Abstract
The article is an attempt to comprehensively discuss the amendment introduced in 2019 to the Arbitration and Conciliation Act, 1996. The amendment is fairly new and not much material is available on the same., which is why it is discussed at length. The article also attempts to analyze the implications of some of the changes introduced by it. As the discussion progresses, it is realized that though the intention was very progressive and laudable, some of the changes bring in more confusion, instability and rigidity into the picture. Lastly, it is hoped that the Courts will harmonize those changes and make way for the amendment to realize its true purpose of making India a global hub of international commercial arbitration.
Introduction
“India should not accept imperialism in the field of arbitration…We want India to become a hub of international arbitration.”
~Law Minister, Sh. Ravi Shankar Prasad during a debate on the Arbitration Amendment Act, 2019.
The President of India gave his assent to the Arbitration Amendment Act, 2019 on 9th August, 2019[1] which comes almost four years after the 2015 Amendment to Arbitration and Conciliation Act, 1996 which was introduced with an intention to put India on the global map of international arbitration and give rest to the Bhatia-Balco conundrum[2]. The 2019 Amendment has been introduced to fill in the gaps left by the previous amendment in its ambitious objectives. In providing for a skilled and specialized workforce, the Amendment Act, 2019 takes a big leap and lays down the groundwork for introducing an Arbitral Council of India. It also provides for the grading of Arbitral Institutions, accreditation and qualification of arbitrators, non-retrospectivity of the 2015 Amendment, limited scrutiny and confidentiality of Awards, and a more realistic timeline, among various other things. But all its ambitions come with problems which are predictably going to be the center of major concern, and we take a look how.
Background
The Amendment Act is largely based on the recommendations of the High-Level Committee Report[3] dated 30th July, 2017 under the chairmanship of Justice B.N. Srikrishna, which had recommended setting up of an Arbitral Council to review the development of arbitration law and its practice in India. However, certain departures from the Committee Report have also been made. These include minor changes in the qualifications of members of the Arbitral Council of India (Hereinafter referred to as “ACI”) and vesting broad powers in the ACI to frame its own regulations. The Amendment also comes in light of our long-standing vision to establish India as the hub of international commercial arbitration.
Key changes
Arbitral Institution
According to the newly inserted section 2(ca), the High Court(s) as well as the Hon’ble Supreme Court of India can designate an institution as an arbitral institution under the Act. The newly inserted clause 3A of section 11 clarifies this position further by providing that the High Court(s) and the Hon’ble Supreme Court of India can do so, from time to time for the institutions which have been graded by the Arbitration Council of India, a body introduced by this Amendment which we shall be looking at in depth later on. It further provides that in case such gradation is not available in the jurisdiction of a particular High Court, then the Hon’ble Chief Justice of the concerned High Court can maintain a panel of arbitrators for discharging the functions and duties of the arbitral institution, which he can review from time to time. It is pertinent to note that the section does not cast a mandatory duty on the Chief Justice of a High Court to maintain such a panel as it is qualified by the word ‘may’.
Apart from deleting clauses 6A, 7 and 10 of Section 11, clauses 4, 5, 6, 8 and 9 of section 11 now provide that in case a party wants to get one or more arbitrator appointed by the Court, it can do so by making an application to the arbitral institution designated by the Supreme Court or the concerned High Court depending on whether it’s for an international commercial arbitration or domestic arbitration respectively, and the arbitral institution will appoint the arbitrator(s) now, instead of the Hon’ble Courts. This step will reduce the burden on the Courts and introduce more expertise and thus swiftness in the appointment procedure.
Also, clauses 11 to 14 of section 11 provide that in case more than one requests have been made to more than one arbitral institution then only the arbitral institution to whom the request was made first will entertain it. To increase speedy disposal, the arbitral institution is obligated to dispose off the application for appointment of arbitrator within 30 days from the date of service of notice on the opposite party. Lastly, where the parties have not agreed upon the fees of the arbitral tribunal in an arbitration other than an international commercial arbitration, it’s the arbitral tribunal which determines the fees of the tribunal, subject to the rates specified in the fourth schedule.
Section 43I provides that Arbitral Institutions are graded on 5 criterions: (1) Infrastructure, (2) Quality of arbitrators. (3) caliber of arbitrators, (4) Performance, and (5) compliance of time limits for disposal of domestic or international commercial arbitrations.
