PROPOSED AMENDMENTS IN PRESENT LAW OF ARBITRATION

Chapter I:

WHY THE NECESSITY FOR AMENDMENT WAS FELT:

The lawmakers of our country devised the Arbitration and Conciliation Act, 1996 to regulate the conduct of arbitral proceedings through out the country. Even though the 1996 Act is a well drafted legislation, in its application, the Act defeats the very purpose for which it was enacted.

Nearly two decades since the 1996 Act came into force, courts have interpreted the provisions of the Act in such a way which defeats the main object of such legislation.

Inconsistent jurisprudence has resulted in uncertainty and confusion about the state of the law and has gravely undermined the core principles on which the 1996 Act is based. It has also given rise to concerns about India’s commitment to arbitration and severely dented its claim to be an attractive seat for international arbitration.

In light of the various difficulties manifest in achieving the object of the Act and with a view to remove the difficulties and lacunas in the 1996 Act so that Alternative Dispute Resolution method may become more popular, the Law Commission in its 246th Report has proposed certain amendments to the 1996 Act.

In the above background, on 26th August, 2015 the Union Cabinet chaired by the Prime Minister taking into consideration the Law Commission's recommendations and suggestions received from stake holders gave its approval to amend the 1996 Act by introducing the Arbitration and Conciliation (Amendment) Bill, 2015 in the Parliament.

Chapter II:

PROVISIONS OF 1996 ACT WHERE CHANGES ARE FELT TO

BE REQUIRED:

Application of Part I

The primary area of judicial uncertainty relates to the application of Part I of the 1996 Act to international commercial arbitrations held outside India.The Supreme Court in the case of Bharat Aluminum and Co. vs. Kaiser Aluminium and Co. decided that Parts I and II of the Act are mutually exclusive of each other. The intention of Parliament that the Act is territorial in nature and sections 9 and 34 will apply only when the seat of arbitration is in India. However, the decision in BALCO was expressly given prospective effect and applied to arbitration agreements executed after the date of the judgment.

Definition of ‘Party’

The definition of the word “party” in section 2(1)(h) refers to a “party” to mean “a party to an arbitration agreement.” This cannot be read restrictively to imply a mere “signatory” to an arbitration agreement, since there are many situations and contexts where even a “non-signatory” can be said to be a “party” to an arbitration agreement.

Costs

Since arbitration is a mechanism in which parties replicate a judicial system for themselves, which otherwise is provided by the State, it certainly has considerable costs associated with it. However, with the current system prevalent in India, under Section 31(8) of the 1996 Act, each party generally bears its own costs for the proceedings. As a result, in absence of provision for the apportionment of costs between the parties there is nothing that dissuades the dishonest/frivolous party from contesting frivolous claims before the tribunal.

Appointment Of ArbitratorsThe areas which need to be addressed with regard to appointment of arbitrators are:

• the scope of powers – i.e. the scope of arguments which a Court (Chief Justice) will consider while deciding whether to appoint an arbitrator or not – i.e. whether the arbitration agreement exists, whether it is null and void, whether it is voidable etc; and which of these it should leave for decision of the arbitral tribunal.

• the nature of intervention – i.e. would the Court (Chief Justice) consider the issues upon a detailed trial and whether the same would be decided finally or be left for determination of the arbitral tribunal.

Neutrality of arbitrators

In the Act, the test for neutrality is set out in section 12(3).

The Act does not lay down any other conditions to identify

the “circumstances” which give rise to “justifiable doubts”,

and it is clear that there can be many such circumstances and

situations.

Powers of tribunal to order interim measures

Though section 17 gives the arbitral tribunal the power to

pass orders, the same cannot be enforced as orders of a court

and it is for this reason only that section 9 gives the court

power to pass interim orders during the arbitration

proceedings.

Delays and time adherence by parties

Judicial intervention in arbitration proceedings adds

significantly to the delays in the arbitration process and

frustrates the benefit of having alternative dispute resolution

system. Moreover, at present the 1996 Act does not provide

any timeframe within which an arbitral proceeding is to be

concluded resulting in considerable delays.

Automatic Stay Of Enforcement Of The Award

Section 36 of the Act makes it clear that an arbitral award

becomes enforceable as a decree only after the time for filing

a petition under section 34 has expired or after the section 34

petition has been dismissed. In other words, the pendency of

a section 34 petition renders an arbitral award unenforceable.

Chapter III:

PROPOSED AMENDMENTS:

Amendment to the Preamble

The Law Commission has proposed an addition to the

preamble of the Act to include a basis for the Arbitral Tribunal

to function in a manner that ensures justice to the parties.

