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Why this a e d e t eeded …? The Law Commission of India issued a report in 2014
(246thReport)which gave the comprehensive overview of the problem and also suggested the solution such as following-
1. Encouraging institutional Arbitration
2. Introducing a schedule of fees for arbitrators in ad-hoc arbitration
3. Issuing guidance that hearings should be heard in continuous sittings, to avoid the "culture of frequent adjour e ts”
4. Requiring that the courts refer disputes to arbitration as long as they are prima facie satisfied that there is a valid arbitration agreement;
5. Restricting the use of "public policy" when challenging an award or resisting enforcement etc.
General Overview
• Government promulgated the Arbitration and Conciliation
(Amendment) Ordinance, on 23rd October, 2015.
• The Arbitration and Conciliation (Amendment) Bill, 2015
(Amendment Bill) was introduced in both houses of Parliament in its
recent session to replace the Arbitration and Conciliation
(Amendment) Ordinance, 2015
• Passed by the Lok Sabha on 17th December, 2015.
• Passed by Rajya Sabha on 23rd December, 2015.
• Received the Preside t s assent on 31.12.2015
• Date of Enforcement : 23rd October, 2015.
A. Change in the definition of the
term court defined in Section 2(1)(e)
Before Amendment
• Prior to the amendment the
definition of the term court
was ambiguous .
• It was ambiguous in the
sense that it did not clearly
demarcated the boundary
between the jurisdiction of
the district court and high
court.
After Amendment
• After the amendment the
word court to be referred
as principal civil court of
original jurisdiction in case
of domestic arbitration and
High court in case of
international commercial
Arbitration.
B. Application of some provisions of Part 1 of the act
to International Commercial Arbitration, Section 2(2)
Before Amendment
• Prior the part 1 of the act i.e. domestic arbitration was only applicable to those arbitrations where the place of arbitration in India and it created a lot of confusions that when Part 1 shall be applicable to the international commercial arbitration and when it will not be applicable.
• Till the amendment the guiding principle was the decision of the Apex court in Bharat Aluminum Co. & Others v. Kaiser Aluminum Technical Services Inc., (2012) 9 SCC 552 wherein the constitutional bench of the Ho ble Supreme Court held that,
After Amendment
• After the 2015 amendment the
position has been made clear.
• Sec 2(2) has been amended and
now subject to an agreement to
the contrary the provisions of
section 9, 27 and clause (a) of sub
section (1) and sub-section (3) of
Section 37, this part shall also
apply to international commercial
arbitration i.e. where the place of
arbitration is outside India.
Contd….
Before Amendment
• part I of the Arbitration & Conciliation Act is applicable only to arbitrations which takes place within the territory of India. Part I of Arbitration & Conciliation Act, 1996 would have no application to international commercial arbitration held outside India.
• Therefore, such awards would only be subject to the jurisdiction of the Indian courts when the same are sought to be enforced in India in accordance with the provisions contained in Part II of the Arbitration & Conciliation Act, 1996.
After Amendment
C. Recognition of Communications through
Electronic Means as an agreement in writing,
Section 7 (4)(b)
• An agreement shall be considered in writing for the purpose
of assuring the validity of arbitration agreement if the
communication has been made or words have been
exchanged between the parties through electronic means.
• Thus now if the parties have exchanged words through emails
or even through messengers that can also be considered as
agreement in writing.
D. Recognition of copy of arbitration agreement
for referring the parties for arbitration in
certain circumstances, Section 8
Before Amendment
• Party was required to produce
original or duly certified copy
of the Arbitration Agreement
to the Court for referring the
dispute to the Arbitral
Tribunal.
• There used to be the
situations frequently that one
party used to be willing to
refer the dispute for
arbitration but the original or
duly certified copy was
retained with another party.
After Amendment
• The amended section 8 of the act provides that the power of the judicial authority to refer the parties to arbitration notwithstanding any judgment, decree or order of the Supreme Court or any Court unless it finds that Prima facie no valid arbitration agreement exists.
• Further a proviso has been added to Sub section (2) which provides that if the original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under sub sec (1),
Contd…
Before Amendment
• That is why the court
used to refuse the
application on the
ground of not producing
original or duly certified
copy.
After Amendment
• and the said agreement or certified copy is retained by the other party then the party so applying shall file such application along with a copy of the arbitration agreement and a petition praying the court to call upon the other party to produce the original arbitration agreement or its duly certified copy before the court.
• Thus most prevalent misuse of the earlier provision has been done away with amendment
E. Reduction in the Power of Court
under Section 9
• The power of the court u/s 9 and arbitral tribunal u/s 17 has
become almost equal by virtue of the amendment of 2015.
