Saturday, December 9, 2023

Recent Developments And Impact Of Changes In Arbitration

By Kiran Bhardwaj

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The law on arbitration in India has three enactments namely, The Arbitration Act, 1940, The Arbitration (Protocol and Convention) Act, 1935, and The Foreign Awards (Recognition and Enforcement) Act, 1961.

These laws have become outdated and the legislation introduced a Bill seeking to consolidate and amend the law relating to domestic arbitration, international commercial arbitration, and enforcement of foreign arbitral awards and to define the law relating to conciliation, taking into account the UNCITRAL Model Law and Rules. The Arbitration and Conciliation Act, 1996 came into force on 16.8.1996.

With efforts to promote international trade and to make New Delhi as a centre for International arbitration, several amendments were brought in the Arbitration & Conciliation Act as to establishment of Arbitration Council of India, exclusion of international arbitration from the mandate of Section 29A, the completion of written claim and defence to the claim in an arbitration proceedings within six months of the appointment of the arbitrators, confidentiality of proceedings, etc.  To make India as global hubs of arbitration across the globe with a view to speed up the resolution of the commercial disputes and to be cost effective with minimum Court intervention. In order to promote Institutional arbitration in India by strengthening Indian Arbitral Institutions both international and domestic arbitrations, Central Government  has set up High Level Committee and on the recommendations of the High Level Committee has introduced the Arbitration & Conciliation (Amendment) Bill 2018 in the Lok Sabha on 18th July, 2018, however, the Bill got lapsed and the Arbitration and Conciliation (Amendment) Bill, 2019 was passed and the Arbitration and Conciliation (Amendment) Act, 2019 came into force on 9th August, 2019. It contains provisions dealing with Domestic and international Arbitration and defines the law for conducting conciliation proceedings.

The Courts have been delivering judgments with a consistent mindset to save time and costs in arbitration.

Amendments In The Arbitration And Conciliation Act, 1996

A new term “Arbitral Institution” has been introduced in the Act which shall mean, an arbitral institution designated by the Supreme Court or a High Court under the Act. The Supreme Court and the High Court shall have the power to designate, arbitral institutions, from time to time, which have been graded by the Council, where no graded arbitral institution are available, then the Chief Justice of the concerned High Court may maintain a panel of arbitrators for discharging the functions and duties of arbitral institution and may review the panel of arbitrators from time to time.

The appointment shall be made, on an application of the party, by the arbitral institution designated by the Supreme Court, in case of International Commercial Arbitration, or by the High Court, in case of arbitrations other than international commercial arbitration, as the case may be. The parties are free to agree on a procedure for appointing the arbitrator/s (within 30 days from the receipt of a request to do so from the other party), however, in absence of any agreement, each party shall appoint one arbitrator and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator. In case, the two arbitrator fails to agree on the third arbitrator within 30 days from their date of their appointment, after the amendment comes into force, the appointment shall be made, on an application of the party, by the arbitral institution designated by the Supreme Court in case of International Commercial Arbitration, or by the High Court, in the case of arbitrations other than international commercial arbitration, as the case may be.

Interim orders under Section 17 cannot be applied for, once the arbitral award has been made.

The statement of claim and defence under Section 23 shall be completed within a period of six months from the date the arbitrator/s, receive notice, in writing of their appointment.

The Award in matters other than international commercial arbitration shall be made by the arbitral tribunal within a period of 12 months from the date of completion of pleading under Section 23(4) of the Act.

The award in International Commercial Arbitration may be as expeditiously as possible and Endeavour may be made to dispose of the matter within a period of 12 months from the date of completion of pleadings under Section 23(4).

An application for extension of time period can be made by the party and while extending the period, if the Court found out that the proceedings have been delayed for the reasons attributable to the arbitral tribunal, then it could order reduction of fee of the arbitrator.

After the amendment only the record of the arbitral tribunal can be used under Section 34 for taking recourse to setting aside of an arbitral award. Further, the legislature has added power to appeal under Section 37(1) and 50 of the Act.

A new Section, namely Section 42A and 42B has been introduced with regard to confidentiality of all arbitral proceedings except award where its disclosure is necessary for the purpose of implementation and enforcement of award and that no suit or other legal proceedings shall lie against the arbitrator for anything which is in good faith done or intended to be done under this Act, or the rules or regulations made thereunder.

A new part, i.e. Part 1A has been introduced in the Act for establishment of Arbitration Council of India. After the amendment, in a matter in respect of which the parties have made an agreement referred to in Section 44, the judicial authority may, at the request of one of the parties claiming through or under him can refuse to refer the parties to arbitration even if it prima facie finds that the said agreement is null and void, inoperative and incapable of being performed. There are amendments in the qualifications and experience of Arbitrator. The new amendment repelled Section 26 of the Act.

The positive change is that Courts has started enforcing Award. Time line under the Arbitration Act and will no longer will be pending and with minimum intervention by the Court.

The Supreme Court in its judgment as reported in the case of “BCCI Vs. Kochi Cricket, (2018) 6SCC 287 and Hindustan Construction Vs. UOI, 2019 SCC online 1590 has dealt with the issue of retrospective effect of the 2015 amendment and the changes made by the 2019 amendment to overcome the BCCI decision.

Recent trends in Arbitration:

Commercial arbitration is the preferred mode of dispute resolution for complex commercial disputes. The judicial system has been burdened with huge backlog of cases and the pending matters take more time to be decided. The arbitration clauses in their standard form contracts are used mostly in government entities and public sector undertakings.

