Does the Confidentiality Provision Pose a Stumbling Block in Arbitration?

[Rose Maria Sebi is a third year student and Sandeep Golani a second year student, both at National Law University Odisha]

The Arbitration & Conciliation (Amendment) Act, 2019 intends to make India a hub for international and domestic arbitration. To achieve this ambitious goal, the legislature has introduced a confidentiality provision under section 42A of the Arbitration and Conciliation Act, 1996 (the “Act”). One might expect that with the inclusion of such a provision parties are more likely to prefer arbitration over litigation as courts can almost never provide for confidentiality that is available in arbitration. The section allows for disclosure of information only for the implementation and enforcement of an award, yet nothing in the section requires disclosure of awards in cases where public interest is affected. Further, and more importantly, the fact that section 42A is a non-obstante clause poses a conundrum when one considers disclosure requirements of companies pursuant to the Companies Act 2013, the various regulations issued by the Securities and Exchange Board of India (SEBI) and the Right to Information Act, 2005. Similarly, the provision risks being undermined in cases where material information is required to be disclosed in a parallel proceeding. In such a background, this post highlights the lacunae in the Act with regard to confidentiality in arbitration.

Approach towards confidentiality in different jurisdictions 

Although England (Dolling-Baker v Merrett), Switzerland and Singaporea (International Coal Pte Ltd v Kristle Trading Ltd) have adopted the approach of imposing “implied confidentiality obligations”, they are widely criticized on grounds that they neglect the requirement to disclose information even when it is necessary in a particular case. On the other hand, Australia (Esso Australia Resources Ltd v. Minister for Energy and Minerals), Sweden (Bulgarian Foreign Trade Bank Ltd. v. A.I. Trade Finance Inc.), France (G. Aita v. A. Ojjeh) and the U.S. (United States of America v. Panhandle Eastern Corp.) have rejected this notion and called for disclosure of information or materials produced before an arbitral tribunal when public interest is involved. 

It is noticeable that India has sought to follow the former approach of “implied confidentiality obligations” by providing for such principle under section 42 A of the Act. The section stipulates: 

Notwithstanding anything contained in any other law for the time being in force, the arbitrator, the arbitral institution and the parties to the arbitration agreement shall maintain confidentiality of all arbitral proceedings except award where its disclosure is necessary for the purpose of implementation and enforcement of award.

Though the Government has allowed disclosure of information for the implementation and enforcement of an award, nothing in the provision requires disclosure of awards in cases where public interest is affected. This omission will give the cold shoulder to the legitimate expectation that the public may have about what transpired in an arbitration that involves issues that affect their interest. Even though issues concerning public policy are typically not arbitrable, yet due to lack of uniformity in standards, parties may arbitrate such issues and withhold information necessary for public investors or public in general under the guise of confidentiality.

Disclosure requirements for companies under various laws

When a party to the arbitration is a company, the confidentiality provision could find itself to be in conflict with several disclosure requirements. For instance, the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 require listed companies to make disclosures by way of  periodic filings, reports, statements, documents and information reports which contain information that  enables investors to track the performance of a listed entity over regular intervals of time and to assess the current status of a listed entity.[[i]]

Similarly, under the Companies Act, 2013 a company is required to disclose material information by way of board of directors’ report, annual return and on its website. For instance, during a compromise [[ii]] or merger and amalgamation [[iii]] a company is required to disclose to the National Company Law Tribunal (NCLT) all material facts [[iv]] relating to the company. Such information regarding scheme of arrangement and the annual return [[v]], and other information such as the corporate social responsibility (CSR) policy [[vi]] are to be published on the website of the company for its stakeholders. Further, a listed company is also required to lay out its financial statements on its website. [[vii]] A literal interpretation of section 42A, which is a non-obstante clause, would suggest that a company is exempted from disclosure of the abovementioned requirements if the facts so concerned are crucial in the arbitration proceedings or arise therefrom. This, however, should not be the case as companies may use the provision to their advantage by not revealing material facts and may undermine public interest.

What makes matters worse is that, in a similar situation, even public authorities that are required to maintain all records and publish information in terms of the Right to Information Act 2005 (RTI Act) may take advantage of the particular provision. This defeats the very purpose of the RTI Act, which is a tool in the hands of the public to ensure transparency in public institutions.

Affected provisions of the Act

If section 42A were to be strictly interpreted, it would not only be in conflict with the statutes mentioned above, but it would also overlook other provisions of the Act itself. For instance, in a situation where an anti-arbitration injunction is sought by one of the parties under section 8 of the Act, the court in assessing whether the dispute is arbitrable or not may require disclosure of certain information, but it might find itself in an odd situation due to inadequacy of information as parties may withhold information by invoking the confidentiality provision. Disclosure of material information is also required when a party approaches the court for interim relief, [[viii]] in cases of appointment of arbitrators, [[ix]] when the arbitrator is unable to perform his functions [[x]] or when the tribunal requires the assistance of the court in taking evidence [[xi]].

Limited scope of the provision

The scope of the provision is problematic as it is limited to arbitrators, arbitral institutions and parties to the arbitration agreement, but does not include other persons who might be involved in the arbitral proceedings. This includes forensic accountants in commercial arbitrations, quantum experts in construction arbitration and other industry experts. Even though such professionals may be governed by a code of conduct under which they are restricted from divulging sensitive information, it might not necessarily be the case in every situation. In such a case, the provision can cause more harm than good.

Further, according to section 42K of the Act, the Arbitration Council of India shall maintain an electronic depository of arbitral awards made in India. However, the Act does not specify who would have access to the awards. It does not, in the least, reflect the recommendations made by the Justice B. N. Srikrishna Committee, according to which only courts may have access to the depository containing the awards. This raises serious questions regarding the working of the depositories and how they might infringe confidentiality.

Conclusion

The confidentiality provision poses a conundrum when it is placed in juxtaposition with the disclosure requirements and the provisions of the Act itself. It does not take into consideration the involvement of third-party experts and does not ensure confidentiality if all awards are maintained in a depository of the Arbitration Council of India. Even the B. N. Srikrishna Committee recommendations had suggested broader exceptions to the confidentiality obligation. Hence, section 42A is likely to give rise to numerous issues over the course of time and requires reconsideration of the scope and permitted exceptions to confidentiality.

Rose Maria Sebi & Sandeep Golani

[i] Regulation 4(1)(j), SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

[ii] Section 230, Companies Act, 2013.

[iii] Section 232, Companies Act, 2013.

[iv] Section 230(2)(a), Companies Act, 2013.

[v] Section 92, Companies Act, 2013.

[vi] Section 135(4)(a), Companies Act, 2013.

[vii] Section 136, Companies Act, 2013.

[viii] Section 9, Arbitration and Conciliation Act, 1996.

[ix] Section 11, Arbitration and Conciliation Act, 1996.

[x] Section 14, Arbitration and Conciliation Act, 1996.

[xi] Section 27, Arbitration and Conciliation Act, 1996.

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1 comment

  • Dear Sandeep,

    I really appreciate the content of the write-up. However, I would like to put forward one of my suggestions that Section 42A is also in conflict with sub-section 4 and 5 of Section 29A of the Act. Section 29A requires parties and the tribunal to become a party to the court proceedings where they may be required to disclose information of their arbitral proceedings. Although you have mentioned that the Srikrishna Committee Report has taken a broader view, you should have mentioned the suggestion of the committee that the stakeholders are not required to maintain confidentiality where “disclosure is required by legal duty, to protect or enforce a legal right.”

    Best of luck!!

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