India: A New Innings For Arbitration In India - Overhaul Suggested For The Arbitration & Conciliation Act, 1996

Last Updated: 20 August 2014
Article by Sahil Kanuga and Vyapak Desai
  • Law Commission releases proposed amendments to the Arbitration & Conciliation Act, 1996;
  • Large-scale amendments are designed to plug major gaps identified over time and if implemented, will work to impart confidence in Indian arbitration;
  • Recognition and boost to institutional arbitration;

The Law Commission of India, led by its Chairman Justice A.P. Shah1, has released its proposed amendments2 ("Law Commission Report") to the Arbitration & Conciliation Act, 1996 ("the Act"). The Law Commission Report was handed over to the Ministry of Law and Justice suggesting a radical overhaul of the Act.

It may be recalled that in 2010, the Ministry of Law and Justice had released a consultation paper suggesting certain amendments to the Act. It was then felt that the consultation paper did not address the shortcomings of the Act. The Law Commission Report has, on the other hand, addressed a large number of concerns raised and if implemented, could prove to be a game-changer for arbitration in India.

HIGHLIGHTS OF THE LAW COMMISSION REPORT:

Areas of concerns which were identified and certain proposed amendments to address the concerns:

1. Institutional arbitration

The Law Commission Report (a) attempts to encourage the culture of institutional arbitration in India; (b) seeks to accord legal recognition to an 'emergency arbitrator', the new norm in most institutional rules; (c) suggests that the Government consider formation of a specialized body which has representation from all stakeholders of arbitration, which body could be entrusted to encourage the spread of institutional arbitration.

2. Delays: In Court, before the Tribunals and risks under Bilateral Investment Treatises

Systemic delays do exist. The Law Commission Report seeks to deal with each issue in a systematic and analytical manner.

  • Appointment of an arbitrator: The Law Commission Report proposes to make appointment of an arbitrator an administrative decision to be carried out by the High Court or the Supreme Court, as the case may be. This approach is designed to bring Indian arbitration in line with global best practices and also, to give effective meaning to the doctrine of Kompetenz-kompetenz. It is also provided that such an application be endeavored to be disposed of expeditiously, and also within a 60 day period, from service of notice. The issue of jurisdiction of the arbitral tribunal, if in question, could be raised before the arbitral tribunal. Though the Law Commission Report provides for a challenge of refusal to appoint an arbitrator under the Act, it does not provide for a situation where an arbitral tribunal holds that it has jurisdiction. Parties to arbitration will therefore need to go through the entire arbitral process before being able to challenge the jurisdiction of the arbitral tribunal itself.
  • Challenges to arbitral awards: The Law Commission Report provides that such an application be endeavored to be disposed of expeditiously, and also within a 1 year day period, from service of notice. Moreover, in case of foreign awards, the Law Commission Report also has considered applications resisting the enforcement of a foreign award (under Section 48 of the Act) and incorporated similar timelines for (a) institution of an application resisting enforcement; and (b) disposal of such an application; under Section 48 of the Act. In a well-calculated move designed to give comfort to foreign investors and also to mitigate risks under bilateral investment treatises, any court-related proceedings emanating out of an international commercial arbitration (where one party to the matter is a foreign party) is proposed to be dealt with by the High Court. The threshold for judicial intervention is also sought to be raised.

Separately, the Law Commission Report also recommends that specialized and dedicated arbitration benches be constituted (as done in the Delhi High Court).

3. Costs

A regime of actual costs incurred is proposed alongwith detailed points for consideration of the court or arbitral tribunal based on Rule 44 of the Civil Procedure Rules of England. A general rule requiring a losing party to pay actual costs of the successful party, as proposed, would certainly inspire most parties to be reasonable about resolving disputes. Moreso, manufactured counterclaims and dilatory tactics would be minimized and thus, the overall speed and efficacy of the arbitral process would be bound to improve. By keeping a check on parties' conduct including potential offers to settle the disputes, the Law Commission Report seeks to cast an obligation upon each party to the proceeding to cooperate and be reasonable at each step.

