The Court in its order in the Hindustan Construction has not appreciated that if the Supreme Court was to become the appropriate court for any applications, requesting that an award be made the Rule of Court, notwithstanding that such applications would not be admissible under the 1996 Act, the Court would also then assume jurisdiction to entertain a setting aside application in relation to the said award.

Authored by : Ms. Aanchal Basur

(She can be reached at  <aanchal@pblawoffices.com>  )

Assisted by : Mr. Shahab Ahmad, B.A.LL.B, ALIGARH MUSLIM UNIVERSITY <shahab.ahmad@pblawoffices.com>

Does a court referring a dispute to arbitration subsequently become the court that retains supervisory control over the proceedings?
The Supreme Court in the recent case of State of Jharkhand v. Hindustan Construction Co. Ltd.,  (“Hindustan Construction”) faced with this question, has decided to refer it to a larger bench in light of the prevailing difference of opinion.

In these proceedings, the Supreme Court had referred the dispute between the parties to arbitration and also directed that the award be filed before the Court.

After an award was passed by the arbitrator, the appellant filed a setting aside application under Section 34 of the Arbitration and Conciliation Act, 1996 (the “1996 Act”) before the Civil Court.

Thereafter, on the basis that the arbitrator was directed to file its award before the Supreme Court, the Respondent filed an affidavit requesting that the Court pronounces a judgement in terms of the award.

The Respondent submitted that given that since the Supreme Court had directed that the award be filed before it, the Supreme Court alone, would now have the jurisdiction to pronounce the judgement in terms of the award.

In its order, the Court noted its decisions in Mcdermott International INC v. Burn Standard Co. Ltd.  and State of Rajasthan v. Nav Bharat Construction Company (2)  , relied upon by the Respondent which set out that since the arbitrator was directed to file the award in the Supreme Court, an application to make the award a rule of court had to be filed in the same court as well, thereupon, giving the court the jurisdiction to not only hear the application but also any objections in relation to the award.

As opposed to this, the Court also noted its decisions in Bharat Coking Coal Limited v. Annapurna Construction , relied upon by the Appellant to stress upon the fact that a court must ordinarily reserve the right of a party to prefer an appeal. It also took into account its decision in State of West Bengal v. Associated Contractors  (“Associated Contractors”) , which the Appellant relied upon to state that the Supreme Court or any referring court cannot be considered to be a ‘Court’ within the meaning of Section 2(1)(e) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the 1996 Act),.

The Court then observed that there was a difference of opinion pertaining to the question of entertaining an application for making the award as a Rule of Court, and thereupon referred the matter to a larger bench for consideration.

It is notable that under the Arbitration Act 1940, an award could not be enforced till it was made the Rule of the Court. For this purpose, a Court would scrutinize the award upon being satisfied that no grounds to set aside the said award or to remit it to the arbitral tribunal for reconsideration existed, pronounce judgment in terms of the award. It was upon passing of such judgement that the award became the rule of court and could be enforced as a decree of the court.

The present matter evidently arose out of the 1996 Act. The 1996 Act largely mirrors the UNCITRAL Model Law on International Commercial Arbitration and was enacted to ensure that Indian arbitration law is in consonance with the internationally uniform arbitral procedures. As such, the requirement of making an award a Rule of Court, existing under the Arbitration Act 1940 was specifically excluded while enacting the 1996 Act. Under the 1996 Act, now amended by the Arbitration Amendment Act, 2015, an award therefore is enforceable in the same manner as if it were a decree of the court.

This reference by the Supreme Court comes as a surprise, particularly in view of the pro-arbitration stance sought to be adopted by the Indian judiciary of late. Indeed, while the reference does not reflect the court’s inclination to exercise increased supervision over the arbitral process, it nevertheless indicates yet another instance wherein the courts may have ignored the intent behind the ushering in of the new arbitration era.
In view of the background to the Arbitration Act and also the settled position that the Rule of Court requirement does not apply to awards passed under the 1996 Act, the reasons behind the Supreme Court’s hesitation to decide on the issue are uncertain. Even though the order briefly discusses the Court’s decision in Associated Contractors, it does not appreciate its ruling, setting out that regardless of the court that entertains an application for reference to / appointment of an arbitrator, the said court would not become a ‘Court’ within the meaning of Section 2(1)(e) of the 1996 Act.

The Court in its order in the Hindustan Construction has not appreciated that if the Supreme Court was to become the appropriate court for any applications, requesting that an award be made the Rule of Court, notwithstanding that such applications would not be admissible under the 1996 Act, the Court would also then assume jurisdiction to entertain a setting aside application in relation to the said award.

As such, the Court would seek to exercise supervisory jurisdiction in derogation of Section 5 of the 1996 Act as well as the UNCITRAL Model Law.

The outcome of the reference is much awaited. Hopefully, the larger bench would assist in clarifying the changed position of law and confirming the doing away of the unnecessary and impractical requirement of making the award a Rule of Court. Indeed, this would be a manoeuvre in the right direction and towards the alignment of the Indian arbitration law with international best practices.

{  1. Civil Appeal No. 1093 of 2006
2. (2005) 10 SCC 353
3. (2010) 2 SCC 182
4. (2008) 6 SCC 732
5. (2015) 1 SCC 32 }
*The views above are the personal views of the author only.
* My Legal Friend November Issue, 2017