Why in news?
The Supreme Court of India recently clarified that while the doctrine of party autonomy is central to arbitration, it cannot override mandatory legal provisions. The judgement came in an appeal concerning an arbitral award where parties had attempted to limit the arbitral tribunal’s consideration of statutory issues.
Background
Party autonomy refers to the freedom of parties in arbitration to choose the applicable law, the place of arbitration, the language and the procedure for resolving disputes. International conventions such as the New York Convention and the UNCITRAL Model Law and domestic statutes like India’s Arbitration and Conciliation Act, 1996 recognise and encourage this freedom. The idea is that parties know their transaction best and should design a procedure suited to their needs.
What the Court said
- Limits to autonomy: Parties cannot contract out of statutory requirements. For example, questions of limitation are mixed questions of law and fact; arbitrators must examine evidence rather than decide such issues on a demurrer.
- Equal footing: Both parties must have a meaningful say in selecting arbitrators. Arrangements that give one party disproportionate control risk undermining the arbitrator’s independence and are contrary to public policy.
- Fair procedure: Arbitral procedures agreed by the parties must not violate principles of natural justice. Any interim award that sidesteps mandatory provisions can be set aside and issues remitted for fresh consideration.
Why it matters
- Confidence in arbitration: By setting clear limits, the Court ensures that arbitration remains fair and compliant with the law, reinforcing its credibility as an alternative to litigation.
- Guidance for contracts: The ruling reminds drafters of arbitration agreements to avoid clauses that try to bypass statutory obligations, thereby preventing future disputes over procedural fairness.
Source: Verdictum