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This article is written by Pratap Pogulakonda, Founder Partner of Pratap & Co Law Firm, Hyderabad.

 

Outstanding and Magnificent judgments rendered by the Indian Judiciary in the recent past has brought about the sea change on the standpoint of Indian Arbitration Law and the fast track culminations achieved by the Arbitration Tribunals in giving Awards. Thanks to the constant attempts that were made by the Central Government in bringing out the 2015 Amendment Act and the resultant experiences gained. The endeavor of the Central Government to bring out yet another Amendment Act 33 of 2019 within a span of 4 years is highly commendable, which would be surely possible only because of the Pragmatic Vision of the Prime Minister of India Mr. Narendra Modi, who is apparently nurturing the course of making India a Global Destination for Arbitration and Mediation.

Report of the Law Commission and the Amendment Act of 2015

The Law Commission Report No. 246, released in the year 2015 paved way for 2015 Amendment Act, which amongst many new provisions, also introduced Clause 6A in Section 11 and the Section 29A & B in 1996 Act to minimize the intervention of judiciary, barring to examine the existence of a valid Arbitration Agreement (Arbitration Clause in the Contract) between the Parties and to enforce the time frame of one and half year fixed to pass the Award, which stood out to register spectacular results besides building more confidence in the Law amongst the Public and Business Communities.

The Amendment Act 33 of 2019

Now, with the introduction of further fertile and fruitful provisions, The Appointment of Arbitrator under the Chief Justice Scheme is going to be faster than just being on fast track mode. Thanks to the introduction of rapid-fire amendments in 2019 Amendment Act 33 of 2019, which is introducing clause (ca) in Section 2 and Section 3A in the Principal Act 1996 to empower Supreme Court for International Arbitration and the High Court for the Domestic Arbitration to designate the Arbitral Institutions, to be graded by the proposed Arbitration Council of India under section 43-I.

The appointment of Arbitrator will be made easy 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. It is pertinent to note that clauses (6A) and (7) are omitted from the Principal Act of 1996 as better provisions are brought in. As a consequence, the Courts will regain their propriety and importance, rather than just being administrative passage in nature while dealing with the Applications of the Parties. The Designated Arbitral Institutions are going to assume greater impotence but shall be required to dispose of the application made under this section for the appointment of an arbitrator or arbitrators within a period of thirty days from the date of service of notice on the opposite party.

Mandatory passing of award within 12 months

Subject to the condition that, the statement of claim and defense under section 23 shall be completed within a period of six months from the date the arbitrator or all the arbitrators, as the case may be, received notice, in writing, of their appointment. Award in terms of Section 29A of the principal Act in matters other than international commercial arbitration is directed to be made by the arbitral tribunal within a period of twelve months from the date of completion of pleadings under section 23, Provided that the award in the matter of international commercial arbitration may be made as expeditiously as possible and endeavor may be made to dispose of the matter within a period of twelve months from the date of completion of pleadings under sub-section (4) of section 23. However, the Proviso that where an application under sub-section (5) for extension of tenure of Arbitral Tribunal is pending, the mandate of the arbitrator shall continue till the disposal of the said application is going to be retained for the time being.

Introduction of new viii Schedule

Another significant change brought in is the introduction of the Eighth Schedule to contemplate the qualifications to be possessed by the ARBITRATORS PRESIDING the Arbitral Tribunal and the details of their antecedents which shall be free from any criminal or disciplinary charges. 

Need to convert certain exsisting tribunals as arbitral institutions under Section 43i

However, in my opinion, the proposed Arbitral Institutions could include NCLT, and if so, the Arbitrable Disputes emanating under the Indian Companies Act can be set free of conflicting judgments. Like the one which are passed by NCLT and NCLAT in the recent past in respect of which the Hon’ble Supreme Court in Pioneer Urban Land & Infrastructure Private Limited Vs. Union of India had to overrule the proceedings on the ground that they are proceedings in rem and therefore, the National Company Law Tribunal could not have referred the parties to Arbitration. 

