India: Emerging Issues In The Arbitration Regime – India & Singapore

Last Updated: 12 January 2017
Article by Mahip Singh Sikarwar

Most Read Contributor in India, December 2018

INTRODUCTION

With the introduction of the recent amendment of 2015 to the arbitration laws in India, the regime of Arbitrability has taken a sharp turn and has made the future prospects look bright for Arbitration in India. It is an attempt to make India a preferred seat of arbitration for Indians as well as foreign parties. In a quest to compete with the current arbitration seat attractions like Singapore and London, this change in the Indian arbitration laws is being looked upon with a lot of hope by the MNC's planning to invest in India.

India has not been the only country to bring about some steep amends in the arbitration regime to assist the "ease of doing business". In order to maintain its top position as the most preferred seat of arbitration, Singapore has also amended its Rules of Arbitration (SIAC Rules) to such extents so as to bring out some sheer changes in its laws. In the following paragraphs we will read about the changes made in both arbitration regimes of India and Singapore and issues related with them.

INDIAN ARBITRATION REGIME – AMENDMENT AND ISSUES

The government of India has been trying to make the arbitration regime of the country more flexible. It has taken a lot of measures to make it happen but was not able to realize a attractive business environment to its satisfaction. In 2001 it tried to amend the arbitration laws of the country but failed. Then again it tried in 2010, but even that attempt was aborted. Finally on October 23, 2015 an ordinance was promulgated by the President incorporating the essence of major rulings passed in the two decades, inclusive of the recommendations of the 246th Law Commission Report. Subsequently the Arbitration and Conciliation Bill 2015, was passed in the Lok Sabha on December 17, 2015 and Rajya Sabha with minor additions to the amendments introduced by the ordinance. Eventually the Presidents signed it on December 31st, 2015 and the Arbitration and Conciliation (Amendment) Act, 2015 came into effect, from October 23, 2015.

Even with the recent amendment which did bring some stark change in the arbitration laws of India, a lot of issues have been still left unanswered. The issues of Indian parties having foreign seats and arbitration in case of oppression and mismanagement within a company are matters which are still suffering from conflict of opinions of various high courts.

EFFECT OF THE 2015 AMENDMENT ACT ON ICA

It is undeniable that this current amendment in the Arbitration Act has cemented a relatively easier path for International Commercial Arbitration to take place with seat in India and shows bright prospects of India becoming an arbitration hub for future arbitrations but there are still some issues which have been left out from the amendment and which would impact the future applicability and efficiency of these amendments and their objective.

Section 44(b) of the Arbitration and Conciliation Act 1996, after the Amendment, requires that the foreign award not only be made in a reciprocating territory, but also that the reciprocating territory be notified by the Central Government in Official Gazette. With only about 50 (fifty) countries having been notified as reciprocating territory, the scope of enforcing foreign arbitral awards is significantly reduced. The Government should either notify most countries in the Official Gazette, or do away with the requirement of Section 44(b) that provides for notifying reciprocating territories in the Official Gazette.1

In order to provide statutory recognition to the "emergency arbitrator" as provided under some institutional rules, the Law Commission Report had recommended the addition of "emergency arbitrator" to the definition of "arbitral tribunal" under Section 2(d) of the Arbitration Act. The concept of "emergency arbitrator" has been recognized by most international arbitration rules and has gained popularity for its effectiveness. The recommendations made by the Law Commission Report in this regard have not been accepted and this is a significant omission that is likely to impact arbitrations in India.

EMERGING ISSUES IN THE ARBITRATION

APPLICABILITY OF THE AMENDMENT ACT IS IN DISPUTE

Madras High Court in a case2 has ruled that the language used in the Section 26 of the Amendment Act only refers to arbitral proceedings and not court proceedings due to deletion of the language "in relation to." Section 26 of the Amendment Act is not applicable to the stage post arbitral proceedings.

However, the Calcutta High Court in has given a contrary view, and held that the Amendment Act will not apply and Section 34 petitions in case of arbitration proceedings commenced prior to October 23, 2015, would act as automatic stay.3

TWO INDIAN PARTIES HAVING A FOREIGN SEAT IS STILL QUESTIONABLE

Even though this issue has been addressed by a number of High Courts in the past, there is still no clarity on ability of two Indian parties to choose a foreign seat of arbitration. In a case4 the Bombay High Court expressed a view that two Indian parties choosing a foreign seat and a foreign law governing the arbitration agreement could be considered to be opposed to public policy of the country whereas in the case of Sasan Power Ltd v. North America Coal Corporation India Pvt. Ltd.5, the Madhya Pradesh High Court opined that two Indian parties may conduct arbitration in a foreign seat under English law.

However, one must be wary of the ruling in TDM Infrastructure,6 wherein the court ruled that two Indian parties could not derogate from Indian law by agreeing to conduct arbitration with a foreign seat and a foreign law.