Recent trends in Arbitration are with regard to time limits and less time taken in resorting the dispute, encouraging Institutional arbitration, discouraging filing frivolous applications challenging arbitral awards, narrowing the court intervention both at the pre-arbitration and post-arbitration stage and arbitration being cost effective. The executive has also sought to bring about efficiencies in arbitration involving government entities by encouraging ministries to comply with arbitration awards.

The parties are free to choose the procedure under which their disputes are to be settled by choosing the dates and to set block dates for trial and hearing.

The Parties can choose their Arbitrator with specialist knowledge which is useful in disputes involving technical matters.

However, in limited circumstances where judicial intervention is permitted, it continue to be a problem primarily due to the severe backlog of cases, and the time taken to dispose of matters. Then, there is lack of a specialist arbitration bar and the hearings in some arbitrations are conducted after court hours and it goes on for days and months. There is reluctance of the parties, Advocates and Courts to appoint arbitrators from outside the pool of retired judges and is like an extension of the court system with arbitrators willing to apply the procedural rules and they are expensive and busy. There is lack of proper transcription facilities in India and hearing takes longer than they should and reduces cost and time efficiencies of arbitration.

Some of the Challenges to arbitration:

After an award has been made, either it is challenged under Section 34  of the Arbitration Act or to enforce the Award under Section 36 of the Arbitration Act.

The Arbitration award is mandated to be stamped as per the Indian Stamp Act, 1899 as per Section 3 read with Section 17 and Schedule (Article 12) of the Stamp Act of domestic Arbitration Award. Award being a Domestic Award which is unstamped/ insufficiently stamped as per the provisions of the Stamp Act (Section 33 of the Stamp Act) or under Section 17 of the Registration Act.  

In the case of M. Anasuya Devi Vs M. Manik Reddy (2003)8 SCC 565, the Hon’ble Supreme Court held that this issue was premature at that stage. Section 34 of the Act provides for setting aside of the award on the grounds enumerated therein.  It is not in dispute that an application for setting aside the award would not lie on any other ground, which is not enumerated in Section 34 of the Act. The question as to whether the award is required to be stamped and registered would be relevant only when the parties would file the award for its enforcement under Section 36 of the Act. It is in the ambit of Section 47 of the Code of Civil Procedure and not covered by Section 34 of the Act. In view thereof, the Court referred certain question of law to a larger bench, so that the law regarding this issue could be finally decided. Hence, at present the law pertaining to impounding of an unstamped domestic arbitration award in a Section 34 proceeding, has not been settled. Further, the Supreme Court in Anasuya case does not deal with Section 33 of the Stamp Act which is mandatory in nature and no exception has been made by the legislature and therefore, the lower courts cannot be bound by an issue which was not raised or decided, and also precluded by the doctrine of sub-silentio.

With regard to Section 35 of the Stamp Act, unless the stamp duty and penalty due in respect of the instrument is paid, the court cannot act upon the instrument. Therefore, unless the stamp duty and penalty due on the Award is duly paid, the Court cannot hear the challenge to set aside the Award and also cannot enforce the Award. Thus, the proceedings would be deferred under the Arbitration Act, for an indefinite period till a duly stamped Award is returned to the Court.

S.29 A: Scope & Ambit By introduction of Section 29-A, the Legislature has sought to introduce fixed time lines for conclusion of arbitral proceeding.

The Arbitration & Conciliation (Amendment) Act, 2015 have brought sweeping changes to make arbitration a preferred mode of dispute resolution of commercial disputes to make it more expeditious and cost effective.

The Amendment has brought with several controversies in so far as the interpretation and applicability of various amended provisions. One such amended provision is with regard to the interpretation and implementation to Section 29A. With the introduction of Section 29A, the Legislature has sought to introduce fixed time lines for conclusion of arbitral proceedings with a view to ensure timely completion of the proceedings and to avoid delay of arbitral proceedings prior 2015.

Section 29A(3), the Legislature has provided a further extension with the consent of parties, and in case the parties are not being at ad idem or further extension is needed, has empowered the Court in S. 29A(5) to further extend the time period for completion of arbitral proceedings. The Amendment also empowered the Court under Section 29A (6) to substitute all or any of the Arbitrators, as the case may be. The question emerged as to which would be the Court for the purpose of deciding applications under Section 29A (5) & (6). It would then attract definition of ‘Court’ in Section 2(1)(e) of the Act for domestic arbitrations as “being the principal of Civil Court jurisdiction of original jurisdiction in a district, and includes the High Court in exercise of its ordinary civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any civil court or a grade inferior to such principal Civil Court, or any Court of Small Causes.”

The Ld. Single Judge,Delhi High Court in the case of  DDA Vs. Tara Chand case(OMP(Misc.) (Comm) 236/2019, decided on 12.5.20, has held that the term ‘Court’ in the context of Section 29A of the Act, would be a Court which has the power to appoint an Arbitration under S.11 of the Act and an application under Section 29A of the Act seeking extension of the mandate of the Arbitration would lie only before the Court which has the power to appoint Arb. Under Section 11 of the Act and not with the Civil Courts. 

The controversy may need to be re-visited for future arbitration when the 2019 Amendments to S. 11 of the Act are notified as the appointing Court would no longer be the High Court or the Supreme Court.

The Author is Advocate-On-Record in the Supreme Court of India

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