Courts reviewing arbitral award on merits defeats purposes of arbitration: Chief Justice Vibhu Bahkru

Karnataka High Court Chief Justice Vibhu Bakhru on Saturday said that allowing courts to undertake a full merit-based review of arbitral awards would defeat the fundamental purpose of arbitration, which was intended to provide parties with a final adjudication of disputes outside the traditional court system.

Speaking at a conference on Ethics and Evidence in Arbitration in Bengaluru, Justice Bakhru acknowledged concerns over the quality of arbitral awards but cautioned against expanding judicial scrutiny.

"But if you have a full merits review then automatically the private arbitration is over," Justice Bakhru said.

The conference was jointly hosted by the London Court of International Arbitration (LCIA), ArbitralWomen and the Arbitration and Conciliation Centre Bengaluru at the Karnataka Judicial Academy.

Justice Bakhru made the observation during a fireside conversation with Senior Advocate Shashank Garg, a Court Member of the LCIA, on the hits and misses of India's arbitration landscape.

Garg referred to a debate over whether challenges to arbitral awards under Section 34 of the Arbitration and Conciliation Act should permit a more extensive examination of disputes on their merits.

Section 34 provides limited grounds for setting aside arbitral awards, including violations of public policy, patent illegality in domestic awards and procedural irregularities. It does not ordinarily permit courts to reconsider disputes as appellate courts would.

Justice Bakhru said that demands for broader judicial scrutiny stemmed from dissatisfaction with the quality of some awards.

"The quality of awards is not coming up to the standard that you can sit back and say, no, let us review. It is a vicious circle," he observed.

He explained that limited judicial interference depended on arbitrators delivering well-reasoned awards that inspired confidence. When arbitrators delivered high-quality awards, courts could adopt a hands-off approach and refrain from interfering with them, he observed.

However, he emphasised that arbitration was founded on the understanding that arbitrators chosen by parties would finally adjudicate their disputes.

"It is the arbitrators that people the parties choose are the final adjudicators of the dispute," he said.

The discussion also examined whether courts possessed the expertise required for a merits review of complex construction and technology disputes.

Garg suggested that such scrutiny might necessitate specialised courts. Justice Bakhru responded that ordinary courts already examine technical evidence in commercial disputes, although growing caseloads could create demand for courts with domain expertise.

The conversation also turned to the Union government's 2024 guidelines discouraging government departments and public sector undertakings (PSUs) from routinely adopting arbitration for disputes exceeding ₹1 crore.

Garg said that several PSUs had begun abandoning arbitration partly because of concerns that arbitrators might favour private parties and law firms capable of offering repeat appointments.

Justice Bakhru acknowledged that inexperienced arbitrators and poor-quality awards had contributed to dissatisfaction with the mechanism.

"You have a large number of practitioners, a large number of arbitrators who come who have probably never done arbitration before. And they struggle with it," he said.

He suggested that the arbitration community should focus on improving award quality and ethical standards to restore confidence in the process.

Garg proposed moving away from party-appointed arbitrators and allowing arbitral institutions to independently make appointments.

Justice Bakhru acknowledged that institutional appointments could reduce concerns about unconscious bias and encourage institutions to assume greater responsibility for awards.

However, he expressed reservations about making institutional appointments mandatory through legislation, favouring wider acceptance among parties and stakeholders instead.

On the appointment process, Justice Bakhru also noted that arbitral institutions were better placed to assess arbitrators' disclosures, existing commitments and ability to deliver awards within prescribed timelines.

Earlier, while delivering the opening address, Karnataka High Court judge Justice DK Singh, who also presently serves as the President of the Arbitration and Conciliation Centre Bengaluru, warned that arbitration was facing a crisis of credibility.

"Today, I am sorry to say, the credibility of arbitration, particularly in India, is at stake," Justice Singh said.

Justice Singh also suggested that Parliament consider allowing challenges to arbitral awards delivered by former Supreme Court and High Court judges to be heard directly by High Courts rather than district courts.

He expressed concern that district judges could find it difficult to set aside awards delivered by eminent former judges, even when interference was warranted.

Justice Singh clarified that this was his personal view and that any legislative change would have to be considered by Parliament.