May 1st, 2021

Arbitration as a form of alternative dispute resolution has been promoted as a panacea for a clogged judicial system.  Amongst the frequently stated significant benefits of arbitration, it is not the highlighting feature that experts would adjudicate the claim but that it would bypass the ordinary delays of the trial court in India, and further that there are only limited grounds of challenging an award, irrespective of how erroneous the award is. Given the limited scope of challenge to an arbitral award, it is almost sure that what is decided by an arbitrator would be rarely interfered with.

This is a piquant situation, especially for those litigants who face arbitration proceedings thrust upon them in a standard form contract – where the clause term of arbitration is offered to them – on a take it or leave it basis. For example, typical loan documentation issued by a financier would almost always have a lopsided arbitration clause. One is usually faced with an argument that one signed the contract with open eyes, and cannot now get out of it. But this is not the issue that I wish to draw attention to in this piece.

In this piece, I raise the issue of access to justice and try to show that while the legislature has contemplated an absolute bar to the jurisdiction of the courts under Section 8 of the Arbitration and Conciliation Act, 1996 (“A&C Act, 1996”), there is no statutory provision that guarantees access to justice to poor litigants explicitly. While such a provision exists in Order 33 of the Code of Civil Procedure, 1908, there is no such provision under the A&C Act, 1996.  Consequently, arbitration is a rich man’s remedy and, at worse, a remedy that inures to the benefit of the wealthy. This piece may not be construed as my opposition to arbitration as an alternative means of dispute resolution but should be seen as an open letter beseeching greater access to justice for the poor even in the arbitration system.

Only in November 2019, the Delhi State Legal Service Authority came forward before the Delhi High Court and agreed to offer legal aid in arbitration as well.^[1] It must be noted that this is one State level authority and it does not necessarily follow that every State Legal Services Authority would come forward to offer legal aid in arbitration proceedings. Further, it remains to be seen whether legal aid is to be extended in proceedings before the arbitrator or court-related proceedings under the A&C Act, 1996. It also does not necessarily follow that that those entitled to avail legal aid would be pauper and vice versa.

In this article, I would deal with two significant and interconnected issues: (a) of affordability of arbitrator’s fees as a barrier to access to justice in arbitration proceedings; and (b) the issue of applicability of Order 33 of CPC to arbitration proceedings.

• Arbitrator’s Fees and Denial of Access of Justice

The Fourth Schedule of the A&C Act, 1996, provides for fees to be paid to the arbitrator, and it is defined with reference to the claim amount. Since no ‘court fees’ is payable upon the amount claimed in an arbitration proceeding, there is no downside for lodging an inflated claim. In fact, typically, in advance of the proceedings, arbitrators apportion the payable fees between the parties, saddling both parties to pay the fees of the arbitrator irrespective of whether any party has made a counterclaim or has simply filed a statement of defence.  For ready reference, the schedule of fees (Fourth Schedule) is set out below:

 [THE FOURTH SCHEDULE

[See Section 11(3-A)]]

Note : In the event the arbitral tribunal is a sole arbitrator, he shall be entitled to an additional amount of twenty-five per cent on the fee payable as per the above illustrated table (extracted from the statute).

Therefore, while it does not hurt the claimant to inflate the claim, it does affect the Respondent who may be saddled with inflated costs of arbitration (in addition to his lawyers’ fees) for simply participating in the proceedings to defend himself. In other words, there is a cost implication if one wishes to simply resist. You are damned if you do, and damned if you do not.

Newly inserted Section 31-A of the A&C Act, 1996, also provides for a regime of costs and empowers the arbitral tribunal to grant costs, and such costs do include the fees and expenses of the arbitrators.  Section 31-A also provides detailed guidance on how the costs are to be computed. For reference Section 31-A of the A&C Act is set out below:

[31-A. Regime for costs.—(1) In relation to any arbitration proceeding or a proceeding under any of the provisions of this Act pertaining to the arbitration, the court or arbitral tribunal, notwithstanding anything contained in the Code of Civil Procedure, 1908 (5 of 1908), shall have the discretion to determine—

(a) whether costs are payable by one party to another;

(b) the amount of such costs; and

(c) when such costs are to be paid.

Explanation.—For the purpose of this sub-section, “costs” means reasonable costs relating to—

(i) the fees and expenses of the arbitrators, courts and witnesses;

(ii) legal fees and expenses;

(iii) any administration fees of the institution supervising the arbitration; and

(iv) any other expenses incurred in connection with the arbitral or court proceedings and the arbitral award.

(2) If the court or arbitral tribunal decides to make an order as to payment of costs,—

(a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; or

(b) the court or arbitral tribunal may make a different order for reasons to be recorded in writing.

(3) In determining the costs, the court or arbitral tribunal shall have regard to all the circumstances, including—

(a) the conduct of all the parties;

(b) whether a party has succeeded partly in the case;

(c) whether the party had made a frivolous counter-claim leading to delay in the disposal of the arbitral proceedings; and

(d) whether any reasonable offer to settle the dispute is made by a party and refused by the other party.

(4) The court or arbitral tribunal may make any order under this section including the order that a party shall pay—

(a) a proportion of another party’s costs;

(b) a stated amount in respect of another party’s costs;

(c) costs from or until a certain date only;

(d) costs incurred before proceedings have begun;

(e) costs relating to particular steps taken in the proceedings;

(f) costs relating only to a distinct part of the proceedings; and

(g) interest on costs from or until a certain date.

(5) An agreement which has the effect that a party is to pay the whole or part of the costs of the arbitration in any event shall be only valid if such agreement is made after the dispute in question has arisen.]