4. Setting aside of domestic award & recognition/enforcement of foreign awards

  • With a view to do away with the unintended uncertainties caused due to the Supreme Court's judgment in ONGC Vs. Saw Pipes3, the Law Commission Report proposes a specific provision dealing with setting aside of a domestic award on the ground of patent illegality.
  • In cases of foreign award and awards passed in international commercial arbitration in India, it is recommended that a narrower construct be given to 'public policy', so as to include only (i) fundamental policy of Indian law; and (ii) most basic notions of justice or morality;

Tightening of the provisions seeking to set aside or challenge the enforcement of arbitral awards is a welcome move and will work to impart confidence in arbitration as an effective and speedy dispute resolution mechanism. However, the inability to set aside an award passed in a domestic arbitration on erroneous application of the law will require extreme judicial care and discipline by the arbitral tribunals as such award may henceforth go unchecked. Further, the additional ground of patent illegality will not be available to international commercial arbitrations which may be seated in India.

5. Judicial intervention in foreign seated arbitration

The Law Commission Report acknowledges the lack of efficacious redress available to a party seeking protection of assets located in India, where an arbitration is seated abroad. It also acknowledges the issues caused due to the operation of two parallel trails, evolving out the precedents set out in Bhatia International4 and Balco5. In this regard, a large number of changes are proposed whereby it provides that:

  • Indian courts will exercise jurisdiction under Part 1 of the Act only when the seat of arbitration is within India;
  • Certain provisions in Part 1 of the Act, such as Section 9 (interim relief), Section 27 (court assistance for taking evidence), Section 37(1)(a) and 37(3) (Appealable orders), will remain available to parties in a foreign seated arbitration;
  • The proposed changes will not affect applications pending before any judicial authority, relying upon the law set out by Bhatia.
  • Legal recognition be accorded to the terms 'seat' and 'venue', consistent with international usage;

It remains to be see how these proposed amendments will affect the rights of parties to foreign seated arbitrations, who have, relying on the law set out in Bhatia, explicitly agreed to exclude the application of Part 1 from their agreements.

6. Automatic stay of enforcement

Under Section 34 of the Act, an automatic stay of the award operated once an application to set aside the award was filed before an Indian court. The court was not permitted to impose terms upon the applicant for such stay. This situation is proposed to be rectified by: (a) requiring an applicant to specifically seek stay of an award; and (b) permitting a court to put a party to terms, keeping in mind the provisions for grant of stay of money decrees under the Code of Civil Procedure, 1908. If implemented, one could see applicants being directed to deposit the award amount or portion thereof prior to any stay of the award being granted, thus reducing the incentive to litigate.

7. Interim orders by the arbitral tribunal

The Law Commission Report proposes that:

  • Once a court grants interim relief under Section 9 of the Act, arbitration proceedings should be commenced within 60 days thereafter failing which the interim relief will cease to operate.
  • Once the arbitral tribunal is constituted, a court will not ordinarily entertain a petition under Section 9 until the applicant is able to demonstrate that relief under Section 17 (before the arbitral tribunal) would not be efficacious.

Currently, there is no enforcement mechanism provided for orders passed by an arbitral tribunal. The Law Commission Report proposed to amend Section 17 of the Act expanding the scope of the provisions and ensure that an interim order passed by an arbitral tribunal is treated as an order of the court. The Law Commission report doesn't provide for enforceability of interim orders passed by arbitral tribunals (both for emergency arbitrator and a duly constituted arbitral tribunal) in foreign seated arbitrations.

8. Arbitrability of fraud:

The Law Commission Report brings closure to the entire controversy by legislatively providing that allegations of fraud/corruption, complicated questions of fact or serious questions of law are expressly arbitrable. This will ensure that (a) there are no ingenious 'fraud' defenses are raised with a view to bypass the arbitration agreement; (b) investors can allege fraud without having to fear that the allegation would be used to evade arbitration.

