stated above, is to be added below section 5, to strengthen the section and remove any doubts.
Section 89 CPC
2.2.2 In the context of Section 5, it has also been pointed out that in view the introduction of sec. 89(1)(a) and sec. 89(2)(a) in the Code of Civil Procedure, 1908, the courts in India would be empowered to refer matters to arbitration, and sec.5 should except sec.89 of the Code of Civil Procedure. (the amendment to the Code has been passed by the Parliament but has not yet come into force as the date of its enforcement has not yet been notified). The Commission is of the view that there is no need to except section 89 of the Code from section 5 of the 1996 Act inasmuch as section 89 merely requires the application of the 1996 Act.
There is no conflict between section 5 of the 1996 Act and section 89 of the Code. We may explain further. Section 89 empowers the Court to refer matters to arbitration if the Court thinks that a settlement is possible. This power under Section 89 does not depend on the agreement of parties. On the other hand, the 1996 Act deals with reference to arbitration under an arbitration agreement. As and when the provisions of sec. 89 come into force, the reference by the Court will be governed by the provisions of the present Act, 1996, so far as may be, as provided in sec. 89 itself. Hence no amendment is necessary in section 5 of the Act in this behalf.
Further, if a reference is made by the court under section 89 CPC, such a reference, in the view of the Commission, does not fall under section 2(4) inasmuch as the arbitration is not by an arbitrator appointed under the statute, i.e., the Code of Civil Procedure, 1908, as is the case under the Cooperative Societies Acts. Similarly, section 42 is also not attracted because, there is no agreement between parties nor any application before court. There is, therefore, no need to except Section 89 CPC from Section 5 of the Act to make provisions in Section 42 of the 1996 Act. Once a reference is made under section 89, the provisions of the 1996 Act will apply.
2.2.3 Of course, it is obvious that the words 'notwithstanding anything contained in any other law for the time being in force', used in sec. 5 will not come in the way of the exercise of powers under Art.227 of the Constitution of India by the High Court or under Art.136 by the Supreme Court of India in as much as these are constitutional provisions. (See para 62 of the U.N. Commission Report which notices such a possibility).
We are referring to this aspect because when we come to sec.8 of the Act which uses the words 'judicial authority', orders passed by such judicial authorities, - if they are orders of quasi-judicial tribunals, they may be amenable to the above provisions in Art.227 and Art.136.
2.2.4 In the result, the 'non-obstante' clause in section 5 is retained and an Explanation as stated earlier is proposed to be added.
2.2.5 Administrative Assistance: Amendments proposed in Section 6: Section 6 of the Act as it stands now, reads as follows:
"Administrative assistance: In order to facilitate the conduct of the arbitral proceedings, the parties or the arbitral tribunal with the consent of the parties, may arrange for administrative assistance by a suitable institution or person".
The above section was drafted on the model of Art. 8 of the UNCITRAL Report on Adoption of Conciliation Rules (prepared by the United Nations Commission on International Trade Law), which was, more or less, in the same language. In fact, in that Report it was suggested that if the conciliators arrange for administrative assistance, they must not merely consult the parties but must also obtain the their consent. In practice, however, at any rate in India, it is becoming increasingly common for arbitration proceedings being conducted at expensive venues.
On several occasions, even when the proceedings last for a very short duration, the parties have to pay for a whole day. If the venue is a five-star hotel, the expense will be heavier. Parties feel embarrassed if they have to reject request for an expensive venue. On the other hand, there are places available, which are fairly decent and not as costly as five star hotels. Several public institutions do make their conference rooms available for arbitration and all facilities are available at inexpensive rates.
The Commission has been informed that in certain arbitrations which have been continuing for years, the costs of meeting the expenses of the venue are running into lakhs of rupees. One party who is rich enough may agree but another, not so rich, may not, but may have to share the huge costs ultimately, depending upon the order of the arbitral tribunal as to cost in the award. After taking into account these problems and with a view to reduce arbitration expenses for the parties, the Commission proposes that section 6 be amended as follows:
"Section 6 Administrative assistance:- In order to facilitate the conduct of the arbitral proceedings, the parties may arrange for administrative assistance by a suitable institution or person". We are making this amendment applicable to pending arbitrations also. We hope this amendment will help in reduction of costs of arbitration.