A final solution to arbitration in India

Published: August 13, 2019 2:24:10 AM

The 2019 amendment Act is intended to fix the loopholes created by the Arbitration and Conciliation Amendment Act, 2015, and is a step towards the government’s objective of making India an arbitration hub.

arbitration in India, Arbitration and Conciliation Amendment Bill, Lok Sabha, Section 29A, 2019 amendment ActThe 2019 amendment Act allows more flexibility by providing that the 12-month period must start from the date of completion of pleadings.

By Ila Kapoor & Surabhi Lal

The Arbitration and Conciliation Amendment Bill, 2019, received Presidential assent and was notified in the official gazette on August 9, 2019. The Bill was passed by the Lok Sabha on August 1, 2019, after the Rajya Sabha passed it on July 18, 2019. The Arbitration and Conciliation (Amendment) Act, 2019, is an updated version of a Bill passed by the Lok Sabha in 2018, which lapsed due to the dissolution of the Houses of Parliament. The 2019 amendment Act is intended to fix the loopholes created by the Arbitration and Conciliation Amendment Act, 2015, and is a step towards the government’s objective of making India an arbitration hub. But the implementation of certain provisions of the 2019 amendment Act may create ambiguity in the future.

Pronouncement of arbitral award: Section 29A of the 2015 amendment Act, which provided a 12-month timeline for completing an arbitration starting from the date the tribunal entered reference, was criticised because of its rigidity, which compelled parties to approach courts to seek extension. The 2019 amendment Act allows more flexibility by providing that the 12-month period must start from the date of completion of pleadings.

The amended Section 29A exempts ‘international commercial arbitrations’ from this timeline to provide leeway to arbitral institutions to conduct proceedings in accordance with their own case management mechanisms. But domestic arbitrations governed by institutional rules continue to be governed by the mandatory timeline, and ad hoc international commercial arbitration seated in India will not be covered by fixed timeline. The amendment should have made an exception for all arbitrations administered by arbitral institutions instead of international commercial arbitrations.

Limiting scope of Section 34: The amendment to Section 34 promotes arbitration by clarifying that an application for setting aside an arbitral award will not require anything beyond the record that was before the arbitrator. The requirement to furnish proof under unamended Section 34(2) of the Arbitration and Conciliation Act, 1996, created inconsistencies as several High Courts conducted proceedings under Section 34 by framing issues and permitting leading of evidence beyond the record of the arbitral tribunal, in effect conducting proceedings under Section 34 as a civil suit. The amended Section 34 resolves the issue by substituting ‘furnishes proof’ with ‘establishes on the basis of the record of the arbitral tribunal’.

Confidentiality provision: Insertion of Section 42A is a positive step as it obligates parties, arbitral institutions and the arbitrator to maintain confidentiality of ‘all arbitral proceedings’ except for ‘implementation and enforcement of award’.

Insertion of Part 1A: The Arbitration Council of India has been set up as a regulator of arbitration. The 2019 amendment Act provides for composition, duties and functions of the council and claims that it is an independent body nominated or appointed by the central government, constituted for the purpose of, inter alia, grading of arbitral institutions and accreditation of arbitrators. It provides guidance on which arbitral institutions will be covered and which arbitrators will be accredited. The council has a laudable objective of streamlining arbitration by formulating rules, conducting workshops, holding training and maintaining a depository of arbitral awards made in India. However, the implementation of these objectives seems challenging as the provisions governing the council are vague. A major criticism of the council is its perceived impartiality or its lack thereof. Its members are nominated or appointed by the Centre or are ex officio members by virtue of their position in ministries. The council is duty bound to review the grading of arbitration institutions and accreditation of arbitrators. The government’s involvement in several arbitrations could make the independence and impartiality of arbitrators, who will be subject to accreditation by the council, questionable. Further, foreign legal professionals’ exclusion from the list of those qualified to be an arbitrator will exclude many distinguished lawyers who otherwise appear as arbitrators for dispute resolution in India. Their non-inclusion could discourage foreign parties wishing for their arbitration to be seated in India, who would want an arbitrator from a neutral country to be on their panel.

Applicability of 2015 Act: Section 26 of this Act that provided for its applicability ended up as a subject of dispute due to conflicting High Court decisions around its interpretation. This was settled by the Supreme Court in BCCI vs Kochi Cricket, where it was held that the 2015 amendment Act was prospective and would apply to: (a) arbitral proceedings commenced on or after October 23, 2015; and (b) arbitration-related court proceedings filed on or after October 23, 2015, even where the arbitral proceedings were commenced before the amendments came into force. The Court further stated that whether certain provisions of the 2015 amendment Act were clarificatory, declaratory or procedural and therefore retrospective, is a separate and independent enquiry. The Court in this case undertook this enquiry regarding the applicability of amended Section 36 of the Act (execution), holding it to be a merely procedural provision and thus applicable retrospectively to Section 34 petitions (challenge to domestic awards) pending as on October 23, 2015.

This judgment helped the arbitrating community as it clarified the applicability of the 2015 amendment Act. Now, the 2019 amendment Act deletes Section 26 and provides that with effect from October 23, 2015, the 2015 amendment Act would only apply to arbitrations commenced after October 23, 2015, and to court proceedings arising therefrom.

The 2019 amendment Act overrules the BCCI decision and seeks to clarify the applicability of the 2015 amendment Act. This will cause delay as all pending court proceedings in relation to arbitrations that had commenced prior to October 23, 2015, will be relegated to the pre-amendment Act scenario. The legislature has not dealt with the status of thousands of pending petitions where courts have refused to grant a stay under amended Section 36, nor is there clarity regarding what provisions in the 2015 amendment Act would have a retrospective application considering they may be clarificatory, declaratory or procedural as held in the BCCI decision.

While the 2019 amendment Act goes some way towards promoting India as an arbitration hub, by providing for realistic timelines and limited scrutiny of awards, certain ambiguities and concerns are left unaddressed. A detailed set of rules governing the working of the council, which would be promulgated in pursuance of part 1A, could resolve ambiguities associated with the provisions of part 1A. The applicability of the 2015 amendment Act will cause delay due to the relegation of pending court proceedings to pre-amendment Act scenario, lack of clarity on the cases where stay has been refused under amended Section 36, and due to continuing ambiguity regarding what provisions would have a retrospective application.

(Kapoor is a corporate litigation partner at Shardul Amarchand Mangaldas, New Delhi, where Lal is an associate in the Dispute Resolution Team. Views are personal)

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