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Judicial Intervention in Arbitration
Judicial Intervention in Arbitration
INTRODUCTION
The main objective of The Arbitration and Conciliation Act, 1996 is to minimise the
supervisory role of the courts in arbitration proceedings. The Statement of Objects and
Reasons contained in the Arbitration and Conciliation Bill, 1995 emphasized the objective of
minimisation of the intervention of the courts in arbitration proceedings. In accordance with
the provisions of the Arbitration and Conciliation Act, 1996 the intervention of the courts is
very limited in matters relating to arbitration except in specified circumstances as compared
to the old The Arbitration Act, 1940. The object of arbitration is to ensure effective, speedy
and consensual decision making process avoiding backbreaking procedure of courts. Despite
the independence, the support of the courts is inevitable in certain areas like pre-arbitral
procedure, during arbitration proceedings and post arbitration. The paradox of arbitration is
that it seeks the co-operation of the courts from which it wants to free itself. Therefore, it is
necessary to calibrate the balance between judicial intervention and judicial restraint. Section
51 of the Act, 1996 provides for the extent of judicial intervention. In the case of, P. Anand
Gajapathi Raju v. P.V.G. Raju (Dead)2, Supreme Court held that section 5 of The Arbitration
and Conciliation Act, 1996 clearly brings out the object of the Act, namely, that of
encouraging resolution of disputes expeditiously and less expensively and when there is an
arbitration agreement the Court’s intervention should be minimal. Therefore, the judicial
intervention has been restricted and minimised. Under Section 5, the words used are “Judicial
Authority” which is a wider term than the word “Court” and judicial authority includes all
such authorities or agencies conferred with the judicial powers of the Government.
1
“notwithstanding anything contained in any other law for the time being in force, in matters governed by this
Part, no judicial authority shall intervene except where so provided in this Part”
2
AIR 2000 SC 1886.
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AIMS AND OBJECTIVES:
The main aim of this assignment is to discuss and analyse the role of courts and judicial
intervention before, during and post rendering of the arbitral award.
Due to the vastness of this topic and the materials available, the scope of this project has been
limited to Role of courts in arbitration before, during and post rendering of the arbitral award.
Further, the assignment only tries to analyse the role of the courts and judicial intervention
not going much into international arbitration and not tries to touch the various other issues
involved with the concept of Arbitration law.
METHODOLOGY
The researcher shall use the doctrinal methodology for research. The Researcher shall be
referring to various books, newspapers, magazines, journals, articles, cases etc., available on
the topic to do an extensive study of the various aspect of the subject.
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2. A BRIEF HISTORY OF ARBITRATION LAW IN INDIA
Arbitration has a long history in India. In ancient times, people often voluntarily submitted
their disputes to a group of wise men of a community—called the panchayat, for a binding
resolution. Modern arbitration law in India was created by the Bengal Regulations in 1772,
during the British rule. The Bengal Regulations provided for reference by a court to
arbitration, with the consent of the parties, in lawsuits for accounts, partnership deeds, and
breach of contract, amongst others. Until 1996, the law governing arbitration in India
consisted mainly of three statutes:
(i) The 1937 Arbitration (Protocol and Convention) Act,
(ii) The 1940 Indian Arbitration Act, and
(iii) The 1961 Foreign Awards (Recognition and Enforcement) Act.
The 1940 Act was the general law governing arbitration in India along the lines of the
English Arbitration Act of 1934, and both the 1937 and the 1961 Acts were designed to
enforce foreign arbitral awards (the 1961 Act implemented the New York Convention of
1958). The government enacted the Arbitration and Conciliation Act, 1996 (the 1996 Act) in
an effort to modernize the outdated 1940 Act. The 1996 Act is a comprehensive piece of
legislation modelled on the lines of the UNCITRAL Model Law. This Act repealed all the
three previous statutes (the 1937 Act, the 1961 Act and the 1940 Act). Its primary purpose
was to encourage arbitration as a cost-effective and quick mechanism for the settlement of
commercial disputes. The 1996 Act covers both domestic arbitration and International
commercial arbitration.