• Two sub sections (2 and 3) have been added to section 9.
• Sub Section (2) provides where before the commencement of the
arbitral proceedings, a Court passes an order for any interim
measures of protection under sub section (1), the arbitral
proceedings shall be commenced within a period of 90 days from
the date of such order or within such further time as the Court may
determine.
Contd…
• Further sub section (3) limits on the jurisdiction of the court from
entertaining any application under sub section (1) where the
arbitral tribunal has been constituted.
• Once the arbitration tribunal is constituted, the court shall not
entertain any interim applications unless such circumstances exist
which may render the remedy under section 17 of the Act not
efficacious.
F. Amendments in the Procedure of
Appointment of Arbitrators , Section 11
Before Amendment
• it provided for a default
procedure i.e. appointment
of arbitrator by the Chief
Justice or any person or
institution designated by
him in case a party fails to
appoint an arbitrator or the
two appointed arbitrators
fail to agree on the third
arbitrator .
After Amendment • It provides for a default
procedure i.e. appointment of
arbitrator by the Supreme
Court or, as the case may be,
the High Court or any person
or institution designated by
such Court in case a party fails
to appoint an arbitrator or the
two appointed arbitrators fail
to agree on the third
arbitrator.
1. Appointment of arbitrator shall now be made by the Supreme Court or the
High Court, as the case may be, instead of the Chief Justice of India or the
Chief Justice of the High Court.
Before Amendment
• There was a very big point of controversy that the appointment of arbitrator by the court will be considered as the exercise of judicial power or the administrative power .
• And if this is delegated to any person or institution designation by it, whether the exercise of such power by such person or institution will be considered as the judicial power or administrative power in nature.
• Till date the leading authority was the judgment of M/s. S.B.P v. M/s. Patel Engineering Ltd, in this case the seven judges bench of the Ho ble Supreme Court held the power under Sec 11 to be Judicial in nature. (2005)8 SCC 618
After Amendment
• The amendment act of 2015 has made the position crystal clear.
• Sub section 6(B) added by the amendment provides that the designation of any person or institution by the Supreme Court or, as the case may be, the High Court, for the purposes of this section shall not be regarded as a delegation of judicial power by the Supreme Court or the High Court.
• Thus if the power to appoint the arbitrator is exercised by the court itself it shall be considered as judicial power and when it is exercised by any designated person or institution , it shall be considered as the administrative power
2. Nature of the power exercised under section 11
3. Determination of the fees of the arbitrators
• Prior to the amendment, the fees of the arbitrators were determined by the parties to it
and it was totally depended on the whims and fancy of the parties though subjected to the
acceptance of the designated arbitrator.
• But now the High Court has been empowered to frame rules for the purpose of
determination of fees of the arbitral tribunal and the manner of such payment and it shall
take into account the rates of fee specified in the Fourth Schedule to the Act while framing
such rules.
• The explanation added to Section 11(14) clarifies that it shall not apply to international
commercial arbitration and in arbitrations (other than international commercial
arbitration) in case where parties have agreed for determination of fees as per the rules of
an arbitral institution.
• Section11A has been introduced which empowers the central Government to revise the
fee in the 4th schedule by following the procedure prescribed therein.
• Criticism :
• The model fees in the Fourth Schedule only vary according to the sum in dispute.
Often, in practice, it can be very difficult to quantify the su in dispute . Further, even
if the amounts claimed can be quantified, the question of whether the su in
dispute relates only to the amount claimed by the Claimant or whether it will also
include the amount counter-claimed by the Respondent is left open.
• The extent of the application of the Fourth Schedule is ambiguous. It is unclear
whether the Fourth Schedule applies to
(i) all arbitrations in India,
(ii) all arbitrations initiated under Section 11, or
(iii) all arbitrations initiated under Section 11 except fast-track arbitrations by a sole
arbitrator under Section 29B.
• There is potential for the new Section 11(14) to be misused in ad hoc arbitrations. A
party or parties to an arbitration agreement may intentionally fail to follow the
relevant appointment procedure or to agree to on an arbitrator in order to take
advantage of the Fourth Schedule fee structure, which may be significantly lower than
the fee quotes by ad hoc arbitrators.
• The insertion of such provisions has been condemned by various judges of the High
Courts. They are of the view that when the parties are willing to pay higher amount as
fees, then why are the limitations has been imposed on the parties regarding fees.
• Thus this provision may become a barrier for the expert arbitrators from entering into
this area and they will hesitate to be appointed as arbitrator for the matters for which
earlier they have been paid higher amount.
4. Other Insertions
• Section 11(7) provides that the decision regarding appointment of arbitrator
through default procedure, of the Supreme Court or, as the case may be, the High
Court or the person or institution designated by such Court is final and no appeal
including Letters Patent Appeal shall lie against such decision.
• Section 11(13) provides that an application for appointment of arbitrator shall be
disposed of as expeditiously as possible and an endeavour shall be made to
dispose of the matter within a period of sixty days from the date of service of
notice on the opposite party.
G. New Measures introduced for ensuring
impartiality and ability of Arbitrator, Section 12
• Now when a person is approached in connection with the possible appointment as
arbitrator he is required :
- to disclose in the writing the existence of any relationship or interest of any
kind which is likely to give rise to justifiable doubts as to his neutrality and
- to disclose any circumstances which are likely to affect his ability to devote
sufficient time to the arbitration and complete the arbitration within the specified
period.
• Schedule V and VI has been added to the act which provide for the circumstances
exist which give rise to justifiable doubts as to the independence or impartiality of
an arbitrator and the format of the disclosure by such person who has been
approached to be appointed as arbitrator respectively.
Contd… • Section 12 (5) provides that a person having relationships as specified in the
Seventh Schedule shall be ineligible to be appointed as an arbitrator; For example:
The arbitrator is an employee, consultant, advisor or has any other past or present
business relationship with a party to the dispute; or the arbitrator is a manager,
director or part of the management, or has a similar controlling influence over the
parties to the dispute.
• But that parties may, subsequent to disputes having arisen between them, waive
the applicability of this sub-section by an express agreement in writing.
• Thus section 12 does not prescribe any disqualification, it only provides the duty of
the person to disclose such relation and it is on the option of the party to appoint
him as arbitrator. If the parties instead of disclosure agree to appoint him as
arbitrator, such appointment cannot be questioned.
H. Expansion of the powers of arbitral tribunal
for granting interim measures etc., Section 17
• The arbitral tribunal shall have power to grant all kinds of interim measures which
the Court is empowered to grant under section 9 of the Act.
• Such interim measures can be granted by the arbitral tribunal during the arbitral
proceedings or at any time after making the arbitral award, but before it is enforced
under section 36 of the Act.
• Further Section 17(2) of the section provides that any order issued by the arbitral
tribunal for grant of interim measures shall be deemed to be an order of the Court
for all purposes and shall be enforceable under the Code of Civil Procedure, 1908 in
the same manner as if it were an order of the Court.
• Now there is a conflict and ambiguity between the starting point of section 17 and
ending point of section 17.
I. Recognition of counter claims and
set off, Section 23 (2A)
• Prior to this amendment the position regarding filing or counter
claim or set–off was not clear but this amendment made this
position clear.
• Inserted section 23 (2A) recognizes the counter claim and defense
of set–off on the part of the respondent.
• It provides that the respondent, in support of his case, may also
submit a counter claim or plead a set- off, which shall be
adjudicated upon by the arbitral tribunal, if such counterclaim or
set- off falls within the scope of the arbitration agreement.
J. Day- to- day oral hearings and
prohibition on adjournments
• Newly added proviso to section 24 provides that the arbitral
tribunal shall as far as possible, hold oral hearings for the
presentation of evidence or for oral argument on day-to-day basis .
• It further provides that the arbitral tribunal shall not grant any
adjournments unless sufficient cause is made out, and may impose
costs including exemplary costs on the party seeking adjournment
without any sufficient cause.
K. Time Limit for arbitral award,
Section 29 A
• Section 29 A has been inserted in the act which provides for time limit for
arbitral award.
• Arbitral tribunal shall pass the award within 12 months from the date on which
the arbitration tribunal enters upon the reference.
• However the tribunal may extend the period by a maximum of 6 months with
the consent of the parties to the arbitration agreement.
• But if still the award is not made then the court has the prerogative of
extending the period beyond 18 months. The court will exercise this power on
the application given by any of the parties and after being satisfied by the
reasons mentioned in the application it may grant extension
Contd…
• Such application shall be decided by the court within 60 days.
• If the court finds that the extension is because of the delay on the part of
the arbitrator, the court may order reduction in the fee of the arbitrator by
an amount not exceeding 5% for each months delay.
• The court has also been empowered to impose actual and exemplary costs
on the party at default.
