This article is written by Manasvi Ahuja, pursuing a Certificate Course in Arbitration: Strategy, Procedure and Drafting from Lawsikho.com.
Table of Contents
The Arbitration and Conciliation (Amendment) Act, 2019 brought along some paramount changes to the arbitration regime in India. With an aim to make the domestic arbitration proceedings friendlier and faster, the amendment also ensured to make India a hub for International commercial arbitrations while emphasizing on institutionalising arbitration in the country.
Perhaps the most notable takeaway from the 2019 Amendment would be the insertion of Section 42A in the Act. This section replicates the language of Section 75 of the Arbitration and Conciliation Act, 1996 which provides for maintaining confidentiality in conciliations. Section 42A, however, provides that notwithstanding anything contained in any other law for the time being in force, the arbitrator, the arbitral institution and the parties to the arbitration agreement shall maintain the confidentiality of all arbitral proceedings except award where its disclosure is necessary for the purpose of implementation and enforcement of the award.
Concept of confidentiality
Privacy and confidentiality can very well be understood to be the cornerstones of an arbitration proceeding at every stage. However, it becomes imperative to distinguish privacy from confidentiality as the former is a narrower concept than the latter.
Privacy may as well mean no third-party intervention in the arbitration proceedings. This means that except for the parties involved in an arbitration, a third party cannot attend arbitral conferences and hearings. Confidentiality, on the other hand, places a duty on the parties to not reveal any information pertaining to a proceeding to a third party or the public in general. Therefore, confidentiality places a larger burden on the parties to an agreement by specifically disallowing them to share information with third parties. It’s because of the aspect of confidentiality that arbitration is considered to be the preferred way of dispute resolution over litigation.
Section 42A encompasses this concept of confidentiality and places an obligation on the parties, the arbitrator, and the arbitral institution to maintain confidentiality of all arbitration proceedings. However, the language of the provision also makes it clear that there is an exception to the rule of confidentiality when it comes to the arbitration award, which can be disclosed for setting aside proceedings or for the purpose of enforcement.
B.N. Srikrishna J. Committee’s Report (“HLC Report”)
The insertion of a confidentiality provision in the Act was a recommendation in the report by a high-level committee chaired by Justice B.N. Srikrishna (HLC Report). The committee submitted its report on August 3rd, 2017 and the 2019 Amendment tried to accommodate the recommendations made in the HLC Report.
Among several others, the report had suggested a new provision providing for confidentiality of arbitral proceedings unless disclosure is required by:
(a) a legal duty,
(b) to protect or enforce a legal right, or
(c) to enforce or challenge an award before a court or judicial authority.
It is abundantly clear that the language of Section 42A derails from the recommendation made by the HLC Report. While the recommendation by HLC carefully scrutinized the specific circumstances where confidentiality might have to take a step back, Section 42A simply limits itself to the disclosure of award for its implementation and enforcement. This implies that everything else in an arbitration proceeding including evidence, arguments, etc. cannot be disclosed or relied upon in subsequent court proceedings.
Moreover, Section 42A is a non-obstante clause which means that it overrides the effect of a contrary law and makes it mandatory for the parties to abide by the provision. This dispossesses the parties of their autonomy, something that wasn’t included in the HLC Report recommendations, either.
Hong Kong’s Arbitration Ordinance (“HKAO”)
The HLC Report relied on Hong Kong’s Arbitration Ordinance (HKAO) while recommending the insertion of a confidentiality provision in the Act. Hong Kong also happens to be one of the few jurisdictions that explicitly provides for statutory protection over confidentiality in arbitration. The scope of confidentiality is worded very widely preventing the disclosure of even the existence of arbitration proceedings.
However, HAKO also lays down exceptions to this rule including mandatory legal disclosures, disclosure necessary for enforcing a right, and disclosure in course of challenging the arbitral award.
