Arbitration Law

Arbitration and Conciliation (Amendment) Bill, 2018: Yet Another Paradigm Shift

The Arbitration and Conciliation Act, 1996 (“ACA”) has played a monumental role in raising the standard and accessibility of dispute resolution in India to the point where it forms part of wide ranging agreements, commercial or not, as the first means of resolving dispute between parties. What may go unnoticed is the relative frequency with which the ACA has seen amendments to its core stipulations, in the pursuit of establishing a holistic arbitration regime in India. One such substantial development comes in the form of the Arbitration and Conciliation (Amendment) Bill, 2018 (“Bill”) which seeks to usher the ACA in to the age of institutional arbitration, in a development that will have substantial impact on the arbitration landscape in the country.

 

The High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India

In its report dated 30th July 2017, the High-Level Committee to Review the Institutionalisation of Arbitration Mechanism in India(“HLC”) headed by Justice BN Srikrishna (Retd.), has made an analysis of the ACA with the intent of strengthening the framework of institutional arbitration in India and removal of barriers to the effective implementation of the same present under the ACA. The HLC had submitted that under the ACA (as it stands today) there are substantial roadblocks that strike at the very core of the endeavor to strengthen India’s institutional arbitration regime. With the same object, the HLC has suggested various of the following amendments to the ACA:

 

  1. Creation of the Arbitration Council of India

The Bill endeavors to create the Arbitration Council of India (“ACI”) to bring a formal structure to the arbitration proceedings in the country and to overlook the nuances and modalities of the arbitral process. The Primary duty of the ACI is to take such measures as may be necessary to promote and encourage arbitration, mediation, conciliation or other alternative dispute resolution mechanism and for that purpose to frame policy and guidelines for the establishment, operation, and maintenance of uniform professional standards in respect of all matters relating to arbitration. This includes the grading of arbitral institutions and laying down rules and norms for the arbitrators.

The ACI would also be enshrined with the power to make regulations to discharge its functions and to perform its duties, in consultation with the Central Government. Further, the ACI shall maintain an electronic depository of all arbitral awards made in India and such other related records as the regulations may provide.

The intent thus stands to be to provide a regulator of the arbitral institutions and certain preliminary factors of the arbitration process. Presently, there are 35 arbitral institutions which work differently without any standardization. The creation of the ACI is an exercise towards this standardization.

The ACI is proposed to be an autonomous body free form any governmental intervention which is a welcomed approach that would vest credibility and neutrality in the institution even in cases where the Government may even be party to the arbitration.

A deeper analysis of the ACI can be found here.

 

  1. Appointments by the Court, No More

In a monumental change to the framework of the ACA, Section 11 is to be amended to the following effect:

i. Arbitral Institutions or Panels

The Bill seeks to insert a new Section 3A to the ACA which seeks to provide that the Supreme Court and the High Courts shall have the power to designate arbitral institutions from time to time, which have been graded by the ACI for the purposes of the ACA.

But, in respect of those High Court jurisdictions, where no graded arbitral institutions are available, then, the Chief Justice of the concerned High Court may maintain the panel of arbitrators, for discharging the functions and duties of arbitral institution and the arbitrator appointed by a party shall be entitled to such fee as prescribed under the Fourth Schedule. Further, the Chief Justice of the concerned High Court may from time to time review the panel of arbitrators.

ii. Appointments to be Made only by Arbitral Institutions

The Bill provides for the role of appointment of arbitrators on application under the present Sub-Sections (4), (5), & (6) that presently vests with the Courts to be wholly shifted to arbitral institutions or in the lack of such institution as may be designated by the Supreme Court (in cases of International Commercial Arbitration) or the High Courts (in cases other than International Commercial Arbitration). Other changes are also sought to made to this effect under the ACA.

 

  1. Circumscribing the Scope of Interim Measure by the Arbitral Tribunal

The Bill seeks to circumscribe the scope of interim measures by the arbitral tribunal under Section 17 to the effect that a party may only approach the tribunal for the same before the passing of the arbitral award. The party therefore is specifically excluded from approaching the tribunal at any time after the making of the arbitral award but before it is enforced.

According to the Report of the HLC, this measure aims to clarify the ambiguity that exists presently. Under Section 32 of ACA, upon the making of the final arbitral award, the arbitral proceedings shall terminate. Once the proceedings terminate, the arbitrator / tribunal becomes functus officio. Hence, once the arbitral tribunal becomes functus officio, after the final arbitral award is rendered, no application can be made for grant of interim measures under section 17(1).

