In this article, Bhargav Chetankumar Thakkar who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, discusses  Delhi High Courts Rules On The Amended Provisions Of The Arbitration And Conciliation Act, 1996.

Introduction

• The amendments made under various sections of the Arbitration and Conciliation Act, 1996 (the “Act”) and rules made thereof, have recently been enforced by the Delhi High Court (“Court”). It was held by the Court, with respect to the pro-arbitration approach that the choice of a foreign law or a foreign seat or foreign institutional rules does not amount to implied exclusion of Section 9 of the 1996 Act.
• The Court demonstrated its pro-arbitration approach in adopting an effective and purposive interpretation of the provisions to further the intention of the legislature regardless of an apparent lacuna in the law so as to make the provisions of the Amendment Act effective immediately.
• Further, in Picasso Digital Media Pvt. Ltd (“Picasso”) v Pick-A-Cent Consultancy Service Pvt. Ltd (“Pick-A-Cent”) the court held that the Court would necessarily have to appoint an arbitrator where a valid arbitration agreement has been entered into by the parties. The arbitrator would examine any allegations as to arbitrability of the dispute or the jurisdiction of the tribunal and not by the court.
• The Court, in the Dream Valley Farms Pvt. Ltd & Anr. (“Dream Valley”) v Religare Finvest Ltd & Ors. (“Religare”) on the grounds held that the arbitrator presiding over the arbitral proceedings had made misleading disclosures, entertained a petition seeking an appointment of the arbitrator. There was a mandatory obligation on a person approached in connection with the appointment of an arbitrator to disclose any circumstances which were likely to give rise to justifiable doubts as to his/her impartiality of the independence as per the emphasis of Court on the amendments made to Section 12 and 13 of the Act. In same manner the Court also give some significant lead to the Law Commission for amendment to the act through the Judgement in the case of Sri Krishna vs Anand.

The significant cases as mentioned hereinabove are discussed in brief as follows.

The Delhi High Court has given such rules to amendment provisions of the Act through the various judgements in the following cases:

1. Raffles Design International India Pvt. Ltd. vs. Educomp Professional Education Ltd

• In Raffles Design International India Private Limited and Ors V Edu comp Professional Education Limited and Ors, the High Court of Delhi held that an award passed by an emergency arbitrator seated outside India will not be enforceable in India. The party will have to file a suit under Section 9 to enforce such an award.
• They have stated a relevant part as follows: ““It is relevant to mention that Article 17H of the UNCITRAL Model Law contains express provisions for enforcement of interim measures.
• However, the Act does not contain any provision parameter to Article 17H for enforcement of interim orders granted by an Arbitral Tribunal outside the India. Section 17 of the Act is clearly not applicable in respect of arbitral proceedings held outside India.
• The Court clarified that Section 26 of the Amendment Act is in two parts, the first couched in negative form, and the second in the affirmative. Relying upon the decision of the Supreme Court in Thyssen Stahlunion Gmbh v. Steel Authority of India273, the Court observed that the usage of the word ‘to’ in the first limb instead of ‘in relation to’ clearly restricts the import of the first limb of Section 26.
• The Court therefore holds that the use of the phrase “in relation to” indicates that the legislature intended the second limb of the provision to have a wider sweep thus covering all proceedings connected to arbitral proceedings, and that therefore the amendments would apply to Court proceedings instituted post commencement of the Amendment Act.

In coming to such a conclusion, the Court has upheld recent judgments of the Madras High Court274, the Bombay High Court275 and the Calcutta High Court276which came to similar conclusions.

• The Court however, also observed that the two limbs of Section 26 of the Amendment Act are not exhaustive as the first limb refers only to proceedings commenced in accordance with Section 21 (found in Part 1) of the 1996 Act, and that therefore Section 26 is silent regarding applicability of the Amendment Act to proceedings which are not expressly indicated therein.
• Due to the lack of any express indication as to the applicability of the Amendment Act to arbitrations instituted outside India, the Court adopts a purposive interpretation, sets out the legislative intent behind the Amendment Act, and holds that even in cases where there is no express provision regarding retrospective applicability of the new law, the Courts should look to further intention of the legislature.
• Considering that the very purpose of the amended Section 2 (2) of the 1996 Act was to enable a party to approach Indian Courts for interim relief even in foreign seated arbitrations, the Court clarifies that the position regarding non-applicability of Part I of the 1996 Act in foreign seated arbitrations, as held in Bharat Aluminum Company Vs. Kaiser Aluminium Technical Services Inc., stands amended as far as Section 2 (2) of the 1996 Act is concerned and that parties now have recourse to Section 9 of the 1996 Act even in foreign seated arbitrations. The Court, therefore, allowed the Petition and made it clear that the choice of a foreign law or a foreign seat or foreign institutional rules does not amount to implied exclusion of Section 9 of the 1996 Act.

The question of law regarding the retrospective applicability of the Amendment Act to arbitral proceedings vis-à-vis court proceedings however, is currently pending before the Supreme Court.

2. Picasso Digital Media Pvt. Ltd. v. Pick-A-Cent Consultancy Services Pvt. Ltd

• On July 1, 2009, there was a Memorandum of Understanding (“MoU”) between Picasso and Pick-A-Cent, according to which Picasso was to grant Pick-A-Cent a franchisee of the “Picasso Animation College” in Bangalore. The disputes arising from the agreement were to be referred to a sole arbitrator as mentioned in the MoU.
• The existence of a valid MoU or arbitration agreement was not contested by either party, but there was an allegation by Pick-A-Cent that Picassso had made certain misrepresentations regarding ownership of intellectual property transferred between the parties. Pick-A-Cent argued that allegations of fraud must be settled in Court and not through arbitration relying on N. Radhakrishnan v M/s Maestro Engineers & Ors.
• The Court noting that the decision cited had been passed prior to the amendments to the Act denied the claim. Sub- section 6A of Section 11 under the amended Act, requires that the court should confine its examination of petitions under Section 11 to the existence of an arbitration agreement.
• The court, at this stage of proceedings, observed that it was impossible to examine whether Pick-A-Cent has a justified claim of fraud against Picasso which arbitrator in the arbitration proceedings would have to determine. Thus, the court was bound to appoint an arbitrator as long as the parties agreed about the existence of an arbitration agreement.

The Court restricted itself to only examining the existence of an arbitration agreement, even though the Respondent had raised a defence that Petitioner’s claim was based on allegations of fraud which were non arbitrable according to the Respondent.

• Rather than towing the line of the Supreme Court in Swiss Timings Ltd. v. Commonwealth Games Organizing Committee, wherein the Supreme Court in an application under Section 11 of the 1996 Act for appointment of an arbitrator, had held that even allegations of fraud are arbitrable, in the present case, the Delhi High Court has left it upon the arbitral tribunal to adjudicate upon its jurisdiction in line with the internationally recognized ‘Kompetenz Kompetenz’ doctrine.

