This article is written by Harshit Bhimrajka currently pursuing B.A.L.L.B. (Hons.) from the Rajiv Gandhi National University of Law, Patiala. This is an exhaustive article which deals with the overview of the acts related to arbitration in India and critical analysis of some key provisions of the Arbitration and Conciliation (Amendment) Act, 2019.
Most people think that there is only one dispute resolution mechanism that is litigation in courts, which has many disadvantages such as delayed decision, inflexibility, stringent rules, etc. but there are many alternate dispute resolution mechanisms such as arbitration, conciliation, mediation, etc.
Arbitration is a form of Alternate Dispute Resolution to resolve disputes outside the courts. It is a procedure of resolving the dispute in which a dispute is submitted, by agreement of the parties, to an arbitration tribunal consisting of one or more arbitrators who render an arbitration award (binding decision on the dispute). It is often faster than litigation in court and it allows the parties to choose their own tribunal, unlike the judicial system.
Arbitration can be traced at the time of ancient Greece, where it is used to solve disputes between allied states and city-states relating to independence and sovereignty. But it later disappeared, again in 18th and 19th-century arbitration was resurfaced. The Jay Treaty Arbitration is considered as the starting point of modern International Arbitration, the treaty was between the US and Great Britain to settle the issues following the American War of Independence. In India as per Hindu law, one of the earliest known treatises that have glimpses of arbitration is “Brihadaranyaka Upanishad”. It elaborates on the types of arbitral bodies which consist of three primary bodies such as ‘Puga’, ‘Srenis’, and ‘Kulas’ cumulatively known as Panchayats. The modern Arbitration Law was enacted in India in 1772 by the Bengal Regulation Act of 1772. The same was promulgated to other presidency towns- Bombay and Madras in 1799 and 1802 respectively.
In this article, we will focus on some of the former arbitration acts in India and a critical analysis of some of the key features of the latest amendment in the Arbitration and Conciliation Act.
Previous Acts and Legislation concerning Arbitration in India
For the first time in India on 1st July 1899, the Indian Arbitration Act came into force after the formation of the first legislative council of India. This act was fundamentally based on the British Arbitration Act, 1889. The application of the act was confined only to Calcutta, Madras, and Bombay- the presidency towns. The USP of the act was that the names of the arbitrators were to be mentioned in the agreement. After this in the year 1940- The Arbitration Act of 1940, under the British Regime a new act was enacted which was more specific on arbitration and applied to the whole of India including Pakistan. This act faced a lot of criticism-laced clear interpretation of many provisions, silent about the shortcoming inherent in individual private contracts, and it also lacked in several areas when it came to implementation of the act in the real sense. Although it brought uniformity in law across the country it needs many reforms and amendments.
So, in the year 1996, a new act was enacted- the Arbitration and Conciliation Act 1996, which came into force on 22 August 1996. This act was based on the UNCITRAL Model Law on International Commercial Arbitration 1985 and the UNCITRAL Arbitration Rules 1976. The statement of the reason for the act recognizes that India’s economic reforms will become effective only if the nation’s alternative dispute resolutions are in tune with the international regime. The act provides for the domestic and international commercial arbitration, and enforcement of foreign award and conciliation. The main aim of the act was to provide a speedy solution to the disputes arisen between the parties and also to limit judicial intervention. It minimizes the role of judicial courts, provides reasons to pass awards, and enforces the arbitral awards as the decree of the court. After this act, two amendments were made in the year 2015 and 2019.
Arbitration and Conciliation (Amendment) Act, 2019
The Law Minister of India, Mr Ravi Shankar Prasad on 15 July 2019 introduced the Arbitration and Conciliation (Amendment) Act, 2019 (hereinafter 2019 Amendment Act) in Rajya Sabha. It came into force on 9th August 2019. The Arbitration and Conciliation (Amendment) Act, 2019 seeks for modification in the Arbitration and Conciliation Act of 1996 and also tweaking some of the provisions introduced by the dint of the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter 2015 Amendment Act). The 2019 Amendment Act was a step to make India an arbitration-friendly jurisdiction and make the process user friendly, timebound, and cost-effective by focusing on three main aspects:
- addressing the issues arising out of the 2015 Amendment Act,
- reducing the involvement of judicial courts in the Arbitration process, and
- improving and setting up standards for Arbitration in the Indian regime.
Critical analysis of key amendments of the 2019 Amendment Act
After the amendment in the original act of 1899, various provisions have been added which are unique and very beneficial to the people (user-friendly, cost-effective and time-bound). We will critically analyse these unique and new provisions added by 2019 amendment as this amendment is evidently a step-in furtherance of making India an arbitration-friendly jurisdiction.
Setting up of Arbitration Council of India and its role
The 2019 Amendment Act introduces Part 1A, which is titled ‘Arbitration Council of India’ (Sections 43A to 43M). By this act, the Central Government got the power to establish an Arbitration Council. The Arbitration Council is composed of
- A Chairperson- who shall be a retired Supreme or High Court judge appointed by the Government of India after consulting the CJI;
- Central Government Member- who shall be an eminent arbitration practitioner;
- Chairperson Member- who shall be an eminent academician having teaching and researching experience in arbitration, appointed by the Government of India consulting the Chairperson;
- Ex officio members- Secretary to the Government of India in the Department of Legal Affairs, Ministry of Law and Justice, and Expenditure, Ministry of Finance; etc.