9. Disclosures by arbitrators

The Law Commission Report proposes amendments requiring written disclosures from the prospective arbitrator(s) with regard to any circumstances likely to give rise to justifiable doubts as to his independence or impartiality. The nature of circumstances has also been detailed and there is an additional layer of checks and balances provided which is the incorporation, as a guide, of the red and orange lists of the International Bar Association Guidelines on Conflicts of Interest in International Arbitrations. There is an express bar of certain persons also provided for which is waivable, but only after disputes have arisen and that too only by an express agreement in writing. This is done keeping in mind party autonomy, the grundnorm of arbitration.

Significantly, the proposed arbitrator is also required to disclose if there exist circumstances that are likely to affect his ability to devote sufficient time and to complete the arbitration within 24 months and pass the award within 3 months thereafter. The disclosures also require the arbitrator to disclose his ongoing arbitrations. While the idea of requiring such a disclosure is certainly welcomed with open arms, there is no long stop provided requiring the tribunal to approach the court and seek additional time by demonstrating cause, should the 24 months (for completion of the arbitration proceedings) or 3 months (for passing of the award) be insufficient.

10. Parties to arbitration

Taking heed from the judgment of the Supreme Court of India in Chloro Controls6, the definition of the word 'party' to an arbitration agreement has been expanded to also include persons claiming through or under such party. This would mean that going forward, arbitration may not be limited simply to signatories of the arbitration agreement.

11. Power of the arbitral tribunal to award interest

Rationalizing the provision permitting grant of interest, the Law Commission Report proposes to move away from the statutory 18% p.a. as currently provided for in Section 31 of the Act and instead, move to a market based determination in line with commercial realities.

12. Arbitration agreement

In addition to other amendments, with a view to bring Indian law in conformity with UNCITRAL Model law, it is proposed that an arbitration agreement can additionally be concluded by electronic communication.

13. Statement of Defence

An amendment is proposed to grant discretion to the arbitral tribunal to treat the right of the Respondent to file a statement of defence as having been forfeited, where such statement is not filed within the prescribed time.

14. Arbitrator's fees

The Law Commission Report recommends, for domestic ad hoc arbitrations, a model schedule of fees, which will be updated regularly to ensure that they remain realistic. As international commercial arbitrations involve foreign parties who have different values and standards as well as institutional rules having their own schedule of fees, these recommendations do not, nor are asked to, capture the requirements of such arbitrations. It may be pertinent to note that international commercial arbitrations held in India do also share arbitrators from the same pool as domestic ad-hoc arbitrations and thus, the common issues raised of high arbitrator's fees may not be addressed insofar as international commercial arbitrations being held in India are concerned. Also, these are merely recommendations and are in no way binding upon any prospective arbitrators.

15. Conduct of arbitral proceedings

The Law Commission Report attempts to discourage the practice of frequent adjournments as well as seeks to push for continuous sittings of the tribunal for recording evidence and arguments. However, inspite of acknowledging that formal sittings merely for compliances should be avoided and use of technologies like video-conferencing and tele-conferencing be encouraged, the Law Commission Report fails to incorporate such recommendations in its proposed amendments.

CONCLUSION

The Law Commission Report attempts to identify and treat each malady plaguing arbitration in India with clinical precision. Each proposed amendment attempts to not only remedy the malady but also seeks to set up the stage for arbitration in India to achieve a higher plane of growth. There do remain certain gaps but this appears to be a well thought effort to plug larger issues affecting the country and if implemented, will certainly boost confidence in the Indian arbitration space.

Arbitration as a dispute resolution mechanism has not found favour due to a number of reasons. With a Government that is eyeing judicial reform, clear and precise amendments which are bound to find favour and impart confidence to foreign investors should find adequate backing. It will be interesting to see how soon, if at all, these amendments are implemented. The consequent acceptance and manner in which the proposed amendments will actually be interpreted by the judiciary is also something that only time will tell.

Footnotes

1 Former Chief Justice of the Madras and the Delhi High Courts;

2 Law Commission Report No. 246 dated August 05, 2014;

3 (2003) 5 SCC 705;

4 (2002) 4 SCC 105;

5 (2012) 9 SCC 552;

6 (2013) 1 SCC 641;

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Sahil Kanuga
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions