Guest Post – Proposed Amendments to Arbitration Law: Part 2

[The following post is contributed by Prachi Narayan and Aditi Pal of Vinod Kothari & Company. They can be contacted
respectively at prachi@vinodkothari.com
and ringee@vinodkothari.com
This is a continuation of a previous
post
]
Powers of Tribunal and interim measures: Section 17 of the Act provides that the
arbitral tribunal has the power to order interim measures of protection, unless
the parties have excluded such power by agreement However, the Apex Court has
held that the even though the tribunal is empowered to pass interim orders, the
same cannot be enforced as orders of court as it is only section 9 of the Act,
that expressly provides for courts’ powers to pass interim measures in case of
arbitration. In light of the same, the Commission thus suggested amendments to
section 17 that would not only provide teeth to interim orders of the arbitral
tribunal but also provide for the due recognition and enforcement as “Court
Orders”.
Arbitrability of fraud and complicated issues of fact: The issue of arbitrability of fraud has
arisen on numerous occasions and there exist conflicting decisions of the Supreme
Court on this issue. One set of decisions of the Supreme Court hold fraud and
serious issues of allegations as “non-arbitrable”, while the others recently
have in the interest of justice and equity expressly held them to be
arbitrable. In the absence of a clear provision of the Act as to what
constitutes an arbitrable issue and what does not and in order to rest the
controversies, the Commission has suggested amendments to section 16 of the Act
thereby making issues of fraud expressly arbitrable.
Neutrality of Arbitrators: One
of the basic ingredients of any judicial or quasi-judicial adjudication is that
it must be in accordance with principles of natural justice and fairness. In
the context neutrality of adjudicating authorities including those of
arbitrators, viz. their independence and impartiality, is critical and vital to
the entire process of adjudication. Section 12(3) of the Act, provides that “An arbitrator may be challenged only if (a)
circumstances exist that give rise to justifiable doubts as to his independence
or impartiality
…”. However, the test is to identify such circumstances
that lead or give rise to justifiable doubts with respect to conduct of the
arbitrator in the arbitration proceedings. Further, there has been plethora of
judgments of the Supreme Court on this subject matter saying that the
independence of the arbitrators cannot be compromised at any stage of
proceeding. The Commission has suggested, “There
are certain minimum levels of independence and impartiality that should be
required of the arbitral process regardless of the parties’ apparent agreement
.”
With a view to combat this issue, the Commission has suggested the following:
– Requirement of having specific disclosures by the
arbitrator, at the stage of his possible appointment, regarding existence of
any relationship or interest of any kind which is likely to give rise to
justifiable doubts.
– Incorporation of a Schedule that would serve guide to
determine whether circumstances exist which give rise to such justifiable
doubts.
– Situations of family arbitrations or other arbitrations
where a person commands the blind faith and trust of the parties to the dispute,
despite the existence of objective “justifiable doubts” regarding his
independence and impartiality.
Amendment to definition of “party”: Arbitration is a consensual form of
dispute resolution, with the arbitral tribunal deriving powers and authority on
the basis of the “contract” or the “agreement” between the parties. Parties
cannot invoke arbitration unless there exists an agreement between them.
Further, this gives rise to a widespread consequence – it takes away the right
of the party to the arbitration agreement to avail its remedies in a
traditional courts for disputes covered by the arbitration agreement; and makes
the consequent award binding, with a limited right of recourse. It is further
noted here that the parties to the agreement are the ones bound by the award of
the arbitrators and thus excludes from within its purview that are connected
and are essential to the dispute. Taking a narrow interpretation of the term
“party” to the agreement would not be satisfactory and thus the Commission has
proposed to amend the definition of “party” accordingly.
Costs and Interest on sums awarded: Litigation in India is an expensive
proposition and arbitration is no such exception to it. However, in order to
fine-tune the same, the Commission recommended a new section to empower
arbitral tribunals to award costs that are rational and realistic.
The issue on whether arbitral tribunals are authorized to
award future interest is payable not only on the principal sum but also on the
interest accrued till the date of the award has been a controversial one in
absence of any express and clear provision/intent under the Act. The Commission
has thus made efforts to clarify the scope of powers of the arbitral tribunal
to award compound interest, in as much as to rationalize the default rate from
the existing rate of 18% to a market based determination in line with
commercial rates.
Other amendments
Place of Incorporation: An amendment has been proposed
to the definition of “international commercial arbitration so that the test for
determining the residence of a company is based on its place of incorporation
and not the place of central management/control.
Definition of “Arbitration Agreement”:  The Commission has proposed that the
arbitration agreement in question or dispute must envisage a “subject matter
capable of settlement by arbitration.” This is done so as to give statutory
recognition to the doctrine of arbitrability. Further amendments are suggested
to extend the scope and bring within the purview those arbitration agreements
also that are accomplished by way of electronic communication/means.
Forfeiture of statement of defence: Adjudication of
disputes is delayed many a times due to dilatory tactics of the Respondent in
communicating its statement of defence. In order to prevent this, the
Commission has proposed amendments to section 25 (b) to include within the
power of the arbitral tribunal the discretion to forfeit such a right of the
respondent and proceed as undefended.
Conclusion
The Arbitration and Conciliation Act, 1996, even though in
force for almost two decades, has failed in terms of its intrinsic deliverables
due to inconsistencies and infirmities including those of high costs and
delays. These inordinate delays as opposed to the basic objective of the Act of
speedy justice put the alternative dispute regime at par with the traditional
judicial regime. Even though traditional courts have to a major extent been
pivotal in upholding the inherent objective of the Act, however, it often
happens that arbitration related proceedings get caught up and lost in the huge
list of pending cases, thereby frustrated the very object of quick alternative
disputes resolution.
In order to straighten these infirmities and get in line with
the international practices the amendments to the Act were indispensable and
once enacted hope to surface and uphold real intent behind the alternative
dispute resolution legislation.
[Concluded]
– Prachi Narayan and Aditi Pal

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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