As a consequence, the orders of the National Company Law Tribunal, Mumbai in the case Kotak India Venture Fund Vs. Indus Biotech Private Limited, which referred the Financial Creditor and Corporate Debtor to Arbitration under Section 8 of Arbitration and Conciliation Act, 1996 (Act) is overruled. Similarly, NCLT Bengaluru in the case of Harish P Vs. Chemical Additives Private Limited suo moto referred the parties to Arbitration by using its power under Section 422 of the Companies Act, 2013 on premise that since an arbitration agreement exists between the parties, proceedings under the code shall not be resorted to in the first place is also overruled. In a converse case, the NCLT, Mumbai in the case of Dhananjay Mishra Vs Dynatron Services Private Limited, dismissed the Application filed under Section 8 of the ACA Act, 1996 which was later confirmed by NCLAT.

I suggest that, instead of inviting such contradictory rather unwarranted judgments, the NCLT is if given authority as Arbitral Institution to deal with the Applications under section 11 of the ACA,1996 the Applications filed under Sections 7 and 9 of the Insolvency and Bankruptcy Code, 2016 could be dealt even more judiciously with the consent of the parties to be referred to Arbitration or not subject to satisfying itself that there exist a valid Arbitration Agreement and also the Arbitrable Disputes between the parties. As a result, the parties concerned could be put to more ease than made to run around District Court, High Court, or Supreme Court and the NCLT and NCLAT could pass more judicious judgments not only under the Companies Act 2013, Insolvency and Bankruptcy Code, 2016 but also the Arbitration Act, 1996.

However, the said controversy is settled by the latest Judgement dated 19.08.2020 passed in Deccan Paper Mills Co. Ltd. Vs. Regency Mahavir Properties & Others, his Lordship R.F.Nariman J speaking for the Full Bench held that, the relief of Cancellation of Registered Document by a party to the Document under Section 31 of the Specific Relief Act is not an action in rem and therefore such dispute of cancellation of the Development Agreement is Arbitrable and the parties shall be referred to resolve such dispute before the Arbitral Tribunal. 

Set aside of award qua violation of public policy

The Introduction of Section 34 by the 2015 Act clarified that the award could be set aside mainly on the ground that the same is in conflict with the ‘Public Policy of India, which has been the bone of contention for many years in many cases. Particularity after the decision in ONGC v. Saw Pipes Ltd., the explanation to Sec. 34(2)(b) has clarified that an award if is in conflict with the public policy of India and certain other issues only can only make the award a nullity otherwise not and therefore, the automatic stay of operation of award is done with.

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Arbitration agreement must include the tenure of the arbitral tribunal and the qualifications of the arbitrators

The parties while entering into an arbitration agreement shall ensure that they agree upon for disposal of the matter by the Arbitral Tribunal in a pre-agreed time frame within which the Award has to be made. This aspect was held to be legal by the Supreme Court in Jayesh H. Pandya & ANR. Vs. Subhtex India Ltd. & Ors. Similarly, the parties could also possibly agree upon in the Agreement itself that the Arbitrator shall possess the qualifications of their requirement depending upon the nature of their Contractual Obligations and shall at the same time ensure that such qualifications found in complementary with the provisions proposed in Eight Schedule.

State Arbitral Tribunals must be brought under the 1996 act as arbitral institutions

However, the above suggestion may not find suitable to the Central or State Organizations, more particularly in the Infrastructure Contracts/Agreements, as the Amendment Act 2019 is silent about the approach of the State or Central Organizations, which are in the realm of “take it or forget it” and the passing of the Judgment in CORES Case by the Supreme Court has provided an absolute dominance of Autonomy of Appointing the Arbitrators to them, which in my view is not desirable if at all India is looking forward to be an International Centre for Arbitration and Alternate Dispute Redressal destination. 

