Q1. Can you share an overview of the Arbitration and Conciliation (Amendment) Act, 2019 (2019 Amendment Act) and reasons why much is being discussed about this Act?
A1: The 2019 Amendment Act, is evidently a step-in furtherance of making India an arbitration-friendly jurisdiction.
The Government had initiated these efforts in 2015 with The Arbitration and Conciliation (Amendment) Act, 2015 ("the 2015 Amendment Act") which was the initial step taken to amend The Arbitration and Conciliation Act, 1996 ("the Act"). Now in 2019, to further strengthen and make the arbitration process user friendly, cost-effective and time bound, the Government has introduced the 2019 Amendment Act.
In our view it broadly deals with three aspects of Indian Arbitration:
- Reduce Court's involvement in Arbitration: Earlier, in the absence of a procedure and/or non-adherence of a prescribed procedure under an arbitration agreement, the courts use to nominate arbitrators for adjudication of disputes between parties. The introduction of the 2019 Amendment Act has reduced the judicial intervention, whereby appointment of arbitrators will now be done by Arbitral Institutions. This amendment, however, is yet to be notified. This initiative is an attempt by the Government to bring the arbitration law in consonance with many international jurisdictions
- Address issues arising out of 2015 Amendment Act (e.g. amendment to Section 23, 29A): In order to make India a more robust market for foreign investors and a preferred seat for arbitration, two issues which are now sought to be addressed by the 2019 Amendment Act, is that:
- Parties are now required to complete their pleadings within six months from the date of service of written notice to the arbitrator (section 23)
- The 2015 Amendment Act had introduced a time-limit of 12 months (extendable to 18 months with the consent of parties) for the completion of arbitration proceedings from the date the arbitral tribunal enters upon reference. 2019 Amendment Act (Section 29A) now seeks to change the start date of this time limit of passing an award from the date on which statement of claim and defence are completed by parties. In International arbitrations the Amendment Act 2019 gives a relaxation to the mandatory time period of one year of passing the award. It is not clear from the above amendments, whether the courts or the arbitral tribunal are permitted to extend the time limit of six months for completion of pleadings. A party which wishes to delay the arbitration proceedings may not submit the statement of claim or defence in time, and this can lead to disagreements regarding the expiry of the time limit under Section 29A, giving rise to litigation on the issue. It also remains unclear as to when the pleadings would be said to be completed.
- Steps for improving and setting-up standards for Arbitration regime in India (e.g. setting up of Arbitration Council of India): The ACI, inter alia, will be empowered to grade arbitral institutions, promote institutional arbitrations, frame, and review and update norms to ensure satisfactory level of arbitration. In absence of the regulations being formed only time will tell as to how successful the ACI will be.
Q2. Can you explain the key amendments of the Act?
A2: One of the most notable amendments is the introduction of ACI for promotion of arbitration, mediation, conciliation and other alternative dispute redressal mechanisms. Its key functions include:
- framing policies for grading arbitral institutions and accrediting arbitrators;
- making policies for the establishment;
- operation, and maintenance of uniform professional standards for all alternate dispute redressal matters; and
- maintaining a depository of arbitral awards made in India and abroad.
The other key amendment is the amendment to Section 11. Section 11 of Arbitration Act inter alia provides for appointment of the Arbitral Tribunal through Courts when parties fail to constitute the Arbitral Tribunal under the Arbitration Agreement.
The Applications to the Court for appointment of Arbitrators was causing delays due to huge backlog of cases before the Courts. This amendment would not only aid in expediting the appointment of Arbitrators, but also reduce the burden of the Courts to a certain extent.
Also, the time period of 12 months required to make an award for all arbitration proceedings is now removed for International Arbitrations. However, the tribunals must endeavour to dispose-of international arbitration matters within 12 months.
Prior to 2019 Amendment Act, there was an overlap between the arbitral tribunal and court, as both forums could be approached for interim measures once the final award had been made and was awaiting enforcement. The 2019 Amendment Act now clarifies this inconsistency. For seeking interim reliefs post the arbitral award the parties can only approach the courts.
The 2019 Amendment Act clarifies that parties challenging the award must rely only on the record of the arbitral tribunal. This move may be a step forward in expediting the arbitration process as, lesser time may be spent by courts in scrutinizing the challenge to the award.
The 2019 Amendment Act also provides for confidentiality of arbitration proceedings. Disclosure of the arbitral award ought to be made only where it is necessary for implementing or enforcing the award.
Q3. How will the Arbitration and Conciliation (Amendment) Act, 2019 affect arbitral proceedings?
A3. One of the provisions introduced by the 2019 Amendment Act was that the 2015 Amendment Act will only have prospective effect i.e. it will only apply to arbitral proceedings initiated after the effective date (i.e. October 23,2015) of the Amendment Act and court proceedings initiated arising out of such arbitral proceedings (section 87).
This provision (section 87) overruled the position laid down by the Apex Court in BCCI v. Kochi Cricket Private Limited, wherein, to summarize what the Apex Court held was that both in pending petitions for setting aside of an award which were filed prior to October 23, 2015 and for fresh petitions for setting aside of an award, there would be no automatic stay of an award, unless a separate application was made for such a stay, which the court would have the discretion to grant or refuse coupled with deposit of money and/or security, if any.
The 2019 Amendment (section 87) as mentioned above changed this position laid down in BBCI case, and provided that (unless the parties agreed otherwise) the 2015 Amendment Act would apply prospectively to all arbitral and court proceedings commenced after October 23, 2015.
Q4. How can we apply the Arbitration and Conciliation (Amendment) Act, 2019 to the matter of Hindustan Construction Company?
A4. Recently, the Apex Court on November 27, 2019 in Hindustan Construction Company v. Union of India struck down Section 87 as unconstitutional for being arbitrary and restored its position as laid down in the BCCI case.
The Apex Court's decision in Hindustan was a right approach so as to provide the successful award holders the fruits of their award by way of security and not letting any automatic stay impasse the execution for several years.
To sum it up, Apex Courts purpose in Hindustan case was to give the benefit of the 2015 Amendment Act to all arbitrations qua court proceedings, regardless of whether they commenced before, or after October 23, 2015. This decision of Hindustan by Apex Court is a welcome development in the Indian arbitration regime.
Q5. How will the Arbitration and Conciliation (Amendment) Act, 2019 (2019 Amendment Act) impact businesses in general?
A5. The 2019 Amendment Act has been subject of much debate, qua the Insertion of Section 87, which did not consider the BCCI judgment of the Apex Court. The BCCI Judgment indeed had resolved certain issues around the applicability of 2015 Amendment Act.
However, despite the BCCI judgment, the Government went ahead to amend the law by inserting Section 87. Such amendment has now been found to arbitrary in the case of Hindustan. However, time will only tell how this will function in actual practice, since in cases where parties have applied to withdraw their deposit whereby applying the BCCI rule, certain deposit orders may have to be made again and the automatic stay of award regime would no longer be there and enforcement proceedings can continue. With the automatic stay regime now removed an arbitral award-holder can enjoy the fruits of his award and not have to wait for several years of litigating before enjoying the fruits of his award.
The 2019 Amendment Act overall is clearly an attempt at removing some of the difficulties which were being faced during the conduct of arbitration proceedings and the court proceedings arising under the 2015 Amendment Act. Separate time frame for completion of pleading, increase in role of arbitral institutions, institutional arbitrations as against ad hoc arbitration are all positive changes which should now hopefully give confidence to the international community towards an arbitration friendly India.
Q6. How does the Act aim to make India a more arbitration-friendly jurisdiction? Will this Act be able to spur international arbitration in India?
A6: The 2015 Amendment Act, was a step towards making India an arbitration-friendly jurisdiction. The 2019 Amendment Act is a step further towards that goal. Setting up of ACI under 2019 Amendment Act, is an interesting proposition and, if implemented in its true spirit, it may usher India into becoming one of the globally competent jurisdictions for Arbitration.
The delegation of powers to appoint Arbitrations to designated institutions within 30 days, is also a step towards reducing the court interference and delay in Arbitration. The introduction of confidentiality, immunity to arbitrators, and continuation of arbitrator\'s mandate pending application for extension of the arbitration timeline ─ are all welcome steps towards making India a more arbitration friendly jurisdiction.
Although these initiatives are encouraging, the 2019 Amendment Act alone may not be able to spur international arbitration in India. For development of any jurisdiction as international Arbitration depends on number of factors apart from having a favourable local laws. The implementation of laws, rules, and regulations; development of competent institutions; availability of conducive infrastructure for Arbitrations - all these amongst others go into development of an arbitration hub. But since the Government has taken these steps for conducive laws to support Arbitration, it could be reasonably expected that other factors may too fall in place sooner than later.
Q7. Any closing views on the Arbitration and Conciliation (Amendment) Act, 2019 (2019 Amendment Act) and next steps for the Central Government to implement these amendments?
A7. The 2019 Amendment Act comes close to the 2015 Amendment Act, (considering that Arbitration Act 1996 was first amended only in 2015, although it was long due). This itself speaks about the Central Government's keenness to develop the Arbitration regime in India; and willingness to deal with prevalent issues and adopt necessary changes.
The implementation of the 2019 Amendment Act would be the key to its success or failure. Especially in relation to formation of ACI and designation of Arbitration institutions by the Court. The relevant provisions for ACI and designation of Arbitration institutions amongst other provisions of the 2019 Amendment Act are yet to be notified. Once the entire 2019 Amendment Act comes into force, it would be interesting to watch how it would pan out.
Originally published by Law Street India.
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