KEY AMENDMENTS TO THE ARBITRATION AND CONCILIATION ACT, 1996

ABSTRACT

The delay in delivering justice by the judiciary is rampant and on the other side there is a massive piling up of cases in the ordinary courts. The judges and other judicial officers are pressurised and hence there is an indispensable need for an alternative method to resolve and conclude cases. Alternative Dispute Resolution is an innovative method which includes arbitration, mediation, conciliation and negotiation to resolve disputes outside courts wherein an impartial and independent third party is engaged by the parties in dispute to resolve the matter. The laws regarding arbitration and conciliation are governed by the Arbitration and Conciliation Act, 1996. There was an urgent need to amend certain provisions of this Act in order to be in par with the international standards as arbitration was a method increasingly used to settle commercial international as well as domestic disputes because it is time saving and cost effective. The parent Act has undergone several amendments and this blog is an attempt to analyse the significant changes brought in the provisions by the Amendment in 2015 and 2019, also it critically examines the Arbitration and Conciliation Ordinance,2020.

Keywords: Arbitration, alternative dispute resolution, parent act, amendments

INTRODUCTION

Resolving disputes is a herculean task. Alternative Dispute Resolution (ADR) is a mechanism by which a dispute is resolved with the help of a third party without the assistance of the Court. It is a kind of settlement of dispute outside the Court.There is an indispensable need for an alternative mechanism to resolve disputes due to the hike in the commercial market and other business disputes which requires speedy settlement in order to save time, energy and money. For a good resolution of dispute, there are two main requirements-

  1. a well constituted body to which the dispute is referred
  2. a well-defined uniform body of law

The Arbitration Act, 1899 was enacted for the first time in British India on the basis of the English Arbitration Act, 1889 for resolving disputes without the intervention of courts. According to Section 2 of the Arbitration Act, 1899 there were two conditions to be fulfilled for the application of provisions of the Act namely-

  1. no pending suit with regard to the dispute
  2. the suit can be instituted only in Presidency town[1]

Due to this limitation as well as other drawbacks, this Act was repealed by the Indian Arbitration Act, 1940 which was based on the English Act, 1934.Presently, in India the Arbitration and Conciliation laws are governed by the Arbitration and Conciliation Act, 1996 which was enacted on the basis of the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, 1985.The Act of 1996 was enacted to consolidate, define and amend the law relating to domestic and international commercial arbitration, conciliation and enforcement of foreign arbitral awards in the lines of UNCITRAL Model Law and Rules.[2]

The Arbitration and Conciliation Act, 1996 has undergone amendments during the course of time wherein new sections and schedules were added and omitted from the Act.

The ultimate aim of arbitration is to resolve the disputes without the intervention of courts since the procedure is lethargic and time consuming. But this has not been completely achieved because of the interference of the court at some stage in the proceedings. It is very obvious that whatever award has been granted by the tribunal it would be definitely challenged by the party not satisfied with the decision until they reach the final Supreme Court. In order for the international companies to choose India as their arbitration centre, the laws must be business friendly and hence there is a need for amendment of the present Act 1996 to be in conformity with the international standards.

ANALYSIS OF (AMENDMENT) ACT, 2015

AMENDMENT TO SECTION 2

In the case of Bharat Aluminium Co. v. Kaiser Aluminium Technical Service, Inc.[3] The SC concluded that Part I of the Arbitration Act, 1996 is applicable only to domestic arbitrations and application for interim relief will not be maintainable for a foreign seated international commercial arbitration. But as per the new amendment under Section 2,sub clause (e), the term ‘Court’ includes a High Court having original jurisdiction in the case of arbitration other than international arbitration.In cases of international commercial arbitration it includes the High Court having the jurisdiction to hear appeals from the subordinate courts.[4]

ELECTRONIC AGREEMENT

Under Section 7 the arbitration agreement by means of telecommunication including “electronic means” is considered to be valid now.

JUDICIAL AUTHORITY

According to the amended Section 8, a judicial authority can refer the parties to arbitration unless it finds that no arbitration agreement exists. Where an original or certified copy of the agreement is not available with the party then they may file with a copy of the arbitration agreement along with a petition praying before the court to call upon another party to produce the original one.[5]

INTERIM ORDER (SECTION 9)

If the court passes an interim order for protection as mentioned then the arbitration proceedings should commence within 90 days from the date of such order or within that time frame as the court may decide. The Court after the formation of the tribunal, shall not entertain the matter unless it finds that the remedy under Section 17 proves to be non-effective.

AMENDMENT TO SECTIONS 11,12 &14

Section 11-Under the new Act the Chief Justice and any authority designated by him has been substituted with the Supreme Court or the High Court or any person designated by him and their decision regarding the appointment of arbitrators shall be final and no appeal lie against such decisions. A New Section 11A has also been inserted which gives power to the Central government to amend Fourth Schedule.