 

  1. Limiting the Time for Presentation of Statements of Claim

The Bill provides that the statements of claim and defense under Section 23 shall be completed within a period of six months from the date the arbitrator or all the arbitrators, receive a written notice of their appointment. This imbues an element of efficacy, ensuring stringency in fighting delay in arbitral proceedings. This amendment was not part of the HLC Report.

 

  1. Amendment to Time Limits and Exemption to International Commercial Arbitrations

The Bill seeks to introduce two-fold stipulations as to time limits under Section 29A of the ACA. Firstly, to provide exemption to international commercial arbitrations form the purview of the 12-month time limit under Section 29A. Secondly, in the case of domestic arbitrations, the 12 months-time limit is to be calculated from the date of completion of pleadings under Section 23(4). Together with the abovementioned amendment to the presentation of statements of claim and defence, a holistic time-scheme is sought to be enshrined under the ACA.

Presently, the ACA mandates that an arbitral award must be made within a period of 12 months from the date on which the arbitral tribunal enters upon that reference.

This change in position comes from the cognizance of the complexities, nature and length of the matters under international commercial arbitration and the fact that while Section 29A aims to speed up arbitration proceedings, in practice, this provision has been found to impede upon party autonomy and increased the intervention of courts while the ACA strives to reduce court intervention. As to domestic arbitrations, where the time limit is now to be construed from the date of completion of pleadings, an extension of time limits has been made.

It has been argued that section 29A restricts party autonomy significantly by taking away the ability of parties to structure arbitral proceedings in accordance with the nature, size and complexity of the dispute and their own needs. By forcing parties to adhere to an 18-month time limit no matter the size and complexity of the arbitration might be, section 29A takes a one-size-fits-all approach which is not suitable in all cases.

The HLC Report opines that international arbitral institutions have strongly criticised the setting of timelines for conducting international commercial arbitrations[1]. These institutions are of the view that monitoring the conduct of the arbitral proceedings is best left to the arbitral institutions. Institutions have their own machinery for case management and do not require monitoring by the court. With respect to domestic arbitrations, the general opinion of arbitrators is that the timelines fixed for conducting domestic arbitrations under section 29A should take effect post completion of pleadings.

 

  1. Limiting the Scope of Interim Measures by Courts

Section 34(2)(a) of the ACA provides for the setting aside of arbitral awards by the Court in certain circumstances. The Bill seeks to amend Section 34 of the ACA to the effect that the party challenging the arbitral award would be confined to establish their case on the basis of the record of the arbitral tribunal.

Presently, Section34(2)(a) stipulates that the application for setting aside of an arbitral award by the Court be based upon the wide ambit of “furnishing of proof”. The word “proof” stipulates of a wide understanding which comprehends in its consequences setting aside of award on the basis of the record of the arbitral tribunal or off such record. This requirement to furnish proof has led to inconsistent practices in some High Courts, where they have insisted on section 34 proceedings being conducted in the manner as a regular civil suit.[2]This is despite the Hon’ble Supreme Court’s ruling in Fiza Developers & Inter-Trade P. Ltd. v. AMCI(I) Pvt. Ltd. & Anr.[3] that proceedings under section 34 should not be conducted in the same manner as civil suits, with framing of issues under Rule 1 of Order 14 of the CPC[4]. This proved to be a substantial road block in the growth of institutional arbitrations in India as finality of the arbitral award was merely a construct in statutes, not practice.

The Bill seeks to circumscribe the nature of facts and evidences that can be relied on by the court to the based on record of the arbitral tribunal and not facts and proofs lying outside of this purview. This is a welcome change to ensure finality of the arbitral award that Section 35 of the ACA sets out. Presently, the common practice that has evolved rarely attached finality to the arbitration award. Rather, an arbitral award once made is anything but final. Challenge upon challenge the framework of institutional arbitration suffers. Such a practice takes away from the essence of arbitration practice as a means of alternate dispute resolution when the Court is made the defactoguardian and final arbiter of the arbitral award.

 

  1. Clarifying the Applicability of the 2015 Amendment

Section 26 of the 2015 Amendment Act governs the applicability of the 2015 Amendment Act. This section provides that the 2015 Amendment Act applies: (a) to arbitral proceedings commenced prior to 23rdOctober 2015 (the date of commencement of the 2015 Amendment Act) where parties agree to that effect; and (b) in relation to arbitral proceedings commenced on or after 23rdOctober 2015.

