Wednesday, March 9, 2011

Specific question doctrine in Indian law: Guest Post by Vivek Menon

The following is a guest post by Vivek Menon, third year student, National University of Juridical Sciences, Kolkata on the specific question doctrine in Indian law.

Section 34 of the Arbitration and Conciliation Act, 1996 provides for the setting aside of an arbitral award. In this regard, it is well established that a court may only go into questions of law and not of fact. However, there are certain constraints placed on the court's jurisdiction on matters of law as well. The specific question doctrine is one such example.

According to the specific question doctrine, the court's jurisdiction to review an arbitrator's decision is ousted if a question law was specifically referred to the arbitrator and the parties agreed to submit the dispute to arbitration and be bound by the consequent award. This was laid down by the Supreme Court in Seth Thawardas Pherumal v. Union of India [AIR 1955 SC 468], where it was observed:

"If a question of law is specifically referred and it is evident that the parties desire to have a decision from the arbitrator about that rather than one from the Courts, then the Courts will not interfere, though even there, there is authority for the view that the courts will interfere if it is apparent that the arbitrator has acted illegally in reaching his decision, that is to say, if he has decided on inadmissible evidence or on principles of construction that the law does not countenance or something of that nature."

From the above, the test laid down for the applicability of the specific question doctrine is firstly, whether a question of law was specifically submitted to the arbitrator by the parties; secondly, whether the parties agreed to arbitrate and lastly, whether the parties have agreed to be bound by the award.

As far as the first requirement is concerned, the ouster of the court's jurisdiction is only limited to the specific question of law that was referred to the arbitrator, and does not include incidental questions that might arise from the same. The Supreme Court drew a distinction between "between cases in which question of law is specifically referred and those in which decision on a question of law is incidentally material (however necessary) in order to decide the question actually referred." [Seth Thawardas Pherumal v. Union of India (AIR 1955 SC 468) and followed up in Lubrizol (India) Limited v. Lubrizol Corporation U.S.A (1998 (1) ALL MR 435)]

The above may be further explained with an example. The Bombay High Court, in the case of Western Maharashtra Development Corporation Ltd v. Bajaj Auto Ltd [(2010) 154 Comp Cas 593 (Bom)] had occasion to test the application of the specific question doctrine. The question the parties had submitted to the arbitrator was one involving the determination of the price of shares for transfer under in accordance with the Protocol Agreement. The court observed that, although the parties' submissions before the arbitrator included the allegedly void nature of the Protocol Agreement on account of the restrictions it placed on the transferability of shares, "that by itself cannot be regarded as amounting to a reference of a specific question of law for the decision of the Arbitrator." The court arrived at such a conclusion since the arbitration agreement limited the functions of the arbitrator since it provided that "the question of rate shall be referred to arbitration of a sole arbitrator if agreed to by both the parties or two arbitrators one to be appointed by each party in accordance with the provisions of the Indian Arbitration act." It was therefore reasoned that the validity of pre-emption clauses, which it later declared to be void on the anvil of Section 111A, was not barred by the specific question doctrine.

To clarify, the second requirement does not refer to situations in which the parties agree to submit the dispute to arbitration while reserving their right to challenge the arbitrator's jurisdiction since a question regarding the jurisdiction of the arbitrator has also been held to be a specific question of law [Tarapore & Co. v. Cochin Shipyard Ltd. (AIR 1984 SC 1072)]. The Supreme Court in the Seth Thawardas clarified this position and stated that even if the parties submitted the dispute under compulsion they would have deemed to have willingly submitted the dispute to the arbitrator. In fact, there is a very strict test for this requirement and although no specific guidelines were laid down the Supreme Court provided an example of the Court forcing the parties to arbitrate under Section 20(4) of the 1940 Act for the arbitrator to not have exclusive jurisdiction.

Lastly, it is important to know that the specific question doctrine is only limited to cases wherein there is an "error apparent on the face of the award". The Supreme Court has observed in Oil and Natural Gas Corporation v. SAW Pipes Ltd [(2003) 5 SCC 705]:

"The award of an arbitrator may be set aside on the ground of an error on the face thereof only when in the award or in any document incorporated with it, as for instance, a note appended by the arbitrators, stating the reasons for his decision, there is found some legal proposition which is the basis of the award and which is erroneous. If however, a specific question is submitted to the arbitrator and he answers it, the fact that the answer involves an erroneous decision in point of law, does not make the award bad on its face so as to permit of its being set aside."

However, the specific question doctrine does not oust the jurisdiction of the court in cases where the award is patently illegal. An award is patently illegal if it "is contrary to the substantive provisions of law or the provisions of the Act or against the terms of the contract". This, occupying a higher threshold as compared to error apparent on the face of the award, is an established ground for the setting aside of an award. This is clearly evidenced since the Supreme Court in the ONGC v. SAW Pipes case recognised the specific question doctrine in the contexts where there is an error apparent on the face of the award and at the same time established patent illegality as a further ground for the setting aside of awards.

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