3. Dream Valley Farms Pvt. Ltd. v. Religare Finvest Ltd

• A sole arbitrator was appointed in pursuance of the arbitration proceedings started by the Dream Valley and Religare. The arbitrator was required to disclose in writing any circumstances that were likely to give rise to justifiable doubts as to the his independence or impartiality as per the amended Section 12, sub-clause (1).
• The arbitrator in the declaration in the format of the Sixth Schedule of the amended Act, stated that he had been presiding over 20 arbitrations out of which a majority formed a part of disputes in connection with the group companies without mentioning their connection to Religare.
• A further disclosure after the commencement of the proceedings by the arbitrator revealed that he had been appointed by Religare in twenty matters, where in fact he was serving as an arbitrator in twenty-seven matters related to Religare. Dream Valley instead of initiating a process of challenging the appointment of the arbitrator under Section 13, filed the present petition under Section 11 for appointment of a new impartial arbitrator.
• The Court held that the arbitrator to stringent and onerous obligations of disclosure that the amended Act has introduced. While the obligation to disclose had existed prior to the amendment, it remained at the discretion of the arbitrator acting in good faith. The amended Section 12 has defined the obligation to narrow down the scope of discretion resting with arbitrators.
• Further, the Fifth Schedule has identified specific circumstances which give rise to justifiable doubts as to the independence, in the present case the arbitrator had contravened Clauses 22 and 24 of the Fifth Schedule while misleading Dream Valley- suppressing facts that ought to have been disclosed in the first instance, having the option of application under Section 13 in the normal course.
• Thus, the Court held noting that the arbitrator had become de jure disqualified from continuing in his position in terms of Section 14(1)(a) of the Act, having his mandate terminated accordingly. The Court thus deviated from the procedure established under the Act which may lead to a situation where parties come forth with petitions for appointment of arbitrators and contest removal of the serving arbitrators thereunder.

4. Sri Krishan vs. Anand

• The amended section 12(5) has now mandated that arbitrator cannot be appointed if the arbitrator and any of the parties to the dispute are in a relationship which falls under the categories mentioned in the Seventh Schedule of the Act. Thus, employees cannot be appointed as arbitrators by the government or private companies under the amended law.
• The case of Assignia –VILJV v Rail Vikas Nigam Ltd further solidified the position of law. High Court of Delhi decided the case by placing reliance on Section 12(5) of the Amended Act and further held that in-house arbitrators can no longer be said to be impartial. The importance of compliance with the Seventh Schedule was stressed by the judgement while appointing the arbitrators was stressed by the court.
• For the arbitration agreement been entered into before 2015 Amendment i.e 23^rd October, 2015, the judgement reflects that if the dispute arises after the Amendment Act, then Section 12(5) will apply and the arbitrator to be appointed will have to be in compliance with the Seventh Schedule.

The case of Sri Krishan v Anand made Delhi High Court to resolve the lacuna of Section 17 as mentioned by laying down the principle that any person falling to comply with the order of the tribunal under section 17 would be deemed to be “making any other default” or “guilty of any contempt to the arbitral tribunal during the conduct of the proceedings” under section 27 (5) of the 1996 Act.

• The aggrieved party can apply to the arbitral tribunal for making a representation to the Court to mete out appropriate punishment for a remedy. The Court once the representation is received from the arbitral tribunal would be competent to deal with such party in default as it is in contempt of an order of the Court i.e either under the provisions of the Contempt of Courts Act, 1971 or under the provisions of Order Rule 2A of the CPC.
• The 2015 amendment has gone ahead of the Model Law even though arbitration agreement has limited scope of the arbitral tribunal in passing interim orders has ensured that the interim orders of the arbitral tribunal will be enforceable as an order of the Court under the CPC.
• There has been a deletion of the words “in respect of the subject matter of the dispute” in this amendment and also powers have been granted to the arbitral tribunal to pass an interim measure of protection which it feels is just and convenient. A party can approach an arbitral tribunal for interim measures of protection not only during the arbitration proceedings, but also after the making of the award under Section 17(1).
• Hence, power is given to the arbitral tribunal for retaining the jurisdiction to order interim measures even after it has made a final award. An inconsistency exists for the above mentioned power of the arbitral tribunal as it is in conflict with Section 32 of 1996 Act that provides the determination of the mandate of arbitral tribunal after making the final award.
• Thus, on the arbitral tribunal ceasing to have jurisdiction after passing the final award, it is inconceivable of determining how it would have the power to order interim measures after making the final award. The conflict is expected to be rectified by appropriate amendments to Section 32.
• Further, Section 9 has been made available subject to relief under Section 17 of the 1996 Act. The amount of intervention by the judiciary in terms of interim measures is reduced by the insertion of Section 9(3). The powers under Section 9 and 17 could be exercised concurrently which was a danger.
• If an express change was given, ordinarily Section 9 proceedings will not be available to the parties during the pendency of the arbitration. The measures can be resorted to when Section 17 proceedings are ineffective. A party which will specifically plead would prefer an application seeking interim measures from the Court under Section 9.
• It was held in Sri Krishan v Anand by the Delhi High Court that a person failing to comply with an order of arbitral tribunal then the remedy of the aggrieved party would be to apply to the arbitral tribunal for making a representation to the Court to mete out appropriate punishment.

