M J Antony: Arbitration in the doldrums

Last Updated: Tue, Jan 22, 2013 19:40 hrs

Arbitration is flaunted as a cheap and fast method of resolving disputes. But, in practice, it seems to be neither. Those who are disappointed with both civil courts and arbitration and want to get on with business must look for some new forensic invention.

Last week, the Supreme Court heard an application moved by a state housing board that pleaded it could not afford the fees charged by the three arbitrators nominated by a high court to adjudicate its dispute with a reputed builder. Two of them are retired Supreme Court judges and the third is a former high court judge. They are charging each party Rs 40 lakh. The arbitrators are from different parts of the country and getting them together itself is an arduous job. And when they do meet, the hearing is adjourned by an average of three months. The housing board asked the court of the Chief Justice to appoint one arbitrator to clear the “mess” it was in.

The case confirms Supreme Court’s remarks in a judgment (Union of India vs Singh Builders) that when retired judges are appointed, the cost shoots up and exceeds the disputed amount. In another case, Sanjeev Kumar vs Raghubir Saran, the court lifted the veil and described what happens during the sittings: Two sessions in a day are treated as two hearings to compute fees; a two-hour session is treated as a full session; and a non-productive session is treated as a fully chargeable hearing. The cost is, thus, artificially raised to Rs 10 lakh or more for each session. The judgment suggested that the fees should be disclosed beforehand. The court appointing the arbitrators should fix the fee or the parties should go to institutional arbitration. No thought has been given to these ideas.

If former judges behave like this, other arbitrators cannot be far behind. What most of them do during the sittings in five-star hotels – after usual bonhomie and burps – is to decide the place and time for the encore. The result is reflected in a few recent cases from the Supreme Court and the high courts.

In a case decided a few months ago by the Supreme Court (Tehri Hydro Development Corporation vs Jai Prakash Associates), the dispute was over bills for work completed in 1985. Arbitration started in 1986. Objections were taken to the district judge who passed an order in 1997. The appeal to the Uttarakhand High Court was decided in 2006. The Supreme Court finally settled the issue in September 2012, applying the rules of the now-repealed arbitration Act of 1940. Thus, 26 years of arbitration has been little better than the dreaded civil litigation.

Another prominent case involving a “mother agreement” and a host of ancillary contracts started in the Bombay High Court in 2004. The multiple questions involving even third parties moved to the Supreme Court, which passed an 80-page judgment a few months ago (Chloro Controls vs Seven Trent). It decided only the legal issues and then sent all disputes to the arbitration tribunal. It may still return to the apex court; it is just au revoir.

The situation in high courts is a little better. A dispute between the army and a contractor was referred to an arbitrator in 2004. Following legal roadblocks, the Kerala High Court delivered a judgment clearing the legal aspects, but ultimately ordered fresh arbitration (Union of India vs Bharat Builders). There were 75 claims and seven counter claims. Presumably, the story is not going to end there.

The Delhi High Court decided an arbitration case that started in 2000. The 2:1 award came in 2004. The high court decision came now (Hindalco Industries vs IFFCO). Individuals who are lured by arbitration touted as a short cut to justice fare no better. Two sisters in Delhi quarrelled over property in 2001. The arbitration award came in 2006. The high court decision came now — when one of the women had died.

Though organisations of industries and commerce claim that India provides ideal conditions for arbitration, the really serious contestants move their disputes to Singapore, Kuala Lumpur or other countries where the legal system is more professional and devoid of legal clogs.

Although the old arbitration law of 1940 was repealed, one can still find cases being fought under it. The Arbitration and Conciliation Act of 1996 has not been found satisfactory. The Supreme Court has to interpret vague clauses and review them in scores of judgments. A Bill to iron out some serious flaws is still being tinkered with. Parliamentarians are not all that anxious to pass a better legislation, despite all the talk of globalisation and foreign investment. So, arbitration has become both a farce and a tragedy.

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