Adding to that, the States like Madhya Pradesh, Chhattisgarh have their Arbitration Tribunals like Madhya Pradesh Madhyastham Adhikaran Adhiniyam, which is the only forum available for any party to an Agreement entered with the State of Madhya Pradesh to approach as the provisions of ACA, 1996 does not apply to such contracts which are called as “works contract” and ironically such Tribunal does not have the power to issue Interim Injunctions/Reliefs to the party approached it, as a consequence huge number of domestic and international parties are affected as their Arbitrable Disputes are not solved for years and ultimately they are dismissed in favor of the State or its Agency as the case may be. It is further ironic that the MP State High Court has time and again dismissed the Applications filed under Section 11 of the ACA 1996 and the appeal carried to the Supreme Court either did not give any reprieve. Similar is the case with Chhattisgarh which functions under the Chhattisgarh Madhyastham Adhikaran Adhiniyam, 1983 Act No. 29 of 1983.

Similarly, even in respect of the Gujarat Public Works Contracts Disputes Arbitration Tribunal, enacted under the Gujarat Public Works Contracts Disputes Arbitration Tribunal Act, 1993, Supreme Court while dealing with the issue that whether the Gujarat Tribunal is competent to grant Interim Injunctions under Section 17 of the Arbitration Act, 1996 or not, it held that, there is no inconsistency between Gujarat Act and the 1996 Act and therefore, the Gujarat Tribunal is competent to issue Interim Injunctions in terms of Section 17 of the ACA, 1996 in the matter of State of Gujarat and Another Vs. Amber Builders.

The above changes need to be brought in to Principal Act, 1996

So despite of far reaching amendments brought in by the Amending Act of 2015 and 2019, yet there are larger grey areas which need to be eliminated to make the Arbitration faster than just being on the Fast Track Mode and therefore, I feel that, by pronouncement of Judgment in CORE case, the current Arbitration Regime is pulled back to Pre-2015 Amendment, which actually necessitated the judgements like, Raja Transport Private Limited, Booz Allen, Sukanya Holdings to be overruled by legislative recourse of 2015 Amendment Act, so the judgment in CORE case need to be put to rest by way of legislative recourse, which, however missed the 2019 Amendment Act, as it was passed while the 2019 Amendment bill is pending consideration of the Parliament, which in fact pulled back the legislative purpose and intent of both 2015 and 2019 Amendments and that of the Judgments in TRF, Perkins, Bharat Broad Band etc., and at the same time seriously prone to defeat the accreditation and appreciation earned by the Nation with the introduction of the like Section 12(5), Arbitral Institutions, Arbitration Council of India, Section 43(I), Schedule V, Schedule VII and schedule VIII as a consequence, suffers a serious setback amongst the Domestic and International Arbitration stakeholders, which can never be acceptable.

Conclusion

With the above insights, I suggest that an immediate recourse to fresh and expeditious legislation is warranted to bring in more rapid-fire amendments to the ACA, 1996 to make Indian Arbitration a truly faster and fertile course of Alternative Dispute Resolution mechanism of both domestic and international, preferably beginning with the following:

Mandate of arbitration clause

  1. Pre- Arbitration Mechanism through pre-agreed Individual or Institution not later than 60 days from the date of service of requisition made by the Party raising dispute. 
  2. After the expiry of said 60 days, party raising dispute can approach the High Court or Supreme Court as the case may be, whichever is agreed by the Parties in the Arbitration Agreement, within 15 days of the end of 60 days for the appointment of Arbitrator with prior notice to the other party and the Court concerned shall dispose of such application within 30 days. 
  3. The Parties shall necessarily agree and empower the Arbitrator so appointed by the Court to pass Award within a period of 12 months from the date of receipt of intimation of being appointed as Arbitrator. The Court concerned shall transfer the entire case record to the Arbitrator, who shall upon passing the Award shall return the entire case record to the Court along with the Award for the safe custody and transmission to Appellate Court if required.
  4. The Parties shall also agree upon the required qualifications to be possessed by the Arbitrator depending upon the nature of contractual obligations which the parties have agreed to perform in the contract and accordingly the court shall appoint such qualified person as arbitrator in terms of the provisions of Eight Schedule.
  5. There shall also be an agreement between the parties that during the pendency of the said of proceedings neither party shall delay or cause to delay the proceedings at any stage and shall also agree that they shall not seek an extension of the time fixed and they shall self-undertake that they shall not deal with the assets or the subject matter of the case until the Dispute is settled finally.

