PROPOSED AMENDMENT TO INDIA’S ARBITRATION LAW: WILL IT HAVE THE DESIRED EFFECT?
The Arbitration and Conciliation Act, 1996 (the “Act”), was enacted by the Parliament of India to consolidate and amend the law relating to domestic arbitration and enforcement of foreign awards. One of the main objectives of the Act was to minimise the supervisory role of courts in the arbitration process. However, in our view, this objective has not been achieved, and courts’ interference has defeated the very purpose of having arbitration as a mode of alternate dispute resolution.
In view of the above, the Law Commission of India’s Report No.246 dated August 2014 has proposed certain amendments to the Act (“Proposed Amendment(s)”) in an attempt to achieve fairness, speed and economy in resolution of disputes through arbitration.
Our views are based on our analyses of the main provisions of the Proposed Amendments and their impact.
The Proposed Amendment to Section 7 of the Act attempts to widen the scope of an arbitration agreement. It is proposed that an arbitration agreement can even be entered electronically, and it is valid to have oral arbitration agreement or arbitration agreements by conduct.
Even a proposed arbitration clause exchanged between parties (by way of drafts) for a prospective transaction may also constitute as an arbitration agreement. This by itself may dissuade the parties from including an arbitration clause in the drafts undergoing negotiations.
Reference to Arbitration
The Proposed Amendment to Section 8 of the Act precludes a court from referring parties to arbitration only on two (2) grounds, namely, (i) the parties to the court proceedings are not parties to the arbitration agreement; or (ii) where the court finds that the arbitration agreement did not exist or was null and void.
Further, although, Section 7 of the Act discusses the concept of “the dispute being incapable of settlement by arbitration”, no attempt is made by the Proposed Amendments to either define or clarify as to what matters would be included or excluded from its scope or meaning. This may invite conflicting decisions from various courts.
Commencement of arbitration proceedings
Under Section 21 of the Act, arbitration proceedings are deemed to commence on the date when one party requests the other party to refer the dispute to arbitration. There is no amendment made to Section 21 of the Act through the Proposed Amendments, although the Proposed Amendments to Section 9 of the Act provides that interim reliefs granted by the courts would cease to operate if arbitration proceedings do not commence within sixty (60) days from the date of granting such interim relief. It is obvious that a party having obtained an order of interim relief in its favour may not commence an arbitration process and leave it for commencement at the end of the sixty (60) day period, which in a larger context would slowdown the overall arbitration process, which clearly is not the legislative intent. This amendment may motivate the party (having an order of interim relief) to slow down or deliberately waste time. It may have been better if the Proposed Amendment mandated the parties to commence arbitration within a much lesser time frame once an interim order was granted under Section 9 of the Act.
Appointment of Arbitrator
As per Section 11 of the Act, the power to appoint arbitrator(s) is vested only with the Chief Justices of the respective High Courts across different States of India. By the Proposed Amendment to Section 11 of the Act, even Judges other than the Chief Justices of the High Courts have been given similar powers for appointing arbitrator(s). Further, it is provided under the Proposed Amendment to Section 7 that no appeal would lie from such decision of the High Court of appointing arbitrators. By expressly barring the right of appeal, “judicial review” which is a fundamental concept under the Indian Constitution has been overlooked. Besides the foregoing, it is provided under the Proposed Amendment Section 6A that a request for appointment of the arbitrator can be rejected by the High Court, only if the High Court finds that an arbitration agreement did not exist between the parties or it is null and void.
The Proposed Amendments fail to clarify whether the decisions of High Courts under Section 11 of Act are “judicial decisions” or “administrative decisions.” A reading of the Proposed Amendments made to Section 11 of the Act suggests that the decisions of High Courts for appointing arbitrators are “administrative” rather than “judicial” in nature, given the fact that no appeal would lie from such decisions. Considering that the High Courts are already overloaded with judicial matters, it would have been a better approach to exempt the High Courts (being superior and constitutional courts) from giving such administrative decisions, which power could have been vested with another institution or government agency. Further, to safeguard the interests of parties, a right of appeal against such orders should have been provided for, primarily, with a view to uphold the spirit of the Constitution of India.
Setting Aside of Award
Under the Proposed Amendments, another ground has been added for challenging, namely, an award suffering from patent illegality. Further, the Proposed Amendments specify that the award cannot be set aside merely on the ground that there has been an erroneous application of law. In our view, this particular amendment may face constitutional challenge when it is introduced.
Besides the above, it is proposed that a self-operative stay (under Section 36 of the Act) on the enforcement of a domestic arbitration award upon filing of the application for setting aside the award has been removed. However, in the absence of a self-operated stay, every party filing an application for setting aside of an award would need to make a separate application to the court seeking a stay on enforcement which the courts would be obliged to hear. The impact of this change would be that the courts may be burdened with hearing more of such separate applications seeking stay on enforcement, which may add to the burden of judicial cases pending before the courts and cause further delays to the entire judicial process.
At a macro level the Proposed Amendments may be seen as taking positive steps and boosting investor confidence in the Indian arbitration system, as the Proposed Amendments make an attempt to theoretically amend the Act, to bridge the lacunas in the Act, as also to reinforce arbitration as being preferred mode of dispute resolution mechanism in India. However, in our view, a few (if not all) of the Proposed Amendments lacks practical thinking, namely, (i) inability to file an appeal against appointment of an arbitrator; (ii) allowing a party sixty (60) days (from the date of obtaining interim reliefs) to commence arbitration proceedings; and (iii) removal of the self-operative stay (under Section 36 of the Act) on enforcement of domestic awards may increase filing of more applications seeking a stay on enforcement thereby the courts being more burdened with judicial matters.
It may be interesting to see, the impact the Proposed Amendments would have once they are promulgated as law, and whether the Act (post these amendments) would succeed in attracting parties (including foreign parties) to resort to arbitration as an alternate dispute resolution in India.