Arbitration Council of India
The most prominent change introduced by the amendment is the insertion of Part IA comprising of sections 43A to 43M. It deals exhaustively with Arbitration Council of India.
· Nature and Powers: It shall be established by the Central Government by a notification in the Official Gazette and will be in the nature of a body corporate which can have perpetual succession, common seal and the power to acquire and hold property. It can also enter into a contract in its own name and can sue and be sued. The head office shall be in Delhi can other offices can be established at other placed with the prior approval of the Central Government. There shall also be a Secretariat to the council whose composition and powers will be determined by the Central Government.
· Members: The Amendment Act provides that there shall be 7 members in the Council including the Chairperson. A person who has been a Judge of the Supreme Court or High Court or the Chief Justice of a High Court or an eminent person with special knowledge and experience relating to arbitration can be appointed as the Chairperson of the Council by the Central Government in consultation with the Chief Justice of India. The Central Government will also name an eminent arbitration practitioner having substantial knowledge and experience relating to international and domestic institutional arbitration as a member. In consultation with the Chairperson, the Central Government will also nominate an eminent academician with experience in research and teaching relating to arbitration and other forms of alternate dispute resolution. There shall also be three ex-officio members viz, a Joint Secretary or a higher rank official (or his representative) in the Departments of Legal Affairs, Ministry of Law and Justice as well as one in the Department of Expenditure, Ministry of Finance. The third ex officio member will be a Chief Executive Officer-Member-Secretary who shall be responsible for the Council’s day-to-day administration. The seventh member will be a part time member, a representative of a recognized body of commerce and industry, chosen on rotational basis by the Central Government. All the members except for the three ex officio members will hold office for a period of three years or till they attain the age of seventy years (for chairperson) or sixty-seven years for other members), whichever is earlier. The members can be removed by the Central Government and the full-time members (except for the ex officio members) can also resign after notifying the Central Government in writing.
· Duties and Functions: Section 43D of the Act enlists a host of duties and functions of the Council including promoting, encouraging alternative dispute resolution and framing policies for the same. The most vital duty the council has been entrusted with is the grading of arbitral institutions, accreditation of arbitrators and related ancillary functions which will ensure uniformity in disposal of arbitral matters. Apart from maintaining a repository of arbitral awards, it can also appoint experts and constitute committees.
Qualifications and Experience of Arbitrator
A separate Schedule, the Eighth Schedule has also been inserted which enlists the required qualifications and experience of an Arbitrator. It provides for a broadly phrased list of arbitrators to choose from including advocates, chartered accountant, cost accountant, company secretary, person with technical knowledge and experience etc. It commences with “a person shall not be qualified to be an arbitrator unless..”. implying that it proposes the minimum qualifications, though it pertains to accreditation of arbitrators.
Timelines
As we have already discussed, the time allowed to an arbitral institution to dispose off application for appointment of arbitrator(s) has been set to 30 days from the date of service of notice on the opposite party. Apart from this, quite interestingly, the newly inserted clause 4 in section 23 now provides a time period of 6 months for completion of statement of claim and defence, starting from when the arbitrator(s) received the written notice of appointment.
Clause 1 to section 29A provides that awards in arbitration other than international commercial arbitration shall be made within a period of 6 months from the date of completion of statement of claim and defence. This implies that the arbitration shall be completed within 18 months comprising of 6 months for completion of pleadings and a further 12 months’ period. However, no rigid timeline has been set for international commercial arbitrations and the same timeline as that for domestic arbitration has only been suggested instead of making it mandatory. This, it seems has again been made to cater to the various complexities of international commercial arbitrations and make the timeline flexible as in some cases procuring the witnesses or other relevant evidences might take time. Lastly, where an application for extension of time is pending, the mandate of the arbitrator will continue till the disposal of the said application.
Confidentiality
A new section 42A has been inserted with an overriding effect. It mandates that the arbitral tribunal, the institution as well as the parties shall maintain confidentiality of all arbitral proceedings except for the award and only when the same is required for its enforcement and implementation.
Immunity to Arbitrators
Section 42B provides immunity to Arbitrators for acts done in good faith, which is in line with international standards.
Section 87
The Hon’ble Supreme Court in Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd[4] settled the much-debated position and held that the Arbitration and Concilliation Amendment Act, 2015 will also apply to proceedings filed after 23rd October, 2015 though the arbitration had commenced prior the effective date. Now, the legislature has statutorily overruled this by inserting section 87 which explicitly declares that the 2015 Amendment will only apply on arbitral proceedings arising after 23rd October, 2015 and court proceedings related to such arbitrations. It will not apply on court proceeding filed after the aforementioned effective date if it relates to an arbitration that commenced before the said date.