ARBITRABILITY IN CASES OF OPPRESSION AND MISMANAGEMENT

A landmark judgment on this issue was delivered by the Bombay High Court in Rakesh Malhotra v. Rajinder Kumar Malhotra,7 wherein the court held that disputes regarding oppression and mismanagement cannot be arbitrated, and must be adjudicated upon by the judicial authority itself. However, in case the judicial authority finds that the petition is mala fide or vexatious and is an attempt to avoid an arbitration clause, the dispute must be referred to arbitration. Arguably, this could have an unintended impact on the prima facie standard in section 8, as amended and introduced by the Amendment Act.

CHANGES BROUGHT ABOUT BY SIAC RULES 2016 IN THE ARBITRATION REGIME IN SINGAPORE

MULTIPLE CONTRACTS, JOINDER, AND CONSOLIDATION

The new multi-contract and multi-party provisions in the SIAC Rules 2016 are three-pronged. They contain mechanisms for regulating (i) disputes arising out of multiple contracts; (ii) joinder of additional parties; and (iii) consolidation of several arbitral proceedings.

Rule 6 allows, amongst others, filing of a single Notice of Arbitration in relation to disputes arising out of multiple contracts. The Registrar is to treat such a Notice of Arbitration as a request to consolidate disputes under the relevant arbitration agreements.

Rule 7 allows joinder of additional parties prior to the tribunal constitution and empowers the SIAC Court to decide the joinder applications. The SIAC Court retains the power to revoke any arbitral appointment made prior to its decision on a joinder.

Rule 8 introduces consolidation to the SIAC arbitration, its mechanisms being largely in line with institutional best practices worldwide. The SIAC Court is empowered to decide consolidation applications prior to the tribunal constitution. The SIAC Court is likely to grant consolidation request if (i) all parties agree to consolidation; or (ii) the claims are made under the same arbitration agreement; or (iii) the claims are made under compatible arbitration agreements, and if the disputes arise out of the same legal relationship or out of the same transaction or series of transactions.8

EARLY DISMISSAL OF CLAIMS AND DEFENCES

The provision which deserves a special mention is the one regarding early dismissal of claims and defenses. Rule 29 of the SIAC Rules provides a party with the right to file an objection to dismiss a claim on the basis that the claim is "manifestly without legal merit" or "manifestly outside the tribunal's jurisdiction". If an early dismissal application is filed, the tribunal is first to decide whether the application may proceed.

With this new provision, the architecture of the SIAC Rules 2016 is such that it now offers a three-step objection process. First, Rule 28.1 grants the SIAC Registrar and the SIAC Court the screening power to determine prima facie whether the arbitration shall proceed. Second, under Rule 28, a party may file jurisdictional objections within 14 days after the matter that "manifestly" falls outside the tribunal's jurisdiction has arisen (or no later than in its statement of defence). And finally, the objecting party may have a shot at the same objection through the early dismissal mechanism.9

The problem with the three-step objection process is that it is effectively a "no risk" proposition for the respondent. The respondent may make a screening objection and, if it fails, go on to file a preliminary jurisdictional objection and if that fails, an early dismissal application on the same grounds. That is because presumably, none of these three mechanisms would result in a decision that would have res judicata effect.

SEAT DELOCALIZATION

One of the most significant changes brought about by these amendments to the SIAC Rules is delocalizing the Singapore seat and taking it to a global level. According to Rule 21 of the SIAC Rules 2016, Singapore is no longer the default seat of arbitration. The SIAC Rules Drafting Committee has introduced this amendment in an attempt to elevate Singapore above the earlier "local" default preference for Singapore as a seat. This change ensures a more global reach for SIAC, and brings Singapore in line with a number of other "delocalized" arbitral institutions, such as the ICC and the SCC. A minor speed bump in this regard is that because the SIAC Rules 2016 have lost the default seat provision, parties may find themselves locked in a dispute before the tribunal as to where the seat should be unless they specify the seat in their arbitration clauses.10

CONCLUSION

Henceforth, the changes in the arbitration regimes throughout the well known centers of Arbitration and India are a ray of hope for parties stuck in delayed arbitration procedures and gives a brighter prospect of having expedited arbitral proceedings all over the world with minimal costs of procedure. Be it the Singapore International Arbitration Centre or the LCIA each institutional arbitration centre is competing to become the first preference of parties entering into arbitration agreement. With the recent amendment of 2015 to the Arbitration Act 1940, it seems India might be entering the race soon enough to be the preference of parties entering into arbitration agreement.

Footnotes

1 1 http://barandbench.com/when-good-intentions-are-notgood-enough-the-arbitration-ordinance-in-india/

2 New Tripur Area Development Corporation Limited v. M/s. Hindustan Construction Co. Ltd. & Ors

3 Electrosteel Castings Limited v. Reacon Engineers (India) Private Ltd.

4 Addhar Mercantile Private Limited v. Shree Jagdamba Agrico Exports Pvt. Ltd.Judgment in Arbitration Petition No. 1710/2015 dated January 14, 2016

5 Judgment in First Appeal No. 310/2015 dated September 11, 2015.

6 TDM Infrastructure Pvt. Ltd. v. UE Development India Pvt. Ltd., (2008) 14 SCC 271

7 Rakesh Malhotra v. Rajinder Kumar Malhotra, (2015) 2 CompLJ 288 (Bom).

8 Rule 21 of the SIAC Rules 2016

9 Ibid.

10 Id.

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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