• Further an incentive has been offered by the amendment that in case the
tribunal passes the award within 6 months instead of allowed 12 months,
the arbitral tribunal shall be entitled to receive additional fees as
determined by the parties
Contd…
• It further provides that if the arbitral tribunal is reconstituted or all the members
of the tribunal are substituted under this section, the arbitral tribunal thus
reconstituted shall be deemed to be in continuation of the previously appointed
arbitral tribunal.
• Criticism : Thus on analysising this section it appears that thought the legislators
have made a beautiful attempt to make arbitration proceeding as expeditious as
possible but by inserting the provisions for further extension by court for unlimited
time, has made its attempt futile. It may be said that it has closed all the doors to
prevent delay in arbitral proceedings but has left one window open.
L. Introduction of Fast Track Procedure,
Section 29 B
• The fast track procedure is an attempt in the direction of making the arbitration as
expeditious as possible.
• The parties to an arbitration agreement may either before or at the time of appointment
of the arbitral tribunal, agree in writing to have their dispute resolved by the fast track
procedure and in this process they may agree on an arbitral tribunal consisting of a sole
arbitrator which shall be chosen by them
• Under the fast track procedure, the arbitral tribunal shall follow the following procedure:
(a). The arbitral tribunal shall decide the dispute on the basis of written pleadings ,
documents and submissions filed by the parties without any oral hearing ;
(b). The arbitral tribunal shall have power to call for any further information or
clarification from the parties in addition to the pleadings and documents filed by them ;
Contd..
(c). An oral hearing may be held only, if, all the parties make a request or if the
arbitral tribunal considers it necessary to have oral hearing for clarifying certain
issues;
(d). The arbitral tribunal may dispense with any technical formalities, if an oral
hearing is held, and adopt such procedure as deemed appropriate for expeditious
disposal of the case.
• It provides that the arbitral tribunal shall pass the award within 6 months from the
date on which the arbitration tribunal enters upon the reference. But the
conditions as prescribed under Sec 29 A (3) to Section 29 A (9) are also applicable
to it.
M. Defined Public Policy, Section 34
Before Amendment
• What exactly the public policy means was not clear.
• Explanation of the section only provided that it would be considered as opposed to public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81.
• In the lack of elaborate provision ,there was major scope for judiciary for interpretation.
After Amendment
• Arbitration and Conciliation (Amendment) Act, 2015 incorporated the ratio of these two decisions in the act itself.
• Now explanation which explains what are in conflict of public policy of India also includes these two:
1. It is in contravention with the fundamental policy of Indian Law, and
2.It is in conflict with the most basic notions of morality or justice.
• Further a new explanation has been added which provides that for the avoidance of doubt, the test whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.
• In Renusagar Power Co v. General Electric co, (1994) Supp (1) SCC 644, the Apex Court determined the term public policy as anything contrary to-
1. Fundamental policy of Indian Law
2. The interest of India
3. Justice or morality
• In ONGC v. Saw Pipes Ltd (2003)5SCC705 The Apex Court added one more ground to the meaning of public policy. It held that the award can be set aside if it is patently illegal .
• Patently illegal means the illegality must go to the root of the matter.
• The decision of the ONGC s case has been incorporated in sub section 2A of the section 34.
• It provides that an arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the awards is vitiated by patent illegality appearing on the face of the award.
• A proviso has been added to it which provides that an award shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciation of evidence.
Contd..
• Some procedural steps also have been added to the section 34.
• Requirement of the notice to the another party before filing an
application under section 34 and while making the application it
should be accompanied by an affidavit that such notice has been
served on the another party.
• It provides that an application under this section shall be disposed
of expeditiously as possible but not later than one year from the
date on which the notice as mentioned above is served upon the
other party.
N. Enforcement of Arbitral Award,
Section 36
Before Amendment
• Where the time for making an application to set aside the arbitral award under section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the court.
• Thus the award could not be enforced if the application for setting aside the award has been moved to the court.
After Amendment
• Mere filing of application for setting aside an arbitral award would not render ipso facto that award unenforceable until and unless the court grants an order of stay on the operation of the said award on a separate application made for that purpose.
• Thus the if the application for setting aside the award has been moved to the court and the court does not give stay, the award may be enforced in the meanwhile and if the court wishes to grant stay , it will have to mention the reasons for granting such stay.
O. Amendment in the grounds of
Appeal, Section 37
• In section 37 which talks about appealable orders, the following
additional ground has been added for appeal:
1. Refusing to refer the parties to arbitration under section 8.
• The other two grounds are the same as contained in the act i.e.
2. Granting or refusing to grant any measure under sec tion.9;
3. Setting aside or refusing to set aside an arbitral award under
section 34.
