India: Amendments To The Indian Arbitration Act

It is not wisdom but Authority that makes a law. - Thomas Hobbes

INTRODUCTION:-

Litigation in India has come to be a time-consuming and expensive affair, and justice usually arrives late or even eludes as justice delayed is justice denied. This injustice is particularly paramount in civil & commercial disputes, where cases remain pending for years. It is in this context that arbitration was considered as an alternate method of dispute resolution to provide an effective and efficient remedy for dispute resolution outside Court. Thus, the Arbitration Act, 1940 (hereinafter "1940 Act") was enacted which slowly became outdated and therefore the Law Commission of India along with experts in the field of arbitration proposed amendments to the 1940 Act to make it more responsive to contemporary requirements. Even the Hon'ble Supreme Court of India in the matter of Guru Nanak Foundation v Rattan Singh 1 adversely commented upon the workings of the 1940 Act.

Therefore, the Arbitration and Conciliation Act, 1996 (hereinafter "the Act"), was enacted to consolidate and amend the law relating to domestic arbitration, international commercial arbitration, enforcement of foreign arbitral awards, and also to define the law relating to conciliation and for matters connected therewith or incidental thereto on the traction of UNCITRAL.

The basic objective behind enacting the 1996 Act was:

(a) To broadly cover international commercial arbitration and conciliation as also domestic arbitration and conciliation;

(b) To minimize the administrative role of courts in the arbitral process;

(c) To provide that every final arbitral award is enforced in the same manner as if it was a decree of court.

However, the Act also eventually gave rise to various concerns. The Hon'ble Supreme Court in arbitration matters has efficiently construed various provisions of the Act in order to remove ambiguity. Consequently, due to the requirement to bring changes in the Act the Law Commission of India, has now in its 246th report titled, "Amendment to the Arbitration and Conciliation Act, 1996" suggested some major changes to the Act. The report sought to find an appropriate path and balance between judicial intervention and judicial control. In view of the said report, the Union Cabinet on 21st October, 2015 approved the Arbitration and Conciliation (Amendment) Ordinance, 2015 ("the Ordinance") which was promulgated on 23 October, 2015 after receiving the President's assent.

The Ordinance introduces several significant changes to the Arbitration & Conciliation Act, 1996. The object of these changes is to expedite the arbitration process and reduce court intervention in arbitration proceedings. The major changes introduced in the Act pursuant to the Ordinance are as follows:

(a) The term 'Court', as defined under Section 2(1) (e) of the Act, has been amended and now includes High Courts having jurisdiction to hear appeals from decrees of courts subordinate to it. This amendment is in relation to international commercial arbitrations and more specifically to High Courts which do not exercise ordinary original civil jurisdiction;

(b) The provisions of Sections 9, 27, 37(1)(a) and 37(3) shall also apply to international commercial arbitrations, even if the seat of arbitration is outside India, so long as the award made or to be made is enforceable and recognized under Part II of the Act;

(c) The scope of Section 17 of the Act has been enlarged by giving the tribunal the power to provide interim measures, if applied for, even after the making of the award, but before it is enforced. The amendment to this Section further provides that all orders passed by the tribunal under this Section, subject to any order passed in an appeal under Section 37 of the Act, shall be deemed to be an order of the court and shall be enforceable in a manner as provided under the Code of Civil Procedure, 1908;

(d) A time bound procedure has also been introduced under Section 9 of the Act, whereby when the court passes any interim measure under the said Section, the arbitral proceedings must commence within 90 days of the passing of such interim measures;

(e) No application for interim measure under Section 9 shall be entertained after the arbitral tribunal has been constituted, unless the remedies under Section 17 have been rendered ineffective;

(f ) The ordinance has also brought changes in Section 11, to the effect of the addition of sub-section 14 which provides for the determination of fees of the arbitral tribunal as per the rates specified in the newly inserted fourth schedule of the Act;

(g) Under Section 12 of the Act, as of now onwards before the appointment of an arbitrator by the court, the court shall seek a disclosure in writing from the prospective arbitrator as per the newly inserted sixth schedule to clarify any justifiable doubts as regards his independence or impartiality (the grounds for which are enumerated in the fifth schedule of the Act). Further, the addition of sub-section 5 of Section 12 also provides for the ineligibility of a person to be appointed as an arbitrator if his/her relationship with the parties, the counsel or the subject matter of the dispute falls within any of the categories enumerated under the seventh schedule of the Act;

(h) A new Section namely Sec. 31-A has been introduced i.e. Regime for Costs (Loser to Pay). The main objective of including the "costs follow the event" regime is to check the filing of frivolous claims/ applications;

(i) Further, Section 29A has now been inserted in the Act which provides that the award shall be made within a period of 12 months from the date the arbitral tribunal enters upon reference, i.e. the date on which the arbitrator(s) receives a written notice of its appointment; the said period of 12 months may be extended by mutual consent of the parties for a further period not extending 6 months. Furthermore, Section 29A also provides for a penalty to be imposed on the arbitrator by way of reduction of fees, in cases where the timeline as specified under this section has not been adhered to by the tribunal and even entitles the arbitrators to an additional fees as may be agreed between the parties if the award is made within 6 months as opposed to 12 months;

(j) Additionally, the newly inserted Section 29B of the Act provides for a fast track procedure of arbitration. Under the fast track mechanism, the tribunal shall decide the dispute only on the basis of written pleadings, documents and submissions, and no oral hearing shall be conducted unless requested by both the parties or such hearing is called by the tribunal to seek certain clarification, as may be required and the award shall be made within a period of six months from the date the arbitral tribunal enters upon the reference;

(k) Section 34 of the Act has now been amended to the effect that "public policy" has been defined and now an award shall only be considered in conflict with the public policy of India if- the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 (Confidentiality) or Section 81 (Admissibility of Evidence); or if it is in contravention with the fundamental policy of Indian law (which shall not entail a review on the merits of the dispute); or it is in conflict with the most basic notions of morality or justice;

(l) Section 34(2A) has been inserted to include that an award passed in an arbitration other than an international commercial arbitration, may also be set aside, if the court finds that the award is vitiated by patent illegality appearing on the face of the award, however, an award shall not be set aside merely on the ground of erroneous application of law or by re-appreciation of evidence;

(m) Lastly, by virtue of the newly inserted Section 36(2), the mere filing of an application under Section 34 of the Act to set aside an award shall not by itself render the award unenforceable, unless the court grants an order of stay on the operation of the award;

CONCLUSION:

The Law Commission in its 246th Report had also suggested amendment in Section 16 to the effect that after sub-section (6) an additional sub-section (7) should be inserted whereby the arbitral tribunal shall have the power to make an award or give a ruling notwithstanding that the dispute before it involves a serious question of law, complicated questions of fact, or allegations of fraud, corruption etc, but the Ordinance is silent on this aspect.

The Ordinance has laid the foundation in bringing the standards of domestic arbitration at par with international/ institutional arbitration by implementing amendments that make domestic arbitration more cost effective and time efficient. The prime focus of this Ordinance has been to ensure minimal judicial intervention. The proposed amendments are envisaged to be a step forward in making arbitration an easier, faster, and more cost effective method of dispute resolution, coming in terms of its actual legislative intent.

Footnotes

1. (1981) 4 SCC 634

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.

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