This article is written by Yash Kapadia, Advocate, Bombay High Court, pursuing Certificate Course in Advanced Civil Litigation from LawSikho.

Arbitration, at its core, is a form of dispute resolution, the private and judicial determination of a dispute by a third party. The process of institutional arbitration in India by strengthening Indian arbitral institutions has been identified as critical to the dispute resolution mechanism in India. In order to make India a robust centre for institutional arbitration (domestic and international), the Central Government had constituted a High-Level Committee under the Chairmanship of Justice B.N. Srikrishna suggested ways to strengthen institutional arbitration in our country. 

In this article we discuss:

1. History of Arbitration Act.
2. Key Amendments to the Act in 2019 and analyzing them.

History of the Arbitration Act

• The evolution of the Arbitration Act dates back to 1940 under the British Regime when “The Arbitration Act, 1940” (Old Act) came into force on 11th March 1940 with its application throughout India which then included Pakistan and Baluchistan. 
• The main purposes to enforce this act were: 

1. To give expeditious relief to parties which were not affected by the provisions laid down in the Civil Procedure Code 1908. 
2. To provide speedy remedies to parties.
3. To enforce the arbitration agreement entered into by the parties. 
4. To curtail litigation in courts and to promote the amicable settlement of disputes by a person, in whom, both parties have trust. 

• However, the Old Act failed to reflect any major changes and was regarded as out-dated and uneven when compared to arbitration mechanisms available to parties in developed countries. The Act also failed to give statutory recognition to conciliation as an alternative dispute resolution mechanism. 
• In 1996, the Indian Government enacted the “Arbitration and Conciliation Act, 1996” (1996 Act) focusing on both domestic and international arbitrations in order to modernize to the 1940 Act. 
• The main purpose of the 1996 Act was to encourage settling disputes between parties through Arbitration which served as a crash course and cost-effective method compared to litigation in order to settle commercial disputes. 
• After much clamour around the 1996 Act, the Supreme Court had efficiently construed that the 1996 Act had certain ambiguities and suggested amendments to be incorporated for the same. 
• Therefore, the Law Commission in its 246th Report titled as Amendment to Arbitration and Conciliation Act, 1996 suggested some major changes. The object for these changes was to expedite the arbitration process and reduce the intervention of courts in arbitral proceedings. The Arbitration and Conciliation (Amendment) Act, 2015 (2015 Amendment Act) was thereafter promulgated after receiving the President’s assent on 23rd October 2015. 
• According to a press release in July 2019, Law Minister, Ravi Shankar Prasad was quoted saying that the main purpose to amend the Arbitration and Conciliation Act 1996 is to make India a hub of domestic and international arbitrations by bringing changes in the law for faster resolution of disputes.1 Therefore, the Parliament received the assent of the President and the Arbitration and Conciliation (Amendment) Act, 2019 came into force on 30th August 2019. 

Key highlights of 2019 amendment and critical analysis

Insertion of Part 1A to the Act- The Arbitration Council of India 

The establishment and incorporation of an independent body namely, Arbitration Council of India (ACI) is for the purpose of grading of arbitral institutions and accreditation of arbitrators to be established by the Central Government and headquartered at Delhi. The ACI must consist of the following persons:

• A person who has been a judge of Supreme Court or Chief Justice of a High Court or Judge of a High Court or an eminent person, having special knowledge and experience in the conduct or administration of arbitration, who will be appointed by the Central Government in consultation with the Chief Justice of India. 
• An eminent practitioner and an academician having substantial knowledge and experience in the field of arbitration.
• The ex-officio members of the ACI would include the Secretary to the Government of India in the Department of Legal Affairs, Ministry of Law and Justice and Secretary to the Government of India in the Department of Expenditure, Ministry of Finance or their respective representatives not below the rank of Joint Secretary. 
• One representative of a recognized body of commerce and industry will be a part-time member.

The main duty and function of the ACI are to promote arbitration, mediation and other alternative dispute mechanisms and for that purpose to frame policies and guidelines as and more specifically provided under Section 43D. 

The ACI has also been entrusted to grade arbitral institutions on the basis of criteria like infrastructure, quality and calibre of arbitrators, performance and compliance of time limits provided for disposal of domestic and international commercial arbitrations. 

The establishment of ACI is a step closer to making India’s arbitration regime similar to other foreign arbitration-friendly jurisdictions and displays the intent of the legislature to promote institutional arbitrations. However, the ACI comprises Central Government officers appointed/ nominated by the Central Government itself thereby limiting party autonomy and affecting neutrality in the process of arbitration which is otherwise a private dispute resolution.

Section 11 – Appointment of arbitrators 

Section 11 has been amended and Section 11(3A) has been added which particularly states that the Supreme Court of India and the High Courts shall have the power to designate arbitral institutions which have been graded by the Arbitration Council of India under Section 43-I. 

This amendment has allowed the Supreme Court in cases of International Commercial Arbitrations and the High Courts in cases of domestic arbitrations to delegate the appointment of arbitrators to arbitral institutions graded by the ACI. 

The idea is that in place of the Hon’ble Courts stepping in to appoint arbitrators in cases where the parties cannot reach an agreement, the courts will delegate the same to arbitral institutions graded by the ACI. This is a positive approach which is also similar to what is practised in Hong Kong and Singapore. 

Section 23 & 29A – Timelines for proceedings and award

The addition of Section 23(4) has made it mandatory for parties to an arbitration to complete their pleadings within a period of six months from the date the arbitrator(s) receives notice in writing of their appointment. 

The amended Section 29A states that upon completion of pleadings, the arbitral tribunal must pass an award within a period of twelve months in matters other than international commercial arbitrations. The provision to this section states that in case of an international commercial arbitration an award may be made as expeditiously as possible and endeavour may be made to dispose of the proceedings within a period of twelve months upon completion of the pleadings. 

Completion of pleadings in a period of six months and passing an award within a period of twelve months may look good on paper but in cases of complex multi-party arbitrations, it becomes almost impossible. Oftentimes the procedure for discovery and inspection, particularly in complex arbitrations, would take more than six months. 

We need to consider the aspects of how parties require arbitrator(s) to assemble, give directions, conduct pleadings, and to disclose or not to disclose and another procedural wrangling with probable appeals to be filed under Section 37. Therefore, an arbitration to be completed within a period of a total of eighteen months is impossible in many cases. 

It is also pertinent to mention that the removal of the aforementioned time limit in cases of international commercial arbitrations is likely to influence foreign parties to choose a seat outside India’s jurisdiction i.e. foreign countries with a better regime. 

Section 42- Confidentiality 

As per the newly introduced Section 42A, the arbitrator, the arbitral institution and parties to the arbitration agreement shall have to maintain the confidentiality of all the arbitral proceedings except its award, where its disclosure is necessary for implementation and enforcement of the award.

This amendment may look good on paper again but what would happen in a case where a party would decide to file an appeal under Section 34? The details of the arbitration would no more be confidential amongst the arbitral parties in such scenarios when the issues reach the Hon’ble Courts. 

It is also pertinent to note the particulars of Section 43K. Section 43K states that it is mandatory for the Arbitration Council to store arbitral awards in an electronic depository which does not seem to be in consonance with Section 42A mentioned above. In my opinion, the Arbitration Council comprises five appointees by the Central Government and many times private parties may not be open to letting any third party have knowledge about the dispute or nature of the dispute or the award passed. 

However, the International Chamber of Commerce (ICC) had only released a note for parties and arbitral tribunals on the conduct of proceedings effective from 1st January 2019.2 Para 40-46 of this particular note under the heading of “Publication of Awards” stated that all awards made as from 1st January 2019 may be published in no less than two years post their notification. At any time the parties to the arbitration have the liberty to opt-out or object to the publication or require any award to be anonymised and the same would be complied with. Keeping this note by ICC in hindsight it is evident that India is making efforts in the area of publishing its awards at par with international institutions but certainties still lie in making Section 42A air-tight. 

Applicability of the 2015 Amendment Act – Section 87

Section 87 was introduced and parallel Section 26 was omitted by the 2019 Amendment Act in order to avoid any overlap between both the Sections. Section 87 had been inserted in order to clarify that the 2015, Amendment Act is applicable in cases where: 

• Arbitrations have commenced on and after the date on which 2015 Amendment came into force which is 23rd October 2015; and 
• Court proceedings arising out of or in relation to such arbitral proceedings. 

