[Aditya Sethi is a student at School of Law, Christ University.]
The arbitration regime in India has had a chequered past. The three decisions of the Supreme Court of India (Supreme Court) in Bhatia, Saw Pipes and Western Geco caused the arbitration scenario to suffer severe backlash from both international community and significant stakeholders in India. That being said, there have been various endeavours from both legislature and judiciary to promote arbitration with the expectation of making India a preferred seat of arbitration as also endorse it for a cogent mechanism of alternative dispute resolution for convenient and faster legal dispensation.
The Arbitration and Conciliation (Amendment) Act 2019 (Amendment Act) came into effect to bring about requisite changes for faster resolution of commercial disputes, fine-tuned with the recommendations of the Srikrishna Committee (Committee). It shall be the endeavour of this article to highlight significant amendments brought to certain provisions and offer constructive criticism over those which merit reconsideration.
Grading of Arbitral Institutions and Arbitration Council of India
The Arbitration Council of India (ACI) set up in Part 1A is entrusted to accredit and grade institutions which would then be designated by the Supreme Court. Though the idea of designating arbitral institutions transpired from the models of Singapore and Hong Kong, the Indian legislature failed to consider that both these countries have one centralised arbitration institution each i.e. SIAC and HKIAC. The number of institutions to be accredited by the ACI does not entail an upper limit which would inevitably lead to a compromise in the quality of their functioning and will requisition additional administrative resources which would indeed increase the financial burden on the State.
Arbitration Promotion Council of India
The Amendment Act provides ACI with the power to formulate regulations for discharge of their functions and duties contrary to the recommendations of the Committee's report. There is an apprehension that ACI would be effectively controlled by the government partly because of the majority representation by its officials and that the government is the largest litigator in the country.[1]
Confidentiality
The Committee [2] upon contemplating the laws of Singapore and Hong Kong felt the need to specifically protect confidential information, subject to three exceptions. It was recommended that information could be disclosed when it is necessary in view of a legal duty, for protection and enforcement of a legal right or to enforce or challenge an award before a court or judicial authority. However, Parliament acceded to only one recommendation, where the award could be published for its effective implementation and enforcement.[3]
The inclusion of Section 42A in the Aribitration and Conciliation Act 1996 (Act) is also fraught with practical incongruences. Instances of initiating proceedings under Sections 9, 11, 14, 27 and 34 would require disclosure and would not fall within the exceptions to Section 42A of the Act. It would inhibit parties from initiating criminal proceedings simultaneous with the arbitration proceedings. It would have a significant bearing on parties intending to file anti-arbitration injunctions and also in cases where there is contradiction on facts relating to a contractual dispute which would require information to be shared with third party experts.
Section 42A, though in line with the established practice across reputed arbitral institutions, failed to incorporate the opt out procedure. The ICC Court of International Arbitration recently stipulated that awards made as from 1 January 2019 would be published 2 years after their notification.[4] The parties would be at liberty to object to the publication of the award at any given point in time or request the award to be sanitized or redacted. With the intent being to promote institutional arbitration, it should perhaps have been left to the disposal of arbitral institutions to regulate aspects of confidentiality thereby respecting party autonomy.[5] In the author's view, Section 42A might be counter-productive for the above mentioned reasons which may impact the larger goal of strengthening the mechanism of institutional arbitration in India.
Qualification of Arbitrators
The Eighth Schedule in the Amendment Act mentions a specific class of 9 persons with requisite qualifications who could be appointed as an arbitrator. However, the biggest fallout of the Amendment Act has certainly been the exclusion of foreign scholars, registered lawyers or a retired foreign officer from arbitrating proceedings seated in India. Such a disqualification or exclusion is against the scheme of Section 11(9) of the Act. Justice Rohinton Nariman has deeply criticized this exclusion and has observed that "the aim to make India an international arbitration hub will be difficult if arbitrators can only be Indian nationals."[6] The Committee recommended an amendment to the Advocates Act 1961 in the context of allowing foreign arbitrators where the contract was governed by foreign law.
Justice Indu Malhotra in a recent address at the Indian Arbitration Forum opined that the judgment in Bar Council of India v. A.K. Balaji and Others [7] made it clear that foreign lawyers were not debarred from presiding over Indian-seated international arbitration. This observation when read in consonance with the neutral nationality prospect under Section 11(9) suggests that there is no bar with respect to appointing an arbitrator of any nationality.[8]
The Law Minister of India, Mr. Ravi Shankar Prasad, has also reassured the intent of the ruling dispensation to make India a hub for institutional arbitration. While addressing certain apprehensions around the Amendment Act, he observed that "the best would be when Indian arbitrators are sought globally. We want India to become a hub of international arbitration and this does not mean that we are against foreign arbitrators in any manner."
This ambiguity would have been settled if the prospect of allowing a foreign arbitrator was specifically enumerated in the text of the legislation.