Section 12-The amended Section makes the arbitrator more arduous, independent and impartial. He shall now disclose in writing any doubts likely to arise which questions his impartiality and the grounds are mentioned under the newly added Fifth Schedule. Also there are other criteria mentioned under Seventh Schedule which would make a person ineligible to be an arbitrator.

Section 14-This amendment cemented the gap which was created in the earlier Act and now the mandate of an arbitrator shall terminate under the mentioned conditions and he shall be substituted by another arbitrator.

ARBITRAL TRIBUNAL (SECTION 17)

Interim Measures by the arbitral Tribunal is now enforceable and it has the same power as that of Court under Section 9 and the orders passed by the tribunal can be enforced as if it is the orders of the Court.

TIME LIMIT OF ARBITRAL AWARD (SECTION 29A)

Due to the lethargic procedure and other procedural delays the newly amended Act provides for the matter referred before the tribunal to be concluded within 12 months and if the arbitrator(s) concludes it within 6 months then they shall be entitled for additional fees. Also, the period may be extended with the consent of parties, but not exceeding 6 months or further period as the Court may decide provided that the delay is for a sufficient cause otherwise the Court may order for a reduction of 5 % of fees for each month of such delay.[6]

FAST TRACK PROCEDURE (SECTION 29B)

As per the new Act the parties may opt for a fast-track procedure where the matter has to be concluded within 6 months from the date it is referred to the tribunal. The dispute is decided on the basis of written documents, pleadings and submissions and only if the party requests or the tribunal considers necessary then oral hearing may be held.

NEW COST REGIME (SECTION 31A)

This Section provides a detailed description regarding the costs and other expenses which is to be incurred by the parties. It gives the authority to the Court or the Tribunal to determine reasonable costs as to the proportion of another party’s cost, costs incurred before the proceedings have begun, interests on costs etc.

PUBLIC POLICY (SECTION 34)

An Award contravenes the public policy of India only if –

  • the award was induced or affected by fraud or corruption
  • If it contravenes the fundamental policy of Indian Law
  • If it contravenes the most basic notions of morality or justice[7]

The amendment provides that an arbitral award in a ‘domestic arbitration’ shall be set aside by the court or the tribunal on the grounds of ‘patent illegality appearing on the face of the award’ and shall not be set aside merely on the ground of an erroneous application of law or by reappreciation of evidence. An application along with affidavit endorsing compliance shall be filed by the party after giving prior notice to the other party and such an application shall be disposed of within a period of 1 year from the date of notice.

STAY OF OPERATION OF ARBITRAL AWARD (SECTION 36)

The Court has to give an order for stay of operation of arbitral award and a mere filing of application under Section 34 to set aside the award will not make it unenforceable. In the case of granting stay in an award for payment of money, the provisions of money decree under Code of Civil Procedure, 1908 has to be considered.[8]

INSERTION OF NEW SCHEDULES

The Fourth Schedule regarding the model fee structure of an arbitrator has been amended and the Fifth Schedule lays down the grounds as to check the impartiality and independence of the arbitrator. The Seventh Schedule provides the grounds which makes a person ineligible to be an arbitrator thus making the work of arbitrators more arduous and accountable.

SECTION 26 OF AMENDMENT ACT, 2015

This section states that the Act shall not apply to the pending arbitral proceedings. The question to be pondered here is whether the said Act applied retrospectively or prospectively.

ANALYSIS OF (AMENDMENT) ACT, 2019

ARBITRAL INSTITUTION [SECTION 2(ca)]

This Section defines an Arbitral institution as an arbitral institution designated by the Supreme Court or High Court.[9]

APPOINTMENT OF ARBITRATORS (SECTION 11)

According to this amended Section, the Supreme Court and the High Court shall have the power to designate arbitral institutions graded by the Arbitration Council under Section 43I. Also, the appointment of arbitrators shall be made by the Supreme Court in case of international commercial arbitration and the High court in cases of domestic arbitration.[10] It is to be noted that within a period of 30 days from the date of notice issued to the opposite party, the application for the appointment of arbitrators by the institution must be disposed of and the arbitral institution has the power to determine the fees of the tribunal provided that it is in conformity with the Fourth Schedule.

TIME LIMIT FOR THE ARBITRAL PROCEEDINGS (SECTIONS 23 & 29A)

According to Section 23(4), the arbitrator(s) after receiving the notice of their appointment must complete the statement of claims and defences within a period of 6 months.

Under Section 29A the award in cases of arbitration other than international commercial arbitration must be made by the tribunal within 1 year from the date of concluding the pleadings. Excluding international commercial arbitration from the time limit mentioned would have a drastic effect on the foreign companies to hold their proceedings inside India and this is something to be worried about as the purpose of amendment would not have significant effect. The mandate of the arbitrator shall continue till the pending application under sub-section 5 is disposed of.

CONFIDENTIALITY & GOOD FAITH (SECTIONS 42A & 42B)

The arbitrator, arbitral institution and the parties should maintain confidentiality of information regarding all the arbitral proceedings except the award, where the contents have to be disclosed for the purpose of its enforcement. No lawsuit can be filed against the arbitrator if he performs his duty under the Act in good faith.

INSERTION OF NEW PART IA (ARBITRATION COUNCIL)

The Arbitration Council of India (ACI) was established as an independent legal entity with headquarters at Delhi by the Central Government to perform the duties and functions as mentioned under Section 43D of the Act. The composition of the council shall be of persons mentioned elaborately under Section 43C.The significant function of ACI includes promoting and encouraging arbitration, mediation and other forms of alternative dispute resolution mechanisms and to frame the rules, guidelines and policies for the operation and maintenance of uniform professional standards in all matter relating to arbitration.[11]

A new Eighth Schedule has been inserted which describes the qualification, norms and accreditations of arbitrators (Section 43J). It describes nine categories of people who could be arbitrator(s) thus discouraging the foreign parties to opt for arbitration in India as the choice of candidates who can be arbitrator is limited.

OMISSION OF SECTION 26 OF AMENDMENT ACT, 2015 BY INSERTION OF SECTION 87 UNDER THE AMENDMENT ACT, 2019

This Section clears the doubt regarding the applicability of Amendment Act, 2015.The Act 2015 shall have prospective effect from the date 23/10/2015. This was overruled by the SC in BCCI v. Kochi Cricket Private Limited[12] where the Court held that Amendment Act, 2015 would be applicable even though proceedings were pending before the commencement of the said Act. But on November 27, 2019 in the case of Hindustan Construction Company v. Union of India [13] The SC struck down Section 87 for being arbitrary and against Article 14 of the Constitution and upheld the decision in BCCI’s case. This is a welcoming decision by the Court as the automatic stay on the arbitral award was corrected.

CRITICAL ANALYSIS OF ORDINANCE, 2020

There were a lot of criticism and concerns raised by the stakeholders and other persons related with the arbitration after the enactment of The Arbitration and Conciliation (Amendment) Act, 2019.In order to rectify the errors caused in the framing of arbitration laws and to ensure that all stakeholder parties get an opportunity to seek unconditional stay of enforcement of arbitral awards where the underlying arbitration agreement or contract or making of the arbitral award are induced by fraud or corruption[14], an ordinance was passed by the President in exercise of his powers under Article 123(1) of the Constitution to make necessary changes in the principal Act.

 STAY ON ARBITRAL AWARD (SECTION 36)

In the 2015 amendment, the grounds for unconditional stay are not mentioned. But in the ordinance two grounds are explained namely-

  • When the court prima facie is satisfied that the arbitration agreement or the contract which is the basis of award or;

The making of the award

is induced by fraud or corruption.[15] 

The ordinance also stated that this would be applicable retrospectively from 23/10/2015.

REMOVAL OF EIGHTH SCHEDULE (SECTION 43J)

This is a welcome move because the amendment in 2019 faced a lot of criticism as it limited the choice of arbitrators. The nine categories of people mentioned under the schedule were Indian advocates, chartered accountants, company secretary, government officers etc., thus limiting the candidates both by nationality and profession. The ordinance now removed the disparity and the qualifications, experience and norms for accreditation of arbitrators is to be specified by the regulations, but what are such regulations are not mentioned.

CONCLUSION

The amendments to the parent Act have received applause as well as criticisms. Certain amendments were really welcoming whereas the others increased the interference of the court thereby defeating the very purpose of the Act. The attempt taken to amend the clauses with changing time and also to make India arbitration friendly zone is commendable. But then there is a long way to go to make India an international hub for arbitration and the efficiency and transparency of the Act would definitely depend on how our Courts interpret it.


[1] The Arbitration Act, 1899.

[2] The Arbitration and Conciliation Act, 1996.

[3] Bharat Aluminium Co. v. Kaiser Aluminium Technical Service, Inc. (2012) 9 SCC 552.

[4] The Arbitration and Conciliation (Amendment) Act, 2015, §2, cl.e.

[5] The Arbitration and Conciliation (Amendment) Act, 2015, §8.

[6] The Arbitration and Conciliation (Amendment) Act, 2015, §29A.

[7] The Arbitration and Conciliation (Amendment) Act, 2015, §34.

[8] The Arbitration and Conciliation (Amendment) Act, 2015, §36.

[9] The Arbitration and Conciliation (Amendment) Act, 2019, §2, cl.ca.

[10] The Arbitration and Conciliation (Amendment) Act, 2019, §11.

[11] The Arbitration and Conciliation (Amendment) Act, 2019, Part IA.

[12] BCCI v. Kochi Cricket Private Limited, (2018) 6 SCC 287.

[13]Hindustan Construction Company v. Union of India, WP (Civil) No. 1074 of 2019.

[14] The Arbitration and Conciliation (Amendment) Ordinance, 2020.

[15] Ibid.


Authored By: Rana Banu, 9th Semester, SDM Law College, Mangalore

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