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3. Judicial Intervention in Arbitration
Section 5 of the Arbitration and Conciliation Act, 1996 provides for the extent of court
intervention which says that “notwithstanding anything contained in any other law for the
time being in force, in matters governed by this Part, no judicial authority shall intervene
except where so provided in this Part”. The word “Part” referred to in this Section is Part I of
the Act, 1996 which shall apply were the place of arbitration is in India (Section 2(2)) and
shall not affect any other law for the time being in force by virtue of which certain disputes
may not be submitted to arbitration (Section 2(3)). Therefore, the judicial intervention has
been restricted and minimised. Under Section 5, the words used are “Judicial Authority”
which is a wider term than the word “Court” and judicial authority includes all such
authorities/agencies conferred with the judicial powers of the Government. The judicial
authority’s intervention under the Arbitration and Conciliation Act, 1996 is limited to the
purposes as prescribed by the Act, itself. Judicial intervention happens in arbitration process
in three following stages:
1. Pre-Arbitral Procedure.
2. During the Arbitral Proceedings.
3. Post Arbitral Award.
1. Pre-Arbitral Procedure:
(A) Making Reference in a pending suit (Section 8): Pre-arbitral procedure begins
with the obligatory nature of the courts to “refer parties to arbitration”. It can be seen
from the Section 8 in Part I and Section 45 of Part II of the Arbitration and
Conciliation (amendment) Act, 2015.
The heading of the section 8 is “power to refer parties to arbitration where there is
an arbitration agreement”. This refers to the power which can be exercised by the
judicial authority which is a wider term and includes courts. This is one of the
important provisions since it encourages parties to go for arbitration instead of
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resorting to settle the matters through courts. If any of the parties to
the arbitration agreement approaches the court, without referring their matter to the
arbitrators in spite of the existence of arbitration agreement, the other party can make
an application to the court and the said court can pass order to refer the parties
to arbitration. The party making application has to submit the same before submitting
his first statement on the substance of the dispute along with the
original arbitration agreement failing which a duly certified copy thereof. In the case
of, Branch Manager Magna Leasing and Finance Ltd. v. Potluri Madhavilata 3,
Supreme Court held the following as the ingredients of Section 8:
(i) That there exists an arbitration agreement.
(ii) That action has been brought to the court by one party to the arbitration
agreement against the other party.
(iii) That subject-matter of the suit is the same as the subject-matter of the
arbitration agreement.
(iv) That the other party before he submits his first statement of the
substance of the dispute moves the court for referring the parties to
arbitration.
(v) That along with the application, the other party tenders the original
arbitration agreement or duly certified copy thereof.
Section 8 is in the form of legislative command to the court which provides that once the
conditions of section 8 are fulfilled, the court must refer the parties to arbitration.
In P. Anand Gajapathi Raju v. P.V.G. Raju (Dead)4, Supreme Court held that the phrase
“which is subject to arbitration agreement” in section 8 covers an arbitration agreement
brought into existence while the action was pending. It does not require that the arbitration
agreement must already be in existence before the action is brought in the court. Even the
court of appeal can refer the parties to arbitration if an arbitration agreement is brought in
existence while the appeal is pending.
Court further held that language of section is pre-emptory in nature. In cases where there is
an arbitration clause, it is obligatory for the court to refer the parties to arbitration in terms of
their arbitration agreement then nothing remains to be decided in the original action after
3
AIR 2010 SC 488
4
AIR 2000 SC 1886
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such an application is made except to refer the dispute to an arbitrator. If in the agreement
between the parties before the court, there is a clause for arbitration, it is mandatory for the
court to refer the dispute to arbitrator.
Section 45 states that notwithstanding anything contained in Part I or in the Code of Civil
Procedure, 1908, a judicial authority at the request of one of the parties or any person
claiming through or under him, refer the parties to arbitration unless it finds that the said
agreement is null and void, inoperative or incapable of being performed.
(i) For the appointment of a guardian for a minor or person of unsound mind for the
arbitral proceeding;
(ii) To obtain custody, preservation and sale of any goods provided such goods is the
subject-matter of an arbitration agreement;
(iii) To cause recovery of the amount as a result of an arbitral award;
(iv) To detain, preserve and inspect any property or thing which is subject-matter of an
arbitration agreement;
(v) To obtain interim injunction;
(vi) To appoint receiver.
Section 9 empowers the court to grant interim measures at its discretion. The court has to take
into account every aspect of each case and also requirement of a case. This power of the court
to grant interim measures cannot be taken away by the parties by consent as it is the
requirement of the Act.
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Section 9 is a self contained provision permitting a party to make independent application. It
is apparent that the courts have no power to adjudicate on the merits of the dispute by passing
interim reliefs because such jurisdiction has been assigned to arbitral tribunal only.
In the case of Bhatia International v. Bulk Tradings5, it was held that the very object of the
Arbitration and Conciliation Act of 1996, was to establish a uniform legal framework for the
fair and efficient settlement of disputes arising in international commercial arbitration. The
conventional way of interpreting a statute is to seek the intention of its makers. If a statutory
provision is open to more than one interpretation then the Court has to choose that
interpretation which represents the true intention of the legislature. This task often is not an
easy one and several difficulties arise on account of variety of reasons, but at the same, it
must be borne in mind that it is impossible even for the most imaginative legislature to
forestall exhaustively situations and circumstances that may emerge after enacting a statute
where its application may be called for. It is in such a situation the Courts’ duty to expound
arises with a caution that the Court should not try to legislate. While examining a particular
provision of a statute to find out whether the jurisdiction of a Court is ousted or not, the
principle of universal application is that ordinarily the jurisdiction may not be ousted unless
the very statutory provision explicitly indicates or even by inferential conclusion the Court
arrives at the same when such a conclusion is the only conclusion. Notwithstanding the
conventional principle that the duty of judges is to expound and not to legislate.
In the case of Bharat Aluminium Company v. Kaiser Aluminium Technical Service, Inc. 6,
Supreme Court overruled “Bhatia International” case. It was held that arbitration decision by
an arbitration panel situated in a foreign jurisdiction cannot be challenged in Indian courts
and no petition seeking to set aside foreign arbitration awards or questioning procedural
lapses in arbitration taking place outside the country would be entertained by domestic courts.
On the issue Can Indian courts provide interim measures where the seat of arbitration is
outside India? The Supreme Court held that a bare perusal of section 9 would clearly show
that it relates to interim measures before or during arbitral proceedings or at any time after the
making of the arbitral award, but before it is enforced in accordance with section 36. Section
36 necessarily refers to enforcement of domestic awards only. Therefore, the arbitral
proceedings prior to the award contemplated under section 36 can only relate to arbitrations
which take place in India. Section 9 is limited in its application to arbitration which take
5
AIR 2002 SC 1432
6
2012 SC
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place in India and there is no provision under the Code of Civil Procedure, 1908 or under the
Arbitration and Conciliation Act, 1996 for a court to grant interim measures in terms of
section 9 in arbitrations which take place outside India, even though the parties by agreement
may have made the Arbitration Act, 1996 as the governing law of arbitration. Extending the
applicability to arbitrations which take place outside India would be to do violence to the
policy of the territoriality declared in section 2(2).
In case of Firm Ashok Traders v. Gurumukh Das Saluja7, Supreme Court in this case inter
alia held that a party that has obtained relief under Section 9 pre-constitution of the tribunal
cannot sit and sleep over the relief, this relief is granted before, i.e. necessarily in
contemplation of arbitration and therefore unreasonable delay would snap the relationship
between the relief and the proceedings, in such cases, the Court may require the party to
demonstrate its intention and the steps it proposes to take to commence arbitration.
The Arbitration and Conciliation (amendment) Act 2015 amends Section 9 to provide that
arbitral proceedings must commence within 90 days of the order granting interim relief or
within such further time as the Court may determine.
