Amendment of Indian Arbitration Act: A Sigh of Relief for the Indian Arbitration Professionals and Clients!
The Indian arbitration scenario had always been abysmal. If the way in which arbitration proceedings were conducted under the 1940 Arbitration Act had made lawyers laugh and legal philosophers weep in view of unending prolixity, at every stage providing a legal trap to the unwary, the attempt to correct it under the 1996 Arbitration Act also failed. Arbitrators were competing with Courts to make it slower and expensive! Clients felt they were being fleeced by arbitrators.
In fact in the international arena, arbitration process was divided as “Indian Arbitration” and “Rest of the World Arbitration”. When we go for arbitration outside India, we were embarrassed to say that we practice arbitration in India! I am reminded of the 2009 International Bar Association (IBA) conference at New Delhi, when Mr. Rohinton Nariman, Senior Advocate (as he was then – now Judge of the Supreme Court of India) vociferously told the Chief Justice of India, Mr. Justice K.G. Balakrishnan (as he was then) during his speech, that many of the judgments of the Supreme Court of India, interpreting arbitration law has made arbitration lawyers in India mortified among the international legal community and requested him to take steps to correct or review the faulty judgments.
Of course, many of those judgments and the Arbitration Act itself made “arbitration life” miserable in India. Almost all international or cross border disputes in India went offshore, either to Singapore, Paris, London, USA or Malaysia. Even domestic arbitrations shifted their venue outside India. It was prudent, as the arbitration got over sooner and with less expense!.
Right from 1998,the arbitration professionals were demanding changes to the 1996 Act because of the anomalies and loose ends in the Act. The 1996 Act was not conducive for international arbitrations. The Law Commission of India recommended various amendments to the 1996 Act under its 176th Report on 12 September, 2001. After considering the recommendations of the said Report, the Government decided to accept almost all such recommendations and accordingly, introduced the ‘Arbitration and Conciliation (Amendment) Bill, 2003’ in the Rajya Sabha (Upper House of the Parliament) on 22 December, 2003. Subsequently, in the wake of the report of the Justice Saraf Committee the Bill was referred to the Department Related Standing Committee on Personnel, Public Grievances, Law and Justice for a further analysis. The Departmental Related Standing Committee was eventually of the view that many provisions in the Bill were insufficient and contentious and, therefore, the Bill should be withdrawn and be reintroduced after considering its recommendations. Accordingly, the Bill was withdrawn from the Rajya Sabha. Nothing happened thereafter. The Law Commission of India then brought out Report No. 246 on 05 August 2014, recommending various amendments to the Arbitration & Conciliation Act, 1996.
Now, finally on 23 October 2015, the President of India has promulgated an Ordinance to amend the 1996 Act – “The Arbitration & Conciliation (Amendment) Ordinance 2015”, which shall come into force at once. (Of course the Ordinance must be approved by the Parliament within six weeks of reassembling or they shall cease to operate.)
Considering the fact that finally amendments have been effected in the 1996 Act, after a lapse of 19 years,it is time to celebrate. It is a sigh a relief to everyone associated with arbitration in India.
We will see some of the major changes brought about by the amendment, which will promote the use of arbitration in India, as well as promote India a venue for international arbitrations.
Neutrality of Arbitrator:
Neutrality of the arbitrator was one of the major drawbacks of Indian arbitration. Most of the public sector arbitrations had this anomaly. It was also misused by many private financial companies. The arbitrator would be their own officer or a person appointed by them. The opposite party had absolutely no role in the selection of the arbitrator. In fact this is against the very concept of arbitration, which envisages an expeditious and effective resolution of disputes through a private forum of parties' choice, i.e., mutual trust reposed by the parties on the arbitrator, so that his decision is accepted as final and binding. The arbitrator should not only be fair and impartial but also should enjoy the confidence of the parties.How can there be confidence if the arbitrator is an officer or a person unilaterally appointed by one party?