 II. To Convert The MP Madhyastham Adhikaran Adhiniyam Act, 1983 And The Chhattisgarh Madhyastham Adhikaran Adhiniyam Act, 1983 (State Arbitration Tribunals) As Arbitral Institutions Under Section 43I of the Amending Act 2019. 

III. Gujarat Public Works Contracts Disputes Arbitration Tribunal should also be brought under the Arbitral Institutions in terms of Section 43I of the Amending Act-2019.

IV. With the above amendments, the Arbitration Law can surely be faster than just being on a fast track mode, and more and more constructive and encouraging results could be achieved. Hopefully, the Legislature would positively consider to make the Arbitration Law faster than just keeping it on fast track mode with above insights.

References

  1. Pioneer Urban Land & Infrastructure Private Limited Vs. Union of India. Reported in 2019 SCC Online SC 1005.
  2. Kotak India Venture Fund Vs. Indus Biotech Private Limited. NCLT-Mumbai.
  3. Harish P Vs. Chemizol Additives Private Limited. NCLT- Madras.
  4. Dhananjay Mishra Vs. Dynatron Services Private Limited. NCLT Mumabi and NCLAT,
  5. Jayesh H. Pandya & ANR. Vs. Subhtex India Ltd. & Ors. Judgment dated 27.08.2019 in Civil Appeal No(s). 6300 of 2009.
  6. Madhya Pradesh Madhyastham Adhikaran Adhiniyam. 1983 Act No. 29 of 1983.
  7. Chhattisgarh Madhyastham Adhikaran Adhiniyam, 1983 Act No. 29 of 1983.
  8. Indian Oil Corporation Vs. Raja Transport Private Limited, Reported in 2009(8) SCC 520.
  9. Booz-Allen & Hamilton Inc. Vs. Sbi Home Finance Ltd. (2011) 5 SCC 532.
  10. Sukanya Holdings Private Limited Vs. Jayesh H. Pandya & Another. 2003) 5 SCC 531.
  11. Voestapline Schienen Gmbhv.Delhi Metro Rail Corpn. Ltd. (2017) 4 SCC 665.
  12. 246th Report of the Law Commission of India.
  13. TRF Limited Vs. Energy Engineering Projects Limited. Reported in 2017 (8) SCC 377.
  14. Perkins Eastman Architects DPC & Another Vs.HSCC (India) Limited. Reported in 2019 (2) SCC online 1517.
  15. Bharat Broadband Network Limited Vs. United Telecoms Limited. Reported in 2019 (5) SCC 755.
  16. Central Organization for Railway Electrification Vs. M/S Eci-Spic-Smo-Mcml (Jv) A Joint Venture Company.
  17. Arbitration Amendment Act 2015.
  18. Arbitration Amendment Act 2019
  19. Gujarat Public Works Contracts Disputes Tribunal.
  20. Deccan Paper Mills Co. Ltd. Vs. Regency Mahavir Properties & Ors.

Disclaimer:

The Contents of the Article is the opinion expressed by the Author, but not confirming or otherwise of the accuracy thereof. The users are required to solicit expert opinion specific to their needs and they shall not depend solely on this Article. The law making bodies can as well amend or change the subject matter in accordance with the experiences gained with the lapse of time. The contents of this Article is open to reprint, republish and reproduce for non-commercial purpose subject to acknowledge by M/s. Pratap & Co Law Firm, Hyderabad. Please quote the correspondence No.PcLF/Arb/Pogu/001-2020.


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