It was made crystal clear that the 2015 Amendment will not apply only to arbitral proceedings commenced before the commencement of the Arbitration and Conciliation (Amendment) Act, 2015 and to court proceedings arising out of or in relation to such arbitral proceedings even if they had been filed after the commencement of 2015 Amendment. 

This amendment negated the Supreme Court’s decision in BCCI v. Kochi Cricket Private Ltd., 2018 (BCCI Judgment) wherein the Hon’ble court held that 2015 Amendments would apply to all proceedings commenced on and after 23rd October 2015 even though the court proceedings pertained to arbitrations that had commenced before such date. The 2015 Amendments also got rid of the automatic stays on the execution of domestic awards when a challenge petition was filed under Section 34. This amendment, however, gave rise to the controversy whether the 2015 Amendment applied retrospectively or prospectively. 

However, the Supreme Court put the above lacunae to rest in Hindustan Construction Company Ltd. v. Union of India. The Hon’ble Court declared that Section 87 of the Arbitration and Conciliation Act, 1996 is manifestly arbitrary and must be struck down under Article 14 of the Constitution of India. The Court opined that the uncertainties with respect to 2015 Amendment’s applicability were put to rest in the BCCI Judgment and that the introduction of Section 87 is not justified. The Hon’ble Court also stated that the misconstruction of Section 36 i.e. when automatic stay on the execution of an arbitral award under challenge was allowed stood corrected after more than 19 years. The Hon’ble Court was of the view that the introduction of Section 87 would result in a delay in disposal of arbitrations and increased interference of the courts which defeats the very purpose of the Arbitration and Conciliation Act, 1996. 

Other Amendments

• The 2019 Amendment added Section 2(ca) defining the arbitral institution as an arbitral institution designated by the Supreme Court or High Court under this Act. 
• A new Eighth Schedule has been added which provides prerequisites for a person to be a qualified arbitrator. A major backburner of this schedule is that it only allows advocates enrolled under the Advocates Act, 1961 to qualify as an arbitrator. With one stroke of a legislative pen, it remains unclear if eminent lawyers enrolled outside India can be appointed as arbitrators. If the same is prohibited, it is very likely that foreign parties would refrain from choosing India as a seat for arbitration.
• The 2019 Amendment omitted the words “or at any time after the making of the arbitral award but before it is enforced in accordance with Section 36” thereby narrowing its applicability. 
• The said section deals with recourse against an arbitral award. As per the 2019 Amendment the words “furnishes proof that” have been replaced by the words “establishes on the basis of the record of the arbitral tribunal that” to clarify that the parties must only rely on the record before the tribunal in case of challenging the award. 

Prior to the 2019 Amendment the words “furnishes proof that” were being used which caused courts to call the parties to file affidavits of evidence and examination followed by cross-examination of a witness in a Section 34 Petition, like in cases where a party seeks to set aside an award on the grounds of incapacity or fraud. 

• The 2019 Amendment has included the words “unless it prima facie finds” instead of “unless it finds” in the section pertaining to reference to Arbitration in case of International Commercial Arbitration. 

According to the 2015 Amendment and 1996 Act, the words prima facie were not mentioned thereby meaning that the Courts could go into a detailed finding and analysis of whether the agreement is declared to be null, void, inoperative or incapable of being performed. 

Conclusion

It is evident that changes are taking place gradually on all fronts. Indian Courts have refrained themselves from interfering in arbitral proceedings where the parties chose to settle their dispute through the process of Arbitration. On the other end, the amendments introduced by the Amendment Act of 2019 have received mixed reactions. The delegation of courts’ power to appoint arbitrators, the express provision of confidentiality (Section 42A), proof of incapacity or fraud for setting aside an award and continuation of an arbitrator’s mandate pending application for extension of the arbitration timeline are changes which are progressive and thrive towards making India an arbitration-friendly jurisdiction. However, the amendment regarding the removal of a mandatory timeline for international commercial arbitrations in India is one which negatively impacts India as a seat for arbitration. To end it all, the effectiveness and success of these changing trends in the Arbitration Act will depend on time and how the same is interpreted by our judiciary. 

---

LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join: