Guest Post – Proposed Amendments to Arbitration Law: Part 1

[The following post is
contributed by Prachi Narayan and Aditi Pal of Vinod Kothari &
Company. They can be contacted respectively at [email protected] and
[email protected]]

Introduction

On August 5, 2014, the Law Commission
submitted to the Law Minister its 246th report on “Amendment
to the Arbitration and Conciliation Act, 1996
.

There has been much back and forth with
respect to the proposed amendments to be carried out in the existing
Arbitration and Conciliation Act, 1996 (“Act”).
The Government had earlier accepted the recommendations made by the Law Commission
in its 176th Report on the same subject and had introduced the ‘Arbitration
and Conciliation (Amendment) Bill, 2003
’(‘Bill”) in the Rajya Sabha in December 2003.

Subsequently the Ministry of Law and Justice
constituted the Justice Saraf Committee on Arbitration to study in depth the
implications of the recommendations of the Law Commission of India contained in
its 176th report. In the wake of the Saraf Committee recommendations, it was
suggested that the Bill in its present form should be withdrawn and
reintroduced since the provisions of the Bill were insufficient and
contentious. The Bill was consequently withdrawn from Rajya Sabha and the
Ministry of Law and Justice issued a consultation paper in April, 2010 inviting
suggestions from eminent lawyers, judges, industry members, institutions and
various other stakeholders.

On the basis of various comments and
suggestions received, the Ministry prepared a “Draft Note from Cabinet ” and
the Law Commission was asked to review the said draft notes. Following an
extensive study of the draft note, the Law Commission submitted its latest 246th
report.

Part III of the report contains the proposed
amendments to the Act. This post is an attempt to enlist the proposed
amendments in comparison to the existing provisions of the Act for easy perusal
and reference. The brief highlights have been provided for understanding the
intent behind the amendments.

Brief
Highlights of the Proposed Amendments

Institutionalization of Arbitration
Proceedings
: Arbitration
may be conducted ad hoc or under institutional procedures and rules.
Institutional arbitration as the name suggests refers to arbitrations conducted
in accordance with the rules and procedure of an arbitration institution, this
being opposed to ad-hoc arbitration that includes arbitration where the parties
may choose on their own to devise and agree upon a tailored arbitral process or
alternatively to incorporate existing rules of procedure. The institutions
provide arbitration services as well as other general business functions and in
some cases assist in the administration of the arbitration through its
infrastructure. Some examples of institutional arbitration are the ICC based in
Paris; the London Court of International Arbitration, the Dubai International
Arbitration Centre (DIAC) created in 1994; and the Bahrain Chamber for Dispute
Resolution (BCDR) created on 10 January 2010. In India, however the concept of
institutional arbitration is limited to the Delhi High Court International
Arbitration Centre; The Punjab & Haryana High Court Arbitration Centre;
Indian Council of Arbitration (ICA); Nani Palkhivala Arbitration Centre in
Chennai. With a view to promote the culture of institutional arbitration, the
commission has recommended the following:

– Amendment of section 11 of the Act so as
to encourage parties to refer disputes to arbitration.

– Introduction of the concept of emergency
arbitrator by broadening the definition of arbitral tribunal.

– Formation of new arbitration centres for
trade bodies and commerce chambers with their own rules, which can be modeled
on the rules of the more established centers

Fees for Arbitrators: One of the major
constraints for effective ad-hoc arbitration in India is high cost associated
with arbitrary, unilateral and disproportionate fixation of fees by several
arbitrators. The Commission suggested that rationalization of fees for
arbitrators would prove beneficial in achieving a cost effective solution for
dispute resolution. The Commission has thus suggested a model schedule of fees
empowering the High Court to frame appropriate rules for fixation of fees for
arbitrators.

Conduct of Arbitral Proceedings: Chapter V of the Act deals
with provisions relating to conduct of arbitral proceedings. However, despite
existing provisions in the Act, arbitration in India has been largely
inadequate and disappointing for all stakeholders. The proceedings primarily
have become replica of court proceedings, rooted with unnecessary and frequent
adjournments. There have been numerous rulings by the High Courts and the Supreme
Court wherein the arbitrators have been nudged to hear and decide matters
expeditiously, and within a reasonable period of time. Similarly, counsel for
parties must refrain from seeking repeated adjournments or insisting upon
frivolous hearings or leading long-winded and irrelevant evidence. The
Commission thus recommended the following:

– Addition of the second proviso to section
24 (1) to the Act, discouraging the practice of frequent and baseless
adjournments, and to ensure continuous sittings of the arbitral tribunal for
the purposes of recording evidence and for arguments.

– Addition to the preamble of the Act, which
does not directly affect the substantive rights and liabilities of parties, but
however does serve as guidance for arbitral tribunals and courts to interpret
and work the provisions of the Act.

Judiciary and Arbitration: The judicial machinery was
intended to provide essential support to arbitration process. However, time and
again the arbitration proceedings have been frustrated in the ambush of
judicial machinery. There is strikingly an imbalance between the judicial
machinery and arbitration proceedings. In the words of Lord Mustill[1]
It is equally important that the balance
is maintained by a recognition by the courts that just as arbitration exists
only to serve the interests of the community, so also their own powers are
conferred only to support, not supplant, the extra-judicial process which the
parties have chosen to adopt
”. The Commission has strived to adopt a middle
path to find an appropriate balance between judicial intervention and judicial
restraint. In order to combat delays due to intervention of judicial machinery
the Commission has suggested the following:

– The existing scheme of the power of
appointment being vested in the “Chief Justice” to be changed that to the “High
Court” and the “Supreme Court” and has expressly clarified that delegation of
the power of “appointment” shall not be regarded as a judicial act.

– Amendment to section 11 (7) of the Act, so
that decisions of the High Court (regarding existence/nullity of the
arbitration agreement) are final and non-appealable where an arbitrator has
been appointed.

– Addition of section 11 (13) to the Act, so
that the Court endeavors to dispose of the matter within sixty days from the
service of notice on the opposite party.

– Addition of sections 34 (5) and 48 (4) to
the Act, that would help an application under such sections be disposed off
expeditiously and in any event within a period of one year from the date of
service of notice.

– A time limit under section 48 (3) of the
Act has been introduced, which is aimed at ensuring that parties take their
remedies under this section seriously and approach a judicial forum
expeditiously and not by way of an afterthought.

Scope and nature of pre-arbitral judicial
intervention
: The Act recognizes situations where
the intervention of the Court is envisaged at the pre-arbitral stage, i.e.
prior to the constitution of the arbitral tribunal, which includes sections 8,
9, 11 in the case of Part I arbitrations and section 45 in the case of Part II
arbitrations. Such sections directly affect reference to arbitration and
thereafter constitution of arbitral tribunals. There have also been many
deliberations over scope and nature of permissible pre-arbitral judicial
intervention and whether such power constitutes a “judicial” or
“administrative” power. The Commission has suggested amendments to sections 8
and 11 of the Act. With respect to the scope of the judicial intervention,
it has suggested that the same be restricted to situations where the
Court/Judicial Authority finds that the arbitration agreement does not exist or
is null and void. In so far as the nature of intervention is concerned, it is
recommended that in the event the Court/Judicial Authority is prima facie
satisfied against the argument challenging the arbitration agreement, it shall
appoint the arbitrator and/or refer the parties to arbitration, as the case may
be.

Setting aside of domestic awards and
recognition/enforcement of foreign awards
: Section 34 of the Act deals with setting
aside a domestic award and a domestic award resulting from an international
commercial arbitration whereas section 48 deals with conditions for enforcement
of foreign awards. Currently, the Act treats all three types of awards in a
similar way i.e. judicial intervention where awards even have been made by a
foreign judicial body. In order to legitimate the judicial intervention with
respect to domestic awards resulting from an international commercial
arbitration and enforcement of foreign awards, the Commission has proposed
amendments that would deal with purely domestic awards, including setting aside
by the Court if the Court finds that such award is vitiated by “patent illegality appearing on the face of
the award
”, subject to that “an award
shall not be set aside merely on the ground of an erroneous application of the
law or by re-appreciating evidence
.” Further, time and again courts have
set aside awards on grounds of “public policy”. The Commission has suggested
restriction of the scope of “public policy” and that an award be set aside on
such grounds only if it is opposed to the “fundamental policy of Indian law” or
is in conflict with “most basic notions of morality or justice”.

Judicial Intervention in foreign- seated
arbitrations
: Part I of the Act, states that “This Part shall apply where the place of arbitration
is in India”.
The Supreme Court in this regard has held that Part I
mandatorily applied to all arbitrations held in India, however, Part I also
applied to arbitrations conducted outside India unless it was expressly or
impliedly excluded. Further, there have been many deliberations with regard to seat
and venue
of arbitration. The Commission has therefore, has suggested amendments to
sections 2(2), 2(2A), 20, 28 and 31 of the Act.

Automatic stay of enforcement of the
award upon admission of challenge
: The scheme of Act is such that the
pendency of a section 34 application renders an arbitral award unenforceable.
This virtually paralyzes the process for the winning party/award creditor and
frustrates the very objective of alternate dispute mechanism. The Supreme Court
with regard to such an anomaly has opined “the
moment an application challenging the said award is filed under section 34 of
the Act leaving no discretion in the court to put the parties on terms, in our
opinion, defeats the very objective of the alternate dispute resolution system
to which arbitration belong
”. Therefore, in order to rectify this mischief,
the Commission has suggested certain amendments to section 36 of the Act that
would provide that the award would not become unenforceable merely upon the
making of an application under section 34.

[Continued here]


– Prachi Narayan and Aditi Pal




[1]Law
Commission Report on Amendments to Arbitration and Conciliation Act
.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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