The Historical Distrust of Arbitration in India

I wanted to bring the readers attention to Parul Kumar’s new article on the treatment of substantive allegations of fraud in arbitration, published in Arbitration International, a journal published by the  London Court of International Arbitration.  The abstract of the article is below and the article can be found here.

“The Indian Supreme Court judgment in A. Ayyasamy v A. Paramasivam and Others (2016) is the latest in a series of judgments that have held that cases of ‘serious fraud’ are not arbitrable. Indian courts have long held the view that substantive issues of fraud cannot be arbitrated. This article will argue that this view, apart from being oblivious to the modern context of arbitration in India and across the world, threatens to erode the provisions of the Arbitration and Conciliation Act, 1996. This law, which sought to reduce judicial intervention in arbitration matters, contemplated a very limited scope for courts to decline reference to arbitration, and gave recognition to the principle that arbitral tribunals (and not courts) should decide the limits of their jurisdiction. This article will, on the one hand, explore the genesis of the judicial view that fraud cannot be the subject of arbitration, by studying judgments from the past century, and on the other, examine whether such a position is tenable in the statutory environment of the 1996 law.”

 

The article does have wider implications for the history of arbitration in India. As the author tells LOAT

” I had started out with the intention of writing a critique on the recent judgment of the Supreme Court in A. Ayyasamy v. A. Paramasivam and Others [(2016) 10 SCC 386], which, following the judgment in N. Radhakrishnan v. Maestro Engineers and Others [(2010) 1 SCC 72], held cases of “serious fraud” to be un-arbitrable. In my view, both of these judgments of the Supreme Court make for unsatisfactory precedents in the context of the Arbitration and Conciliation Act, 1996, particularly in view of Sections 8 and 16 of the Act.

However, upon delving a little deeper into the issues associated with this topic, my research focus expanded, and this ended up becoming a more detailed study than had been initially envisaged.  Unlike the literature on the topic…, I have attempted to probe a little into the historical distrust of arbitration/arbitrators in India, which I believe lies at the heart of this controversy.

One aspect of this study entailed a legal analysis of rulings on the arbitrability of fraud under older legislations: the Indian Arbitration Act, 1899, as well as the Arbitration Act 1940. But I was also fascinated by the history of arbitration in India, and some questions in particular. What was, historically, the profile of the Indian arbitrator? How did this evolve? What kinds of matters were usually arbitrated in India historically? I believe it is important to inquire into these questions to better understand why Indian courts have attempted to shape the discourse on fraud in terms of the “competence” of arbitrators.

Since I was writing a legal article, I could not go into tremendous detail over the historical reasons as to why Indian courts have been distrustful of arbitration as a mode of dispute resolution. As a practising lawyer, I was also handicapped by a lack of access to relevant historical material, and/or time to source such material. But I have attempted to make a foray into this area, and tried to connect this with the more contemporary theme of the unsuitability of arbitration for disputes involving “serious fraud”.

As a side note, I would like to add that it appears that a void of scholarship exists currently insofar as a comprehensive history of arbitration in India is concerned. James Jaffe’s book, ‘Ironies of Colonial Governance: Law, Custom and Justice in Colonial India’ is an excellent resource material for the period in which arbitration was first brought to India by the British, and when it formed an amalgam with India’s existing panchayat system, even before arbitration formed the subject matter of legislation in colonial India. However, there is not a lot of readily available material on how arbitration evolved from a mode of resolving relatively uncomplicated disputes to becoming the most preferred mode of adjudicating commercial disputes in the country.

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