Filing of Pleadings and Completion of Proceedings
The Arbitration and Conciliation (Amendment) Act 2015 (2015 Amendment Act) provided for a time limit of 12 months for the completion of the proceedings from the time of the arbitrations entering the reference (extendable up to 18 months on the extent of the parties). The Committee recommended that the 12-month period should only begin from the completion of pleadings without giving any cogent reasons for granting an extension of 6 months [proviso to the amended Section 29(1)]. The one practical reason that could have resulted in such a recommendation would have been due process concerns leaving effectively very little time for arbitrators to decide the matter. Therefore, the Amendment Act has inserted Section 23(4) which provides that statements of claim and defence must be filed within 6 months from the date of appointment of the arbitrators.
In practice, it is often seen that parties intend to bifurcate issues and consider that claims of jurisdiction or liability be adjudicated upon first. This conundrum is further likely to complicate issues since the period of 6 months does not stipulate the time frame for filing counter claims, rejoinder and sur-rejoinder.[9]
The statutory time limit is, however, not applicable to international commercial arbitration, but a non-binding proviso to Section 29 stipulates that such arbitrations must also be completed expeditiously.
No Retrospective Effect
The 2015 Amendment Act brought about the significant change to the operation of Section 36 of the Act, wherein automatic stay provided in favour of the award debtor was removed. The court in BCCI v. Kochi made the endeavour to bring clarity to the conundrum surrounding Section 26 of the Act.
The court held that the 2015 Amendment Act would not apply to arbitral proceedings arising before 23 October 2015 but would certainly apply to court proceedings arising out of arbitral proceedings which would have commenced before or after 23 October 2015. Section 87 inserted by the Amendment Act invalidated the effect of Section 26 of the Act. By virtue of the Amendment Act, execution petitions arising out of arbitrations before 2015 would be rendered non-maintainable unless they were disposed of. This would have entailed a lot of practical complications with parties requesting reopening of cases where awards have been enforced and restoration of status quo ante.[10]
The situation begged reasoning on aspects where an award was enforced in the form of asset or property transfers. The parties who would have been made to deposit security as a condition for stay would also contest such a proposition as no security was required for a condition to seek automatic stay.[11]
In a major decision in Hindustan Construction Company Limited, the court struck down Section 87 as being manifestly arbitrary. It was observed that by operation of Section 34, the award does not become unexecutable. The pre-amended Section 36 was against Article 36 of the UNCITRAL Model Law and also against the scheme of Section 35 of the Act.
Conclusion
The Amendment Act seems to have been drafted with scant regard to practical issues and significant recommendations of the Committee's report. Some of them include the setting up of a Standing Committee to propose amendments to the Act on regular basis, aspects related to emergency awards and for setting up of a specialist arbitration bar. The Amendment Act, far from augmenting the gaps identified after the 2015 Amendment Act has rather undone much progress brought about by the erstwhile regime. The fate of the present legislation hangs in reading between the lines as there is lack of clarity on significant issues, since they are not specifically drafted. Though the judiciary will step in time to resolve some of these glaring inconsistencies but it would be at the cost of spending resources and valuable judicial time. Therefore, it is incumbent upon the legislature that the amendments in the Amendment Act be reconsidered at the earliest to win over the confidence of foreign parties and ensure that India becomes a preferred seat for international arbitration.
[1] Vyapak Desai, Ashish Kabra and Bhavana Sunder, ‘India-emperor’s new clothes? Arbitration and Conciliation (Amendment) Bill 2019’, Lexis PSL Arbitration, 02 August 2019.
[2] Report of the High Level Committee to Review Institutionalisation of Arbitration Mechanism in India, pp. 70-72.
[3] Tejas Karia et al, ‘New Confidentiality provision in the Indian Arbitration Act’, Nani Palkhivala Arbitration Review, Bar and Bench 30 September 2019.
[4] Note to Parties and Arbitral Tribunals on the Conduct of Arbitration under The Rules of Arbitration, effective from 1 January 2019.
[5] Pranav Rai, ‘Proposed 2018 Amendments to Indian Arbitration Law: A Historic Moment or Legislative Blunder’? Kluwer Arbitration Blog, 24 November 2018.
[6] Key Note Speech, 3rd ICC India Arbitration Day, 15 September 2019, New Delhi.
[7] Civil Appeal Number 7170 of 2015.
[8] Shashank Garg, ‘NPAC’s Arbitration Review: Future of foreign arbitrators in India – Perception vs. Reality’, Bar and Bench, 07 October 2019.
[9] Raj Panchmatia, ‘The Arbitration and Conciliation (Amendment) Act, 2019-Entering A New Domain’, Khaitan & Co Publications, 23 October 2019.
[10] Meenakshi Kumar and Hussain Ali, ‘Arbitration and Conciliation (Amendment) Act 2019: A Parliamentary Instrument for Overruling Judicial Precedents’, The Arbitration Blog, RMNLU Lucknow.
[11] Shaneen Parikh and Shalaka Patil, ‘The Saga Continues in 2019- Applicability of the 2015 Amendments in light of the 2019 Amendments’, Cyril Amarchand Mangaldas, India Corporate Law Blog, 28 August 2019.