As is reflected in the UNCITRAL Model Law and in most national laws, the court here uses
its authority to give effect to the parties’ agreement by establishing an appropriate tribunal to
take over and deal with the dispute between the parties. Parties desirous of referring their
dispute are at full liberty to appoint the arbitrators of their choice. The number of arbitrators
shall not be even number. If the parties do not agree on the procedure for appointment of
arbitrator or arbitrators, each party shall appoint an arbitrator and the two appointed
arbitrators shall appoint the third arbitrator who shall act as the presiding Arbitrator.
In the case of SBP & Co. v. Patel Engineering Ltd.8, the Supreme Court held that the power
to appoint an arbitrator under section 11 is a “judicial” power and not “administrative”
power.
Section 11 of the 2015 Amendment Act makes it incumbent upon the Supreme Court or the
High Court or a person designated by them to dispute of the application for appointment of
arbitrators within 60 days from the date of service of notice on the opposite party. This
7
2004(1)SCR 404
8
2005 (8) SCC 618
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further enhances the role of courts in the arbitration proceeding, the act is not clear about the
phrase “person designated” and the increase in limitation period from 30 days to 60 days for
appointment will end up in delaying the arbitration proceedings.
In cases of dispute regarding grounds in para 2, the Civil Court of the competent
jurisdiction is made empowered to decide upon the consensual character of
arbitration. The arbitrator is also given discretion to withdraw from office even
without the challenge.
(B) Assistance of Court in taking evidence (section 27): Evidence plays a vital role
in arbitral proceedings similar to court proceedings, in establishing the case and is
the most important basis for a just and fair award. The arbitrator is not compelled
in any situation to get the assistance of court regarding evidence but the arbitration
tribunal is under an obligation to do in certain circumstances because it has no
powers to compel the attendance of witnesses who refuse to attend and give
evidence. Arbitrators have full freedom to determine the admissibility, relevance,
materiality and weight of evidence submitted by the parties. But, it lacks the
power to order production of documents particularly in the possession of a third
party even when such documents may be relevant to the matters in issue.
Section 27 provides new procedure for seeking assistance of court in
taking evidence. The arbitral tribunal or a party may seek such assistance. The court may
at its discretion execute the request by ordering witness or expert to provide evidence to
the arbitral tribunal directly. The court’s assistance in securing the evidence of a witness
under this section is deemed necessary because no power has been conferred on the
arbitral tribunal to summon witnesses or to issue processes. Besides the arbitral tribunal a
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party may also apply to the court for assistance in taking evidence or summoning a
witness but before applying to the court for this purpose it has to take prior approval of
the arbitral tribunal.
This section enables the arbitral tribunal to apply suo moto or on request by a party, to the
court for assistance in taking evidence because the tribunal has no power to issue
summons to persons other than the parties to the dispute under arbitration.
Section 27(5) provides that if any person ordered by the court to attend the arbitral
tribunal in accordance with the process issued by it (a) fails to appear, or (b) makes any
other default, or (c) refuses to give evidence, or (d) is guilty of any contempt to the
arbitral tribunal during the conduct of arbitral proceedings, he shall be subjected to such
disadvantages, penalties and punishment ordered by the court on the representation of the
arbitral tribunal as such person would incur for the like offences in suits tried before the
court.
Section 32 of the Code of Civil Procedure of 1908 makes the coercive machinery
of the state available for this purpose – “the court may compel the attendance of
any person to whom a summons has been issued under Section 30 and for that
purpose may – (a) issue a warrant for his arrest; (b) attach and sell his property;
(c) impose a fine upon him not exceeding five hundred rupees; (d) order him to
furnish security for his appearance and in default commit him to civil prison”.
The section needs to be changed in order to make the taking of evidence during an
arbitration proceeding more efficient because this section contributes to
congestion of courts by making it necessary for the arbitrator to approach a court
in order to issue summons to a witness. The current procedure requires that more
powers should be given to arbitrators in this regard. The Arbitrators should be
given the power to issue summons and constitute commissions and so on but not
the power to punish anybody.