Grant of interim Measures by Tribunal
Though there have been no changes in section 9 of the Act, under section 17 now the Arbitral tribunal can only entertain application for interim measures after its constitution and uptill the award is made. Unlike before, at the stage between making of the award and its enforcement, only the concerned court can entertain application for interim measures under section 9 of the Act since arbitral tribunals become functus officio after the making of the final award.
Limited Scrutiny of Awards
Section 37 and 50 of the A&C Act provide for limited appeals from orders of arbitral tribunals and courts. The Commercial Court Act, 2015 provides for a general right of appeal against the decisions of Commercial Courts and Commercial Divisions of High Courts. The Amendment Act of 2019 prefixes Sections 37 and 50, (which provide for appeals from arbitral tribunals) with “Notwithstanding anything contained in any other law for the time being in force” in order to restrict the right to appeal to what is already provided in Sections 37 and 50 and abolish the apparently inconsistent and wider right of appeal.
Critique: a not so rosy picture
Establishment of ACI is a major leap in the law of arbitration and its practice in India. By sharing the burden on the Courts, this step will speed up both, the arbitration process as well as clearing of the backlog of cases in the Courts already. It was always felt that arbitration was not able to realize its true potential in India. With a lot to be still done by the courts, it at times added additional burden upon the courts and was not a dispute resolution outside the court in its true sense. Additionally, the Act also aims to resolve the problem of dispute resolution by specialized persons. The Act suggests that it is time we work on specializing people in institutional arbitration. The ACI has been entrusted with the task to work towards professionally training people in institutional arbitration and it’s only a matter of time before we will see new diploma courses and workshops and professional institutes on institutional arbitration have sprung up. For the time being, the exact role of ACI is undetermined. The blurry picture will only clear up once rules and regulations pertaining to it finally get a definite shape. A lot is still to be done by the Central Government and the judiciary to realize the true potential of the ACI and give wings to the objectives of the 2019 Amendment.
Section 87 which categorically overrules the decision of Hon’ble Supreme Court in Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd.[5] will lead to uncertainty and chaos. the cases that already moved forward by following the position settled by the Supreme Court will have to take a step back and align their position as per the pre-2015 Amendment law. This will result in additional and unnecessary delay, costs, and uncertainty; something that is not very lucrative when one aims to become a hub of international arbitration. The legislature has also not dealt with the fate of various pending litigations where the courts have refused to grant a stay under section 36 of the Act. Also, it would have been desirable that the legislature had atleast provided that the clarificatory provisions introduced by the 2015 Amendment (as categorized in Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd) would apply on court and arbitration proceedings commenced prior to 23rd October, 2015.
The qualifications of an arbitrator proposed in the eighth schedule are ambiguous. Though predictably, the Hon’ble Courts will overturn the position implied by it initially but for now, it can be interpreted to imply that no foreign legal professional can be an arbitrator in India, considering that one of the requirements under the Eight Schedule is for the person to be an advocate within the meaning of the Indian Advocates Act, 1961. This is an unattractive move which will discourage foreign arbitrations in India. The intent clearly seems to promote Indian institutional arbitrators, something on whose training, qualifications and expertise the Act aims to work towards. But clear exclusivity can be counter-productive, which certainly seems to be the case for this one.
Interestingly, a departure has been made from the recommendations of the Justice Sai Krishna Committee by making stakeholders from the Government of India members of the ACI. This is arguably at the verge of risking the independence of the ACI and arbitration as whole in India. This moves brings back the memory of a wholly unrelated amendment, not introduced long back when government stakeholders were introduced in the panel to decide on promotion of judges which was struck down by the Hon’ble Supreme Court in 2015 in its judgment Supreme Court Advocates on Record Association v. Union of India[6] on the ground of being a threat to the independence of judiciary. Though it will not be fair to say that the composition of ACI will meet the same fate, it will be interesting to see how the courts interpret it.