The report by Law Commission held that the judgement of the Delhi High Court in Sri Krishan v. Anand is not a complete solution and recommended amendments to Section 17 of 1996 Act due to which the orders of the Arbitral Tribunal would be enforceable in the same manner as Orders of a Court.

The remedies of enforceability of interim measures under Section 17 are provided in the 2015 Act. The main aim of the above amendments to Section 9 of the 1996 Act are to ensure that parties ultimately resort to the arbitration process and get their disputes settled on merit through arbitration.

Analysis

The following steps have been undertaken by the Court for giving effect to the amended provisions of the Act,

The Court in the case of Raffles Design International India Pvt. Ltd. vs. Educomp Professional Education Ltd demonstrated its pro-arbitration approach in adopting an effective and purposive interpretation of the provisions to further the intention of the legislature regardless of an apparent lacuna in the law so as to make the provisions of the Amendment Act effective immediately. Such an approach adopted by Courts would go a long way in enhancing the effectiveness of the alternate dispute resolution scenario in India. Parties can now choose a foreign seat and foreign law and still retain the benefit of seeking recourse to Indian courts for interim measures.

The Court in the case of Picasso Digital Media Pvt. Ltd. v. Pick-A-Cent Consultancy Services Pvt. Ltd restricted itself to examining only the existence of an arbitration agreement, even though according to the Respondent, the Petitioner’s claim was based on allegations of fraud which were non-arbitrable.

The Delhi High Court in the present case has left it upon the arbitral tribunal to adjudicate upon its jurisdiction- in line with the internationally recognized competenze-competenze doctrine, rather than towing the line of the Supreme Court of India (“Supreme Court”) in Swiss Timings Ltd. v Commonwealth Games 2010 Organizing Committee, wherein the Supreme Court in an application under Section 11 of the Act for appointment of an arbitrator held that even allegations of fraud are arbitrable.

The Court in the case of Dream Valley Farms Pvt. Ltd. v. Religare Finvest Ltd. held that the arbitrator to stringent and onerous obligations of disclosure that the amended Act has been introduced. Though the obligation to disclose existed prior to the amendment, it remained at the discretion of the arbitrator acting in good faith. The obligation to narrow down the scope of discretion resting with arbitrators has been defined in the amended Section 12. There are specific circumstances identified which gives rise to justifiable doubts as to the independence in the Fifth Schedule. Disclosure would be compulsory and not at the discretion of the arbitrator in the cases of circumstances that fall within the Fifth Schedule.

However, before the removal of the serving arbitrator, in the second case, the Court had admitted a petition for appointment of an arbitrator. For removal, Dream Valley should have filed an application under Section 13 of the Act. Thus, there comes a situation where parties come forth with petitions for appointment of arbitrators and contest removal of the serving arbitrators thereunder when court deviates from the procedure established under the Act.

Thus, the approach of the Court towards implementing the amendments to the Act as well as its support in affirming the best practices of arbitration is commendable.

Conclusion

From the above-mentioned legal propositions, the following conclusion can be drawn,

• While deciding an application for appointment of an arbitrator, the scope of inquiry must be confined to the existence of an arbitration agreement.
• It has been ruled that the arbitrators prior to their appointment are ought to make active disclosures about any relations with the parties in the arbitration that may give rise to justifiable doubts about their impartiality or independence.
• The amendments have made disclosures in terms of the Fifth Schedule of the Act mandatory even though disclosure was at the discretion of the arbitrators in the pre-amendment regime.