The courts were also not supportive in overcoming this grave illegality. The courts had taken the view that if a party has entered into an agreement with eyes wide open it cannot wriggle out of the situation that if any person of the other party is appointed as arbitrator he will not be impartial. Even though the named arbitrator is an employee of one of the parties, it is not ipso facto a ground to raise a presumption of bias or partiality or lack of independence on his part. But the Court brought in some relief to this position later by holding that there can however be a justifiable apprehension about the independence or impartiality of an employee arbitrator, if such person was the controlling or dealing authority in regard to the subject contract and if any circumstance exists to create a reasonable apprehension about the impartiality or independence of the agreed or named arbitrator, then the court has the discretion not to appoint such a person.
By the present amendment,the neutrality of Indian arbitrators has been made in par with international arbitrations. Similar to the IBA Guidelines on Conflicts of Interest in International Arbitration, Schedule-V relating to the grounds for justifiable doubts relating to the independence and impartiality of arbitrators and Schedule-VII relating to categories of ineligibility for appointment as arbitrator has been inserted under Section 12. Apart from this, a provision has been made whereby before the arbitrator is appointed, a disclosure regarding his impartiality has to be mandatorily given. This is required even for appointments made under Section 11 of the Act by the High Court or the Supreme Court. So finally we are able to demolish the demon of one-sided arbitrations, which was a blemish in the system.
Time and Fee:
The enormous delay in completing arbitration proceedings was mainly attributed to the “per-sitting” fee charged by the arbitrator in ad-hoc arbitrations. The ease in which the arbitrators granted adjournments for the asking was something so nauseating. The duration of the “sitting” was also inexcusable – the maximum being 2 hours. Unlike institutional arbitrations where the fee is fixed and sitting is done on day-to-day basis, ad-hoc arbitrations were left to the whims of the arbitrators. We have seen arbitrations going on for year’s altogether and fee mounting above the actual claim.
In fact the situation became so notorious that even the Supreme Court of India had to say that there is no doubt that the cost of arbitration becomes very high in many cases where retired Judges are Arbitrators. The large number of sittings and charging of very high fees per sitting, with several add-ons, without any ceiling, have many a time resulted in the cost of arbitration approaching or even exceeding the amount involved in the dispute or the amount of the award. The court also opined that it is necessary to find an urgent solution for this problem to save arbitration from the arbitration cost. The court found that Institutional arbitration has provided a solution, as the Arbitrators' fees is not fixed by the Arbitrators themselves, but is governed by a uniform rate prescribed by the institution under whose aegis the Arbitration is held.
The present amendment has also helped to settle this issue by inserting Schedule-IV, under Section 11(14) prescribing a model fee and making a scheme for the High Court to frame rules accordingly. This provision is not made applicable to international arbitrations and also for institutional arbitrations, thereby giving importance to institutional arbitrations, party autonomy and quality of arbitrators.
Similarly regarding fixation of time limit, a provision is made under Sec. 12(1)(b), where the arbitrator at the time of appointment itself has to give in writing a declaration that he is able to devote sufficient time for arbitration and that he will be able to complete the arbitration within 12 months.An amendment has also been made in Section 24 making it mandatory to hold arbitration hearing on a day-to-day basis and not to grant adjournments without valid reasons. Required amendments are also made by inserting a new Section 29A, where the award has to be made within a period of 12 months from the date of reference. There is an incentive if the arbitrator could finish the proceedings within 6 months, whereby he is entitled to receive additional fees. Similarly if the arbitrator overshoots the period, the parties can extent the time to a maximum of 6 months, but thereafter the mandate of the arbitrator gets terminated, unless extended by the court. While extending, if the court attributes the delay on the arbitrator, the court can either substitute the arbitrator or reduce the fee of the arbitrator.
A provision is also made for fast track arbitration by inserting a new section 29B. The parties can opt for fast track procedure where the tribunal can decide on the basis of written pleadings, documents and submission filed by the parties without any oral hearing and the award has to be made within 6 months from the date of reference.
Thus the ignoble Indian arbitration is getting a face lift, whereby serious attempts are made in the Arbitration Act to make it speedy and less expensive and promoting the concept of institutional arbitration for international and domestic arbitrations.
Clarity for international arbitrations:
There were lots of complaints about the 1996 Act that it was meant just for domestic arbitrations and did not have effective provisions to support international arbitrations, especially procedural aspects covered under Part I of the Act.
With a view to give procedural support for international arbitration, the Supreme Court held that when international arbitration is held in India the provisions of Part I would compulsory apply and in cases of international arbitrations held out of India provisions of Part I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions and also held that a foreign award may be challenged under Part I of the Act. These judgments had created an outburst among the legal fraternity that the courts are going beyond the basic tenets of arbitration and these decisions will scare away international arbitrations from India. The situation was salvaged subsequently by the Supreme Court itself holding that Part I of the 1996 Act would have no application to International Commercial Arbitration held outside India, but shall apply to all arbitrations which take place within India.
But there were some procedural problems faced as provision for interim protection and certain court assistance for proper conduct of arbitration were not available under the 1996 Act. Now through the amendments procedural backups are provided for international arbitrations. Provisions of Sections 9, 27, 37(1)(a) and 37(3) – i.e., provisions relating to interim measures by courts, court assistance in taking evidence and appeals against orders under section 9 – are made applicable to international arbitrations, even if the place of arbitration is outside India and enforceable under Part II of the Act.
Another important change that has been brought out in the case of international arbitration is that all applications to “court” has to be made to the High Court having jurisdiction rather than the principal civil court in the district.
Challenge & Execution of Awards:
A major change that has been introduced in the section 34 regarding challenge of awards is that a prior notice to the other party that the award is going to be challenged has been made mandatory and the party challenging the award has to file an affidavit endorsing compliance of the above requirement.
Further the vagueness created by some of the decisions of the Supreme Court with respect to “public policy” as a ground of challenge has been clarified and restricted to fraud, corruption, contravention to fundamental policy of Indian law and conflict with the most basic notions of morality and justice.
A striking change that has been brought out by this amendment in Section 36 regarding execution of awards is that the automatic stay of execution during the pendency of Section 34 is taken away and after the period of time for challenging the award has expired, the award becomes immediately executable, unless the court grants an order of stay of the operation of the arbitral award. This will promote the use of arbitration in commercial disputes, as the parties will be able to enjoy the fruits of the award without the delays of pendency in courts.
More power to the Arbitral Tribunal:
The amendment has also given more power to the Arbitral Tribunal to pass interim orders. The power of the court to give interim orders of protection under Section 9 has been limited up to the constitution of the tribunal. Once the arbitral tribunal is constituted the tribunal gets powers under Section 17 to pass interim orders and the said orders will be deemed to be orders of the court and shall be enforceable under the Civil Procedure Code in the same manner as a court order.
Even though these powers were available to the arbitral tribunal under the 1996 Act, nobody dared to use it as it did not have the tooth of enforceability. It resulted in overcrowding the courts under Section 9, before, during or after the arbitral proceedings. This amendment will not only facilitate emergent orders of protection from the tribunal, which otherwise will consume lot of time in the court, but also help reduction of case pendency of Original Petitions in the District Courts as well as Arbitration Appeals in the High Court.
I would say that the Arbitration & Conciliation (Amendment) Ordinance 2015 is a long awaited change. We may not have the best Arbitration Act in the world, but we definitely have a better Arbitration Act. Now we need to walk that extra mile to bring back the lost opportunity – to redeem the pride of having arbitrations in par with any other part of the world.
Author: Anil Xavier is an advocate practicing in India. He is the President of Indian Institute of Arbitration & Mediation and the Vice-President of the India International ADR Association. He is also the Executive Committee member of the ADR Law Section of the Indian National Bar Association. Xavier is the Chairman of the Accreditation Committee of the Asian Mediation Association (AMA) and a member of the Independent Standards Commission and Ethics Committee of the International Mediation Institute (IMI), at the Hague, Netherlands. He is the first IMI Certified Mediator from India. Xavier is a member of the International Advisory Board (IAB) of the Afghanistan Centre for Commercial Dispute Resolution (ACDR) and a member of the Advisory Council of Global Mediators Network, UK. He is a Senior Fellow of the Dispute Resolution Institute of the Hamline University School of Law, USA. He is empanelled as arbitrator and mediator with several institutions in India, Singapore, London and Italy. He can be contacted at [email protected]