But the most heat will be faced by the timeline set by the Amendment Act. It was understandably increased to a 6 month period for submission of statements of pleading and defence and a further 12 months period for arbitration proceedings as many arbitrators complained that the overall 12 month time limit, originally introduced by the 2015 Amendment was not feasible as parties took most of the time to submit statement of pleadings and arbitral proceedings thereafter was just a sham. But practically, many stakeholders believe that a 6month time period is too long a period for submission of statement of pleading considering there isn’t a formal procedure to be complied with unlike the courts. This period could have very well been shortened. This timeline is inspired by the Justice Srikrishna Committee’s recommendation which did not provide a reason for the extension. At the same time, it is also pertinent to note that in cases where parties only desire disposal on preliminary issues like jurisdiction, they will have to mandatorily wait for 6months and submit their statement of pleading on other issues as well. This introduces chaos and rigidity. Thirdly, does this 6month period also cover the stage of amendment of pleadings and filing of counter claim? Fourthly, this timeline only applies on domestic arbitrations whereas international commercial arbitrations are free to choose their time frame as this timeline is non-binding on them. Hopefully the ACI rules will well-provide for it and institutional arbitrations will see a speedier disposal.
Following the Committee’s recommendations, a new provision mandating confidentiality of arbitral proceedings has been introduced. It admits only one exception: disclosure of award for its enforcement and implementation. But this raises more questions than it rests. Will it also apply where assistance of third parties like experts, etc. is seeked? Will it cover proceedings under sections 9, 11, 14, 27 and 34? Will it act as a bar upon a party in initiating criminal proceedings upon the other? Common sense dictates that it shouldn’t. But it would be welcome if the statute clarifies this position which would eventually render section 42A ineffective for most of its part. Also, the International Chamber of Commerce recently released guidelines on publication of awards[7] wherein it provided parties with an option to opt-out of it. It would have been wise to adopt this international standard and make provision for an opt out clause in section 42A as well.
The Hon’ble Supreme Court in Fiza Developers & Inter Trade P Ltd v. AMCI(I) Pvt. Ltd.[8] indicated that proceedings under Section 34 may not have the facets of a normal civil suit. Further, in M/s Emkay Global Financial Services Ltd. v. Girdhar Sondhi[9], the Hon’ble Supreme Court held that an application for setting aside an arbitral award will usually not require anything more than the record before the arbitrator. Section 34 has been amended on the same lines where “furnishes proof that” has been substituted with “establishes on the basis of the record of the arbitral tribunal that” implying material beyond what is submitted to the tribunal cannot be used to move and application under section 34. But practically it will not be possible to prove grounds like fraud, incapacity to contract or impartiality of arbitrator, etc only on the material submitted to the tribunal. It is hoped that the courts will see through the loophole and further clarify the position.
Eighth Schedule, disqualifies a person who has been convicted of any offence involving moral turpitude or an economic offence from accreditation as an arbitrator by the Arbitration Council of India. These parameters have not been incorporated expressly in the existing Fifth Schedule or the Seventh Schedule, implying that until the position is clarified, there is no impediment against such persons in being appointed as arbitrators.
Conclusion
Undoubtedly the amendment is a major step towards making India the global hub of commercial arbitrations. The introduction of institutional arbitration will bring in quality, specialization, expertise as well as speedier redressals while ensuring minimal court interference and thereby reducing their burden as well. The exact picture will get more clear once the ACI is set up and its rules and regulations are framed. On the other hand laudable changes have been made to bring the Act at par with international standards but some changes can act counter-intuitive, as we have discussed. It is hoped that with time the Courts will step up and harmonize the changes as and when the matter is placed before them. Till then, there could be a little chaos and confusion regarding which road is to be taken.
[1] The full text can be accessed at http://egazette.nic.in/WriteReadData/2019/210414.pdf
[2] THE ARBITRATION AND CONCILIATION (AMENDMENT) ORDINANCE, 2015: IMPACT ON LAW LAID DOWN IN BALCO, Singhania & Partners, Yaman Kumar & Gunjan Chhabra, (1st December, 2017) access at https://singhania.in/the-arbitration-and-conciliation-amendment-ordinance-2015-impact-on-law-laid-down-in-balco/
[3] The Report can be accessed here http://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf
[4] (2018) 6 SCC 287
[5] (2018) 6 SCC 287
[6] (2016) 5 SCC 1
[7] ICC issues updated Note providing guidance to parties, (19th December, 2018), https://iccwbo.org/media-wall/news-speeches/icc-issues-updated-note-providing-guidance-parties/
[8] (2009) 17 SCC 796
[9] Civil Appeal No. 8367 of 2018
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