This power should not be retained by the court alone; this will not only help in the
efficient taking of evidence during an arbitration proceeding but also help to de-
congest the courts. It will result in a situation where there will be no need to take
the help of the court in taking evidence and the only area where the assistance of
the court would be required would be to punish a party who does not answer the
summons or give evidence after being ordered to by an arbitrator.
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3. Role of Court Post Arbitral Award:
(A) Power to set aside an award (section 34): After the arbitral award is passed, an
aggrieved party may apply for the setting aside of such award after issuing a prior
notice to the other party.
In Madan Lal v. Sunder Lal9, it was held that section 34 empowers the courts to
review the whole arbitration process followed in a case and also examine the
constitutionality of the arbitration process and the parties are not permitted to
lessen the dignity of it.
The effect of giving an award under section 34 is that the parties cannot appeal
against it and the court cannot interfere with it on merits. But this does not mean
that there is no check on the arbitrators’ conduct. In order to ensure proper
conduct of the proceedings, the law allows certain remedies against an award.
These remedies can be obtained through a court of law having jurisdiction over
the matter.
Grounds for setting aside an Award:
(i) Incapacity of party [section 34(2)(a)(i)]: if a party to arbitration is not
capable of liking his own interest and is not represented by a person who
can protect his interest then the award will not be binding on him and may
be set aside on his application.
(ii) Invalidity of Agreement [section 34(2)(a)(ii)]: if the arbitration
agreement is invalid then in such a case the award given on the basis of
such agreement would also be invalid and can be set aside. The invalidity
of agreement may arise because the agreement was with respect to a matter
which could not be referred to arbitration.
(iii) Notice not given to the Party [section 34(2)(a)(iii)]: it permits to
challenge an award on the ground:
(a) That the party was not given proper notice of the appointment of
arbitrator;
(b) That the party was not given proper notice of the arbitral proceedings;
(c) That the party was unable to present its case.
9
AIR 1967 SC 1233
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(iv) Award beyond the scope of Reference [section 34(2)(a)(iv)]: The
reference of a dispute under an agreement defines the limits of the
authority and jurisdiction of the arbitrators. Arbitration is a creature of the
agreement itself. It is, therefore, bound by the terms of the agreement and
cannot adjudicate a matter beyond the agreement itself. A decision against
the terms of the contract may be said to be outside the submission.
(v) Illegality in the composition of Tribunal or in the Arbitral Procedure
[section 34(2)(a)(v)]: An application under section 34 for setting aside an
arbitral award can be made on the grounds:
(a) That the composition of the tribunal was not in accordance with the
agreement or;
(b) That the procedure agreed to by the parties was not followed in the
conduct of the proceedings;
(c) That in the absence of the agreement the procedure prescribed by the
Act was not followed.
(vi) Dispute not Arbitrable [section 34(2)(b)(i)]: All the matters in dispute
not being of a criminal nature may be referred to arbitration.
(vii) Public Policy: Fraud and Corruption [section 34(2)(b)(ii)]: It provides
that an application for setting aside an arbitral award can be made if the
arbitral award is in conflict with the public policy. Moreover, if an award
is obtained by fraud or corruption then also it would be barred by law.
In the case of Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd.10,
Supreme Court had the opportunity to examine and rule upon the, the
scope and ambit of the Court’s jurisdiction where an arbitral award has
been challenged under Section 34 of the Arbitration & Conciliation Act,
1996. Section 34(2)(b)(ii) allows the Courts to set aside an arbitral award,
inter alia, if it is contrary to “Public Policy”.
The term “Public Policy of India” has not been defined in the Act.