Clearly, Section 42A has departed from the provision of confidentiality laid down in HKAO and the committee’s recommendations. The larger opinion with respect to Section 42A reflects that this departure has only opened the floodgates of confusion and chaos which will be analysed later in this article.
Insertion of Section 42A by the 2019 Amendment
Encapsulating the recommendations suggested in the HLC Report, The Arbitration, and Conciliation (Amendment) Act, 2019 came into force on the 9th of August, 2019 and was passed as Act no. 33 of 2019. Certain sections of the Act were notified on 30th August, 2019. The 2019 Amendment proposed the insertion of one of these provisions, Section 42A in the Act providing for confidentiality of the arbitration proceedings.
Before the insertion of this clause, parties used to fall back on any confidentiality clause in the arbitration agreement or the rules of the institute of arbitration. Therefore, an express provision for maintaining the confidentiality of the arbitration proceedings was much needed.
Section 29A vis-a-vis Section 42A
Section 29A was inserted in the Act by way of the Arbitration and Conciliation (Amendment) Act, 2015 with a view to making arbitration proceedings speedier, cost-effective and to disincentivize judicial interference. The provision mandates for an award to be passed within 12 months from when the tribunal enters upon the reference and the parties may extend this time to an additional 6 months. The 2019 Amendment proposed amendments to subsection (1) of 29A. Firstly, it excludes international commercial arbitrations from the purview of the timeline provided in this section. Secondly, the time limit for other arbitrations was changed to 12 months after the completion of pleadings from the existing period of 12 months from when the tribunal enters upon the reference.
It must be noted that if the award is not passed within the timeline that is stipulated under Section 29A, the only alternative left is to approach the Court. At this juncture, there appears to be a conflict between Section 29A and Section 42A.
Once the party appears before the Court, all documents submitted with respect to the dispute become a part of the public domain. Essential details, evidence, nature of the arbitration, etc. are bound to be disclosed in court proceedings. This is not just in violation of Section 42A of the Act but also the very fundamentals of alternate dispute resolution mechanisms.
This tussle also highlights a big lacuna in the language of Section 42A as it only provides for the disclosure of the arbitral award if necessary. However, when judicial interference comes in the way, it automatically becomes mandatory for all other relevant information involved in an arbitration proceeding to be disclosed. An example could be the difficulty in abiding by the confidentiality clause while preparing an application under Section 9 or Section 27 of the Act.
Resolving the conflict between Section 29A and Section 42A
In cases where there is a conflict between two parts of a statute, the rule of harmonious construction is applied. In the words of the Apex Court, “When there are, in an enactment two provisions which cannot be reconciled with each other, they should be so interpreted, that if possible, effect should be given to both”. The purpose and intent of the statute as a whole should be considered while harmonising the conflicted provisions.
The Court in the case of CIT v. Hindustan Bulk Carriers laid down the five principles of harmonious construction-
- The courts must avoid a ‘head of clash’ of contradictory provisions and they must construe the contradictory provisions so as to harmonize them.
- When it is not possible to completely reconcile the differences in contradictory provisions, the court must interpret them in such a way so as to give effect to both provisions as much as possible.
- Courts must keep in mind that the interpretation which reduces one provision to a useless standing is against the essence of ‘Harmonious Construction’.
- To harmonize the provisions is not to render them fruitless or destroy any statutory provision.
- The provision of one section cannot be used to render useless the other provision, unless the court, despite all its efforts, finds a way to reconcile the differences.
It is yet to be seen how the Court will use this rule to interpret Section 29A vis-à-vis Section 42A of the Arbitration Act.
While the insertion of Section 42A by way of the 2019 Amendment fills the vacancy that the absence of a confidentiality provision had created in the Act, it is essential to recognise and acknowledge that the vague language of the provision paves way for pitfalls that need to be clarified by the judiciary. The 2019 Amendment is credited for bringing about a positive change in the arenas of arbitration. However, it is because of unclear provisions such as section 42A that the legislature falls short in trying to make India an arbitration-friendly country.
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