The Government of India on 18 October 2024 released the draft Arbitration and Conciliation (Amendment) Bill, 2024 (The "Bill") for public comments. The aim and purpose of the proposed amendments to the Arbitration and Conciliation Act, 1996 (the "Act") as mentioned in the Bill itself, is to encourage institutional arbitration, reduce court intervention in arbitrations and to ensure timely conclusion of arbitration proceedings.
Among several other proposed amendments in furtherance to aforementioned purposes, one seeks to amend section 34 to provide parties to an arbitration, an option to file an application for setting aside awards to an appellate arbitral tribunal (hereinafter as "AAT") appointed by an arbitral institution. This article analyses the proposed amendment concerning the formulation of AATs.
What are the proposed amendments?
The Bill proposes to amend section 34(1) such that parties now have an option to file an application to set aside an arbitral award either to the court, or an AAT. The new proviso to section 34(1) then clarifies that where parties have agreed to take recourse to an AAT, no application for setting aside an arbitral awards shall lie before a court.
The Bill further seeks to insert a new section 34A which states that arbitral institutions may provide for an AAT to entertain applications under section 34(1) and that the AAT while deciding such an application shall follow such procedure as may be specified by the council.
This Bill marks a paradigm-shift by recognizing an alternative two-tier arbitration mechanism, which once was held to be inconsistent with scheme of the Act by the Supreme Court in Centrotrade Minerals v. Hindustan Copper1 in its judgement dated 09 May 2006 but later reversed by the Supreme Court in its subsequent judgement dated 15 December 2016.2
Analysis
Forum shopping: When no express agreement, where to go?
The proposed proviso to section 34(1) only provides for a scenario where parties agree to resort to an AAT that no applications shall lie before courts. The rationale behind this clarification appears to prevent delays due to parallel proceedings before the AAT and courts. However, in a scenario where there is no express agreement between parties either for: (i) resorting to an AAT itself; or (ii) where there is an agreement to resort to an AAT, but no agreement over the procedure of appointment and composition of AAT or the 'arbitral institution' responsible for appointing the AAT; an option to approach any forum may be open to parties since there is no express prohibition from approaching an AAT where there is no previous agreement between parties. This legislative vacuum invites forum shopping.
Here, recalcitrant parties may engage in unnecessary proceedings either before the court, or an 'arbitral institution' for formation of an AAT where an application is first filed. This may cause delays to the adjudication of the application to set aside the award.
To obviate this difficulty, a clarification may be given to the proviso to section 34(1) making courts the default forum for adjudicating an application for setting aside an award, where no express agreement to resort to an AAT exists.
Appointment and composition: Delays and Deadlocks
The new section 34A states that arbitral institutions may provide for an AAT. To supplement this, the new amended definition of "arbitral institution" includes words "or as otherwise agreed by the parties". This allows both AATs constituted by arbitral institutions like MCIA, IIAC, etc. as well as ad-hoc AATs by agreement of parties. The Bill, however, is silent on whether the AAT will be a sole arbitrator or a three-membered tribunal.
Now, scenario may arise where parties agree to resort to an AAT, but there is no express agreement on the appointment and composition of AAT. For e.g., if the award-debtor seeks to institute appeal proceedings before a three-membered tribunal appointed by arbitral institution 'A' and the award-holder agrees to resort to an AAT, but prefers appointment of a sole arbitrator by arbitral institution 'B'. If parties reach a dead-lock by inability to agree on these factors after award is passed, it is unclear how the subsequent steps to initiate appellate arbitration will be determined and whether applications to set aside the award can be filed before a court.
In the presence of any agreement to resort to an AAT, the proviso to section 34(1) would bar parties from filing an application for setting aside an award to a court. If the arbitration is not in a manner consented or agreed by the award-holder, forcing the award-holder to participate in arbitration proceedings initiated by award-debtor would be against the principle of party-autonomy in arbitration. A significant time of the limitation period of three months may also be elapsed due to this.
To obviate this difficulty, a clarification may be given to the proviso to section 34(1) making courts the default forum for adjudicating an application for setting aside an award, where no express agreement to resort to an AAT exists. Alternatively, legislative guidance is sought for choosing the appropriate arbitral institutions for appointing the AAT.
Challenge to arbitrator: Impartiality and Independence
The Bill in its current form does not expressly state that sections 12 and 13 read with Schedules Five, Six and Seven of the Act, which set standards of and ensure impartiality and independence of arbitrators, also apply to AATs. Absence of an express provision bringing AATs within the standards of independence and impartiality set for arbitrator(s) by the Act would be detrimental to parties participating in proceedings before an AAT and may also violate article 14 of the Constitution.
Such challenges to the impartiality or independence of arbitrator(s) in the AAT, if made, would take up significant time in the adjudication of section 34 applications which are to be completed within a period of one year pursuant to section 34(6) of the Act. Thus, more expeditious timelines in adjudicating such challenges may be prescribed by suitable amendments.
If such challenges are successful, the substantial time and resources employed by parties before the AAT would be futile and the parties will have no option but to appoint another AAT and re-
start the section 34 proceedings. Hence, strong safeguards for ensuring independence and impartiality of arbitrator(s) in the AAT is quintessential since the very onset.
Scope of review: 'appellate' only in name?
The new proposed section 34A(2) states that the AAT while deciding an application under section 34 shall follow such procedure as may be specified by the Council.
The ambiguity which arises is whether the procedure to be prescribed by the Council only covers administrative aspects like appointment mechanism, composition, timelines for making applications and rendering the award, confidentiality, etc. or also delves into substantive scope of review and powers of AATs in any manner which are in addition to the grounds already prescribed under section 34.
Considering the uniform phraseology of "The Court or an appellate arbitral tribunal" used in section 34, it is important that any rules prescribed by the Council do not have the effect of creating a differential, broadened, or even a more restricted scope of powers of AATs. This is important for a uniform and predictable interpretation of the grounds of challenge under section 34, which would also affect public trust confidence of parties to arbitrations seated in India.
Finally, although the function of prescribing procedural rules for AATs has been delegated to the Council, an initial legislative guidance will be helpful.
Risk of fragmented jurisprudence in private AAT hearings
The hearings before AATs will be private hearings, as opposed to open court hearings. While judgements of courts help in clarifying important interpretational aspects of scope of review under section 34, it is unclear if orders of AATs will also be made available publicly. Private hearings of AATs may create a parallel opaque jurisprudence which will never be accessible to the public. This would also affect public trust as well as governmental monitoring of quality standards, equally. However, totally confidentiality of AAT hearings will be in favour of parties preferring confidentiality of their dispute. It remains to be seen whether any rules prescribed by the Council cover these aspects.
Conclusion:
The proposed amendment is aligned with the objective of reducing judicial interference in arbitration by creating an alternative mechanism to hear an application to set aside arbitral awards. The judicial intervention will then be limited to only appeals under section 37 of the Act and appeals before the Supreme Court. This amendment is also welcome from a perspective of recognition of capabilities of arbitral institutions in handling a huge number of complex arbitrations and to further promote institutional arbitration in India.
When viewed together with other proposed amendments to section 34, like prescribing a format for arbitral awards, allowing partial setting aside of awards on fulfilment of prescribed conditions, further narrowing the scope of appeal u/s 34(2), etc. though this proposed amendment is well-intentioned, several supplementary amendments are required to plug loopholes, reduce delays, streamline the arbitral procedure from right the appointment stage till the finality of the arbitral award. However, the amendment poses various ambiguities regarding formulation and functioning of AATs and thus create an uncertainty at the post-award stage in India-seated arbitrations. More nuanced legislative guidance will further the government's objective to make India a global arbitration hub and increase stakeholders' confidence to arbitrate in India.
Footnotes
1. Centrotrade Minerals v. Hindustan Copper Ltd., (2006) 11 SCC 245, ¶62-63, 116.
2. Centrotrade Minerals & Metal Inc. v. Hindustan Copper Ltd., (2017) 2 SCC 228, ¶¶29, 47.
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