Therefore, the Court opined that since the term “Public Policy” does not
find precise definition it must be construed with a wider and narrower
meaning depending upon the context and the principles governing Public
Policy are capable of expansion and modification. It was observed that an
10
(2003) (4) SCALE 92
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award would be deemed to be against the Public Policy of India if it is
contrary to the fundamental policy of Indian law, the interests of India,
justice or morality or is patently illegal. The Award may be set aside if it
shocks the conscience of the Court. The Court thus, took the three heads of
‘Public Policy’ as formulated in Renusagar case11 and added the last head
of “patent illegality”. The Court held that “if the award is patently against
the statutory provisions of substantive law” then it would be “patently
illegal”. This broader view of Public Policy in effect allows a review of the
arbitral award on merits making the judiciary an appellate body over
arbitral awards. The Court in the case held that, the violation of mere
statutory provisions of law would amount to being against the “Public
Policy” of India.
The Court’s conception of “Public Policy” gives discretion of when to
consider it widely and when to restrict its scope, thereby rendering
unpredictable challenge or enforcement of any award. Therefore, the Court
rejected the “narrow view” taken by “Public Policy” as had been
established by Renusagar12. The scope of review for setting aside an award
can thus be only on minimal grounds and not on merits. Setting aside for
not following statutory provisions is a consideration in law and fact
amounting to a review on merits which is not permitted.
(B) Enforcement of Award [section 36]: It provides that the arbitral award shall be
enforceable as a “decree” of the court. It presumes that the arbitral award has the
mandate of law similar to a judgement of the court. For the enforcement of the
arbitral award as a court decree it must fulfil two conditions, namely, (i) the time
of making the application for setting aside of arbitral award under section 34 has
expired or, (ii) if such application having been made, has been refused. Section 36
contains provision for enforcement of foreign awards in India only.
(C) Power to hear Appeals [section 37]: section 37 specifies the scope of appeal
from the order of the court and the arbitral tribunal.
Section 37(1) provides for appeal against orders and not against the award. The
orders against which appeal lies are specifically laid down and no other orders are
appealable. The appeal lies from the following orders:
11
Renusagar Power Plant Co. Ltd. V. General Electric Co. AIR 1994 SC 860.
12
Ibid.
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(a) Granting or refusing to grant any measure under section 9.
(b) Setting aside or refusing to set aside an arbitral award under section 34.
Section 37(2) provides that an appeal shall also lie to a court from the
following orders of the Arbitral Tribunal:
(a) An order upholding the objection of a party that the arbitral tribunal does
not have jurisdiction or it has exceeded its scope of authority.
(b) Order granting or refusing to grant an interim measure under section 17(1)
or 17(2).
Section 37(3) provides that no second appeal shall lie from an order passed in
appeal under this section, but nothing in this section shall effect or take away
any right to appeal to the Supreme Court.
Under Article 133 of the Constitution of India an appeal will lie to the
Supreme Court provided the provisions of the said article are complied with.
(D) Power to order delivery of award on payment of costs to the court [section
38(2)].
(E) Power to make order on costs of arbitration in absence of sufficient provision
made in award [section 39(4)].
(F) Power of determination of question relating to insolvency proceedings
[section 41(2)].
(G) Power to extend time for reference to arbitration of time barred future
disputes [section 43(2)].
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4. Conclusion
Second, the bar for judicial intervention despite the existence of section 5 of the Act has been
consistently set at a low threshold by the Indian judiciary, which translates into many more
admissions of cases in Court which arise out of or are related to the Act.
The system of dual agency for providing relief needs to be abolished or some enforcement
mechanism must be provided for enforcement of the interim measures of protections ordered
by the Arbitral tribunal. It would be better that application of interim measures is to put to the
arbitral tribunal as they are seized of the subject matter under dispute. Only when a party is
not able to get relief from arbitral tribunal, it should be allowed to approach the domestic
Courts. This will be in line with the objectives of the Act to minimise the intervention of the
Court in arbitral proceedings.
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List of Cases
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BIBLIOGRAPHY
Primary Sources
Statutes
Constitution of India, 1950.
The Code of Civil Procedure, 1908.
The Arbitration and Conciliation Act, 1996.
Secondary Sources
Books
Internet Sources
https://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=1112.
www.bangaloreicai.org/downloads/2012/may/23_05_12.pd.
https://www.scribd.com/doc/76540297/Role-of-Courts-in-Arbitration.
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