The council is entrusted with the grading of the arbitral institutions based on criteria relating to infrastructure, quality and calibre of arbitrators, and many other factors. The Supreme and High Court are empowered to designate these institutions that have been graded by the council. The idea behind the provision is that courts will designate the graded arbitral institutions to perform the task instead of appointing arbitrators in cases.
This clause limits the party autonomy in international arbitration because of the executive and judicial interference, as the council is a governmental body which will regulate the institutionalization of arbitration in India and entrusted with the grading of the arbitral institutions and courts designating the institution based on grading will be limited by the options provided by the council (the governmental body).
According to Section 42A of the 2019 Amendment Act, all involved in the arbitration process- the arbitrator, the arbitral institution, and the parties are bound to maintain the confidentiality of all the proceeding except the award that is necessary to disclose for its implementation and enforcement of the award.
The ICC on 1st January 2019 released a notification for all the parties and the arbitral tribunals on the conduct of arbitration under the ICC Rules of Arbitration stating that all awards retrospectively may be published, no less than two year after their notification, based on an opt-out procedure. The opt-out procedure means that any party may object to the publication of an award, or request the award to be redacted or sanitized and in such a case the award will either not be published to be redacted or sanitized adhering to the parties’ agreement. But the opt-out scheme is not mentioned in the 2019 Amendment Act, the lawmakers didn’t make it clear to the fate of an award in terms of publication.
Timely Conduct of the Arbitration Proceedings
According to Section 23(4) of the 2019 Amendment Act, the statement of claim and defence shall be completed within six months from the date of appointment of arbitrators. According to Section 29(1) of the said Act, the award in international commercial arbitration should be delivered within twelve months from the date of completion of pleadings.
This was a great step taken by lawmakers but it overlooks the procedural aspects of international arbitration. According to Rule 24 of the ICC Arbitration Rules 2017, the arbitrators routinely hold a case management hearing, and after consulting the parties issue an order on the procedural timetable for the conduct of hearings and completion of pleadings. But the Indian Provision restricts the tribunals from being in control of the proceedings and sometimes it may be difficult to complete the pleading in six months such as in the case where complex multiparty arbitration with massive documents is involved. Similarly, the autonomy of parties to decide on a more flexible procedural schedule will be severely limited. Most importantly, the parties will always be wary of the fate of an award where the time requirements of Section 23(4) are not strictly abided.
Qualification of Arbitrators
The 2019 Amendment Act provided the express qualification to be accredited as an arbitrator, unlike the 1996 and 2015 Act. It introduced the Eighth Schedule which specifically provides the qualifications, norms, and experience required to be accredited as an arbitrator including advocates, company secretaries, cost, and chartered accountants. The schedule stipulates nine categories and only those are qualified to be an arbitrator.
This clause discouraged foreign investors from opting for the Indian institutional arbitration because the choice of arbitrators is limited by nationality (as a foreign registered lawyer is outrightly disqualified), the likelihood of lack of specialization, and experience in handling the international arbitration. There are a few more vague general norms applicable to arbitrators, which primarily deal with their impartiality and independence and their legal and practical competence to be able to render a reasoned award and their understanding of the applicable law and best practices.
No more retrospective nature
The 2019 Amendment Act made the 2015 Amendment prospective in nature, that is it will only apply to the arbitration cases which are invoked post the enforcement of the 2015 Amendment. The all-encompassing language makes the applicability of the 2019 Amendment perspective not only to arbitration proceedings themselves but also related court proceedings.
The retrospective nature of the 2015 Amendment Act has been conclusively determined by the Supreme Court in the case of BCCI v. Kochi Cricket (2018), but the 2019 Amendment Act led to the immediate fallout of a large number of petitions that were inspired by the decision in the Kochi Cricket case.
However, the 2019 Amendment does not itself contain an express provision about the retrospective or otherwise of the changes it introduces to the 1996 Act. Whereas such an omission arguably veers to a presumption of prospectivity, this issue is nonetheless likely to lead to future litigation on this aspect in the absence of an express provision.
The lawmaker attempted to make India an arbitration-friendly jurisdiction by the international community but they are more misses than hits in the process. While the 2019 Amendment Act aimed to promote arbitration and strengthen the arbitration institution in India, the proposed changes force India to take two steps backwards. The governmental control over the process displays a lack of objectivity and transparency, red-tapism, and nepotism. The provision under the act should be reconsidered as they are likely to cause serious problems. Whilst some of these issues may be resolved over time through judgments of the court, it would be wise to resolve these ambiguities at this stage to avoid spending valuable judicial time and resources.
- Dr Amit George, NPAC’s Arbitration Review: The 2019 Arbitration Amendment Act and the changes it ushers in- A Primer, Bar & Bench, 12 August 2019.
- Subhiksh Vasudev, the 2019 Amendment to the Indian Arbitration Act: A classic case of one step forward two steps backwards? 25 August 2019.
- Mayur Shetty and Dikshat Mehra, India: Critical Analysis of Arbitration and Conciliation (Amendment) Act, 2019, 10 March 2020.
- Sumeet Kachwaha and Dharmendra Rautray, Arbitration in India: An Overview, IPBA.
- Dhir & Dhir Associates, India: Evolution of Arbitration in India, 21 October 2016.
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