An amendment has been proposed to further demonstrate

and re-affirm the Act’s focus on achieving the objectives of

fairness, speed and economy in resolution of disputes through

arbitration.

Section 2:

In order to prevent parties from seeking unnecessary hearings

with irrelevant evidence as well as unnecessary

adjournments, the Law Commission has proposed the

addition of the second proviso to section 2(1) to ensure

continuous sittings of the Arbitral Tribunal for the purposes of

arguments and recording evidence.

Sub-section 1 clause (e)

While defining ‘Court’, jurisdiction of the principal Civil Court

of original jurisdiction to exclude international commercial

arbitration. This is to solve the problem of conflict of

jurisdiction that would arise in cases where interim measures

are sought in India in case of arbitrations seated outside India.

Section 6

Considering the issue of costs in arbitration proceedings, the

Law Commission has proposed to insert section 6A to the Act,

which would enable the arbitral tribunal as well as courts to

decide the costs on the basis of rational and realistic criterion.

This amendment would ensure that arbitration ceases to be

as expensive a proposition as litigation.

Section 7

It has been proposed by the Law Commission that section 7 of

the Act be amended to include sections 7(3A) and 7(3B), to

bring the Indian law related to arbitration in conformity with

the UNCITRAL Model Law.

Section 8 The Law Commission has proposed to amend the section with

explanations to the effect that if the judicial authority is prima facie satisfied about the existence of an arbitration agreement, it shall refer the parties to arbitration and leave the final determination of the existence of the arbitration agreement to the arbitral tribunal in accordance with section 16, which shall decide the same as a preliminary issue.

Further an explanation has been proposed to the effect that any pleading filed in relation to any interim application which has been filed before the judicial authority shall not be treated to be a statement on the substance of the dispute for the purpose of this section.

The Law Commission has proposed to add a proviso to

the section, which will contemplate a two-step process to

be adopted by a judicial authority when considering an

application seeking the reference of a pending action to

arbitration:

• The judicial authority shall not refer the parties to

arbitration only if it finds that there does not exist an

arbitration agreement or that it is null and void.

If the judicial authority is of the opinion that prima facie the arbitration agreement exists, then it shall refer the dispute to arbitration, and leave the existence of the arbitration agreement to be finally determined by the arbitral tribunal. However, if the judicial authority concludes that the agreement does not exist, then the conclusion will be final and not prima facie. The amendment also envisages that there shall be a conclusive determination as to whether the arbitration agreement is null and void.

Section 9 The Law Commission has proposed to amend the section to the

effect that where, before the arbitral proceedings, a Court

grants any interim measure of protection under sub-section (1),

the arbitral proceedings shall be commenced within 60 days

from the date of such grant or within such shorter or further

time as indicated by the Court, failing which the interim

measure of protection shall cease to operate.

The Law Commission has further proposed to amend the

section to the effect that once the Arbitral Tribunal has

been constituted, the Court shall, ordinarily, not entertain

an Application under this provision unless circumstances

exist owing to which the remedy under section 17 is not

efficacious.

Section 11

Since its takes a long time for disposal of an application for

appointment of arbitrator under Section 11, the Law

Commission has proposed that the power of appointment of

arbitrators should be vested in the Supreme Court and the

High Court instead of the Chief Justice of such Court and

further proposed that the process of appointment should be a

non-judicial act, so as to entice the Courts to delegate the

power of appointment to specialized institutions and persons.

An amendment to Section 11 subsection 7 has been

proposed by the Law Commission to the effect that the

decisions of the High Court, when an arbitrator has been

appointed, are non-appealable and final. A new sub-section in Section 11 has been proposed to

be added to the effect that an application for appointment

of an Arbitrator shall be disposed of by the High Court or

Supreme Court as expeditiously as possible and an

endeavour should be made to dispose of the application

preferably within 60 days.

Section 12

In order to ensure neutrality of arbitrators, it has been proposed by the Law Commission to amend Section 12 to the effect that when a person is approached in connection with possible appointment of arbitrator, he shall disclose in writing about existence of any relationship or interest of any kind, which is likely to give rise to justifiable doubts. Further, if a person is having specified relationship, he shall be ineligible to be appointed as an arbitrator. Anyone who has been an employee, consultant or adviser to a party, or has had business with one of the parties, shall not be allowed to sit as arbitrator in that case.

Section 16

The Law Commission has proposed an amendment to Section

16 of the Act, to the effect that the arbitral tribunal shall have

the power to make an award on "a serious question of law,

complicated questions of fact or allegations of fraud,

corruption etc,."

Section 17

An amendment to Section 17 has been proposed by the Law

Commission for empowering the Arbitral tribunal to grant all

kinds of interim measures which the Court is empowered to

grant under Section 9 and such order shall be enforceable in

the same manner as if it is an order of Court.

In addition to this, the Law Commission also proposes the

recognition and enforcement of the interim orders granted by

emergency arbitrators.

Section 20

The Law Commission has proposed to replace the phrase

‘place’ with ‘seat’ and ‘venue’ to make the wording of the Act

consistent with the international usage of the concept of a

“seat” of arbitration, to denote the legal home of the

arbitration. The amendment further legislatively distinguishes

between the “legal seat” from a “mere venue” of arbitration.

Section 23

In order to curtail the delays in the arbitral process, the Law

Commission has proposed that a new ‘Explanation’ be added

to Section 23 of the Act, ensuring that counter claims are

decided by the arbitrator, without seeking a new or additional

or reference.

Section 24

The Law Commission has proposed to add further provision in

the proviso of the section to the effect that the arbitral

tribunal shall, as far as possible, hold oral hearings for the

presentation of evidence or for oral argument on continuous

days, and not grant any adjournments unless sufficient cause

is made out and may impose costs, including exemplary costs,

on the party seeking the adjournment.

Section 31

The Law Commission has proposed an amendment to section

31 of the act, so as to provide a clarification as to the scope of

the arbitral tribunal to award compound interest as well as to

take a step away from the current rate of 18%, to a market

based determination, which was in accordance with the

reality of the commercial sector.

Section 34A challenge to an arbitral award remains pending before the court for a long time and in the light of the same, it has been proposed by the Law Commission that an appeal challenging an arbitral award be disposed off within one year from the date of the notice.Amendment has also been proposed to restrict the term 'Public Policy of India“ by explaining that only where making of award was induced or affected by fraud or corruption, or it is in contravention with the fundamental policy of Indian Law or is in conflict with the most basic notions of morality or justice, the award shall be treated as against the Public Policy of India.

Section 36

The Law Commission has proposed an amendment to Section

36 to the effect that mere filing of an application for

challenging the award would not automatically stay execution

of the award. Award can only be stayed where the Court

passed any specific order on an application filed by the party.

Section 37

The Law Commission has proposed to insert provision under this section to provide for appeal in cases of orders refusing to refer parties to arbitration under Section 8 (mirroring the existing provision in section 50) and to provide an appeal where the High Court refuses to appoint an arbitrator respectively.

The Law Commission has further proposed to amend sub-section 3 to the effect that ‘second appeal’ to include letters patent appeal.

Section 48 Amendment has also been proposed to restrict the term 'Public

Policy of India“ by explaining that only where making of award was induced or affected by fraud or corruption, or it is in contravention with the fundamental policy of Indian Law or is in conflict with the most basic notions of morality or justice, the award shall be treated as against the Public Policy of India.

The Law Commission has proposed to insert a provision to the effect that an objection under this section shall not be made after three months have elapsed from the date on which the party making such objections has received notice of the application under section 47 of the Act. However, the Court can condone a delay of 30 days over 3 months on satisfactory explanation.

The Law Commission has proposed to insert a provision to the effect that an objection under this section shall be disposed off expeditiously and in any event within a period of one year from the date on which the notice issued pursuant to an application under section 47 is served.

The Law Commission has proposed to insert a provision to the effect that the costs regime set out in section 6A of the Act shall apply to a proceeding in relation to sections 47 and 48 of the Act.

Section 85A

The Law Commission has proposed to insert a new Section after Section 85 clarifying that provisions of the amended Act shall have a prospective effect and shall apply only to fresh arbitrations and fresh applications.

Fresh arbitrations will mean arbitrations where there has been no request for appointment of arbitral tribunal; or application for appointment of arbitral tribunal; or appointment of the arbitral tribunal, prior to the date of enforcement of the amended Act.

Fresh applications will mean applications to a court or arbitral tribunal made subsequent to the date of enforcement of the amended Act. However, the prospective effect of the amended Act shall have the following exceptional situations: the provisions of section 6-A shall apply to all pending proceedings and arbitrations; the provisions of section 16 sub-section (7) shall apply to all pending proceedings and arbitrations, except where the issue has been decided by the court/tribunal; the provisions of second proviso to section 24 shall apply to all pending arbitrations.

LAW IS COMMONSENSE MADE COMPLICATED