Taking into consideration the Law Commission’s recommendations and suggestions received from stake holders, an Ordinance to amend the Arbitration and Conciliation Act, 1996 has been promulgated by the President.
The Ordinance is likely to be introduced in the winter session of the parliament and shall have to be passed by both the houses within 6 weeks or 42 days. Failing this, it shall lapse and may be repromulgated at the discretion of the government.
Certain amendments brought about by this Ordinance are welcome changes and shall definitely facilitate ease of doing business in India. Some of these are captured below:
Courts jurisdiction to entertain foreign disputes
Amendment to Section 2(e) has sought to make a distinction between domestic arbitration and international commercial arbitration, whereby courts inferior to High Courts shall not have jurisdiction to entertain applications for arbitration involving atleast one foreign party.
This is an appreciated change, as lower courts may not have the necessary expertise to deal with matters involving complicated issues of foreign law i.e. private international laws.
International Commercial Arbitration
In a bid to extend credence to rulings on the subject, the omission of the words “a company or” from sub-clause (iii) in the definition of international commercial arbitration, seeks to crystallise the definition of a foreign party. From now on, the jurisdiction of incorporation shall be the sole determining factor of whether or not the body corporate or corporate constitutes a foreign party bringing the arbirtation within the ambit of international commercial arbitration.
Court measures for both Indian and foreign seated arbitration
Amendment to Section 2(2) provides that, irrespective of whether the seat of arbitration is in India or not, even in an international commercial arbitration, the benefits of interim measures under Section 9, assistance of court in taking evidence under Section 27 and right of appeal to Supreme Court as well as against order refusing interim rights to parties under Section 37.
This will definitely provide some clarity to hitherto unsettled decisions regarding applicability of Part I to international arbitrations.
Non-signatory party to arbitrations
The anomaly that existed between Section 45 and Section 8 as it originally read has been sought to be done away with. The addition of the words “or any other person claiming through or under him” opens doors to non-signatories to commence arbitration proceedings.
Amendments to Section 9 now seeks to ensure that arbitration proceedings are initiated within 90 days of obtaining interim relief from the Court. Further, consequent to the initiation of arbitration proceedings, further interim measures cannot be sought from the court. Exception shall only be made in cases where the court is satisfied that an order from the tribunal would not be sufficient.
The powers of the arbitral tribunal have been explicitly carved out in terms of the powers under Section 9 through this amendment. Interim orders of the arbitral tribunal have been given the sanctity of orders granted by the courts under the Civil Procedure Code.
Pending appointment applications
A series of amendments to Section 11 provide for (a) application for appointment of Arbitrators pending before the courts shall be disposed of as speedily as possible within the maximum time limit of 60 days and (b) the same be done by Supreme Court, High Court or any entity nominated by the Supreme Court or High Court (instead of the Chief Justice as it was presently).
Neutrality of arbitrators
Amendment to Section 12 (1) provides that, any person when approached to be appointed as an arbitrator, shall have to disclose in writing about any relationship or interest of any kind (if any) with either of the parties. The newly inserted Fifth Schedule provides for reasonable grounds on which the person can be said to have any such specified relationship. These grounds shall be sufficient to justifiably raise doubts of his independence or impartiality and he shall then be adjudged ineligible to be appointed as an arbitrator. This is an important step and in the right direction as it puts to rest any doubts on impartiality etc that may be present in the minds of the parties.
The person shall also have to disclose the total number of arbitrations he is currently acting on. This shall provide more clarity on the amount of time the person shall be able to devote towards the redressal of the new dispute.
Oral and successive hearings
Proviso inserted to Section 24(1) provides that, arbitration tribunals shall as far as possible, hold oral hearings for presentation of evidence or for oral argument on day-to-day basis and shall not grant adjournments unless sufficient cause is made. Costs including exemplary costs may be imposed on the party seeking adjournment without sufficient cause. The issue with such a provision, while the intention is laudable is that indian arbitrations do not have sufficient infrastructure such as transcription etc which would aid in such hearings.
This is a significant development as concerns over added costs may hinder parties from seeking adjournments and prevent unnecessary delays towards the redressal of the dispute.
Forfeiture of right
Amendment to Section 25 provides that, if the respondent party fails to communicate their statement of defence within the time frame agreed upon by the parties or determined by the arbitral tribunal, the tribunal shall have the discretion to treat the right of the respondent party to file such a statement of defence as having been forfeited.
Insertion of new Section 31A provides the manner in which costs payable, amount of costs and timelines of payment shall now be determined for arbitration and arbitration related disputes.
This provision seeks to encourage parties to settle amicably and avoid unnecessary legal hassles.
Grounds for challenge – Fraud
Amendment to Section 34 provides that, arbitration awards shall be considered as against the Public Policy of India, if it is surmised to have been 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.
Circumstances for staying of an Award
Amendment to Section 36 provides that, an application filed by the parties challenging the arbitration award shall not automatically stay its execution. An arbitration award shall only be stayed by a specific order of the court.
While the above mentioned developments are a welcome change, several other provisions of the Ordinance have raised concerns as they may be counter-productive and defeat the very purpose of speedy settlement of disputes via arbitration. Foreign companies may hesitate to do business in India, even more so now, because of long-drawn judicatory implications which may counteract the original purpose of arbitration. The most important of such amendments are given as under:
Strict time lines towards completion of arbitration
Insertion of new Section 29A provides that, arbitration proceedings shall be completed within 12 months from the date of entering upon the reference to the arbitration tribunal. Parties by mutual consent can extend it by another 6 months. After completion of 18 months, only the courts shall have the right to grant further extension.
This provision may have a three pronged counter-productive effect:
- Tribunals may be pressed to rush the proceedings in the interest of time, thereby affecting the quality of the proceedings and compromising the decision reached to by the tribunal.
- Courts shall be burdened as parties seek extension.
- Redressal of disputes gets unnecessarily delayed.
Introduction of new Section 29B – Fast track procedure
Insertion of new Section 29B provides that, fast track procedure for conducting arbitration. Parties to the dispute may agree that their dispute be resolved through fast track procedure. Award in such cases shall be given in six months period. However, it remains to be seen whether this provision can be practical executed.
The Arbitration and Conciliation Bill had been pending for a long time. The hurried promulgation of the Ordinance has come amidst keenness of the government to attract the greater foreign investment. Through the promulgation of this Ordinance the government hopes to speedily settle disputes arising out of commercial matters.
– Archana Balasubramanian and Megha Manjunatha