The power to determine its own procedure under Section 19 of the A&C Act, 1996, allows the arbitrator to determine its own rules of procedure, and this would generally include a procedural direction to deposit the fees and expenses of the arbitration in advance.  It reads:

19. Determination of rules of procedure.—

(1) The arbitral tribunal shall not be bound by the Code of Civil Procedure, 1908 (5 of 1908) or the Indian Evidence Act, 1872 (1 of 1872).

(2) Subject to this Part, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting its proceedings.

(3) Failing any agreement referred to in sub-section (2), the arbitral tribunal may, subject to this Part, conduct the proceedings in the manner it considers appropriate.

(4) The power of the arbitral tribunal under sub-section (3) includes the power to determine the admissibility, relevance, materiality and weight of any evidence.

The issue of access to justice in relation to the arbitrator’s fees that I advert to in this piece can be exemplified by the following real case.   In a case that I am currently struggling with, a claim of over Rs. 1 Crore was lodged by a large company against one of its distributors from a small town in a BIMARU State. When the parties entered appearance, the arbitrator directed for depositing ₹5,00,000 as arbitrator’s fees and directed both parties to deposit equal sums of ₹2,50,000 each. Having suffered heavy losses in business, the Respondent distributor was in no position to pay the arbitrator’s fees of ₹2,50,000. Naturally, this was in addition to the legal costs that he had agreed to incur in order to resist the absurd claim mounted against him by the company for which it had good defence on merits.  Eventually, the arbitrator rejected the request by the party to either allow him to defend himself as pauper or to recover from him by adding up the costs in the final award, should it be passed against him. However, the arbitrator closed the right of the Respondent to defend his case because he could not pay the arbitrator’s fees. Whether this was a legal and proper thing to do is for the courts to adjudge in a petition under Section 34 of the A&C Act, 1996. However, the fact remains that the doors of justice were closed on him merely because he did not have the resources to defray the arbitrator’s fees and, in the facts of the said case, the arbitrator did not pass any equitable order despite being empowered to do so by law. This highlights the access to justice issue in relation to the arbitrator’s fees. If it were a court process, the defendant would not have been asked to defray the plaintiff’s share of the court fees, and his defence would not have been struck-off.  In Doorga Churn Doss v. Nittokally Dossee,^[2] it was held in relation to Code of Civil Procedure, 1877, that while the Code empowered suing in forma pauperis,  it did not take away the right to permit a litigant to defend in forma pauperis.

• Pauper Proceedings in Arbitration

The procedure allowing a person to sue as pauper under Order 33 of the CPC is one of the many expressions in which the law bends itself to receive the petition from a poor person who is desperate to access justice. However, the arbitration proceedings have no rule for technicalities of the civil procedure code and the law of evidence, and are normally concerned only with the principles thereof.  There have not been many reported instances, where any litigant has invoked the right to sue as a pauper in arbitration proceedings.

In A.A. Haja Muniuddin v. Indian Railways,^[3] it has been held by the Supreme Court (A.M. Ahmadi, J. as he then was) that when the statute permits principles of civil procedure to be applied and creates a remedy that replaces the ordinary right to approach the court, the interpretation has to be such that it furthers the ends of justice. In relation to the procedure before the Railway Claims Tribunal, it has been thus held that:

“Nowhere in the Act is there any provision which runs counter to or is inconsistent with the provisions of Order 33 of the Code. Although the Act and the Rules do not specifically provide for the application of Order 33 of the Code, there is nothing in the Act or the Rules which precludes the Tribunal from following that procedure if the ends of justice so require. If the view taken by the Tribunal is accepted as laying down the correct law, the result would be that a claimant who has a genuine claim for compensation under the provisions of the Act would be denied access to the Claims Tribunal if he is an indigent person and does not have the means to pay the fee required on the claim-application. Before the establishment of the Claims Tribunal he would have been able to file the suit invoking Order 33 of the Code as an indigent person. Now that a special Claims Tribunal has been established under the Act, can it be said that indigent persons who do not have the means to pay the fee required on the claim-application are altogether debarred from seeking compensation from the railway administration for the wrong done to them? Access to justice cannot be denied to an individual merely because he does not have the means to pay the prescribed fee. Such a view would leave indigent persons without a remedy. It is, therefore, essential that the provisions of the Act and the Rules must be broadly interpreted to ensure access to justice. If a claimant is left without redress even if he has a valid claim against the railway administration merely because he is an indigent person, it would be a sad day and the poor will lose confidence in the system. No one can be heard to say, much less the railway administration, that even though the claimant has a genuine claim for compensation against the railway administration, he must forgo the same if he does not have the means to pay the requisite fee. Such an interpretation which denies justice must be avoided.”

The A&C Act, 1996, contains no provision that enables recourse  to Order 33 of the CPC in an arbitration proceeding explicitly. I argue that since there is no bar on applying the principles of Order 33, arbitrators should increasingly and voluntarily take recourse to such a procedure that only furthers the ends of justice and enhances the faith in the system of adjudication provided for under the law.

Conclusion

There can be no doubt that when bar as to interference of courts was engrafted in Section 5 read with Section 8 of the A&C Act, 1996, Parliament could not have intended to foreclose access to justice to the poor who could have otherwise accessed the ordinary courts or could have pleaded their defence without having to pay upfront.  Given the limited and circumscribed scrutiny of arbitration awards accompanied with the lack of an express provision in the A&C Act, it is hard to ascertain whether the poor have been oppressed under the A&C Act. But one could hope that arbitrators would be sensitive to such demands of our society and Gandhiji’s Talisman.