However, section 26 has remained silent on the applicability of the 2015 Amendment Act to court proceedings, both pending and newly initiated in case of arbitrations commenced prior to 23rdOctober 2015. Different High Courts in India have taken divergent views on the applicability of the 2015 Amendment Act to such court proceedings.

Recently the Hon’ble Supreme Court of India, in the case of BCCI Vs. Kochi Cricket Pvt. Ltd.,  opined that the 2015 amendments would apply to all court proceedings filed after the coming into effect of the amendments, i.e., 23rdOctober, 2015. This would be apply regardless of when the arbitral proceedings had commenced. But most importantly the Hon’ble Court held that 2015 amendments would also apply to matters pending that though have been filed prior to the amendments but were pending at the time when the amendment came into force.

The Bill seems to insert Section 87 to the ACA which provides that unless the parties otherwise agree, the 2015 amendment shall –

a. Not apply to arbitral proceedings commenced before the commencement of the 2015 amendment and any court proceedings arising out of or in relation to such arbitral proceedings (whether or not such proceedings have been initiated before or after 23rdOctober 2015).

b. Apply only to arbitral proceedings commenced on or after the commencement of the 2015 amendment and to court proceedings arising out of or in relation to such arbitral proceedings.

 

  1. Ensuring Confidentiality to Arbitral Proceedings

The Bill seeks to insert Section 42A to the ACA which enshrines confidentiality to arbitral proceedings. It imputes the liability to uphold the confidentiality of the arbitral proceedings upon the arbitrator, the arbitral institution and the parties to the arbitration agreement. The only exception to this stands when disclosure is necessary for the purpose of the implementation and enforcement of the arbitral award. Further, this provision is empowered by a non-obstante clause to ensure its effective enforcement.

 

  1. Safeguarding the Arbitrator’s Acts in Good Faith

The Bill proposes insertion of a Section 42B to the ACA which stipulates that no suit or other legal proceedings shall lie against the arbitrator for anything which is done in good faith or intended to be done that falls within the ambit of the ACA and its consequent rules and regulations.

This measure is sought to be introduced as a means to ensure independence of the arbitrators and to ensure the integrity of the arbitral process. Arbitrators are thus sought to be protected from harassment by parties, except in cases of bad faith actions. This provision is in consonance with international best practices.

 

CONCLUSION

The Arbitration and Conciliation Act, 1996 has grown alongside the dispute resolution landscape in the country, seeing amendments to its stipulations and implications whether legislative or judicial which have settled arbitrations as the first means of dispute resolution under contracts ranging from homebuying to international commercial transactions. The law is ever-evolving and thus it is ever contentious. The 2018 Amendment Bill if passed, would amount to one of the most substantial developments to the ambit of the ACA that seeks to make groundbreaking changes to the law and practice of arbitration in India seeking to usher in the age of institutional arbitrations which is a welcome effort in the realm of dispute resolution in the country.


Footnotes:

[1]See Manini Brar, ‘Implications of the New Section 29A of the Amended Indian Arbitration and Conciliation Act, 1996’, Indian Journal of Arbitration Law Vol. 5 Issue 2 (2017), available at http://www.ijal.in/sites/default/files/IJAL%20Volume%205_Issue%202_Manini%20Brar.pdf (accessed on 02.05.2017); see also Sanjeevi Seshadri, ‘S. 29A of the New Indian Arbitration Act: An attempt at slaying Hydra’, Kluwer Arbitration Blog, available at http://kluwerarbitrationblog.com/2016/02/02/s-29aof-the-new-indian-arbitration-act-an-attempt-at-slaying-hydra

[2]See HDFC Bank Limited v. Ram Singh and another, MANU/PH/0989/2012; Rule 7 of the High Court of Himachal Pradesh (Arbitration and Conciliation) Rules, 2002; Schedule to the Punjab, Haryana and Union Territory, Chandigarh Arbitration and Conciliation Rules, 2003; Rule 8 of the High Court of Jharkhand (Arbitration and Conciliation) Rules, 2010 (Part of Civil Court Rules of the High Court of Jharkhand).

[3](2009) 17 SCC 796.

[4]Report of the High Leval Committee to Review the Institutionalization of Arbitration Mechanism in India, p 65.

Siddharth is the Founder of CorpLexia and serves as its Editor. He is a student of BBA LL.B (Hons.) and has a special focus on corporate, commercial, insolvency, arbitration, securities and competition laws. He can be reached at siddharth@corplexia.com

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