In this blog post, Seuj Bikash, an Advocate, presently practicing in the Gauhati High Court who is also currently pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, describes and details the Law Commission’s Report on Amendments to the Arbitration and Conciliation Act.

Introduction:

The Arbitration and  Conciliation Act, 1996 (hereinafter the 1996 Act), is an Act to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards, to define the law relating to conciliation and for matters connected therewith or incidental thereto. The first direct law on the subject of arbitration was the Indian Arbitration Act, 1899; but Application of that Act was limited to the presidency towns of Calcutta, Bombay and Madras. In the later phase of the history of arbitration laws in India, the Code of Civil Procedure, 1908 came into force where the Second Schedule was completely devoted to Arbitration. Then the Arbitration Act,1940 (herein after the 1940 Act), the first major consolidated legislation governing the subject was enacted which repealed the Arbitration Act,1899 and the relevant provisions in the Code of Civil Procedure,1908, including the Second Schedule thereof. But, the working of the 1940 Act was not so satisfactory and the same was subject of much adverse comments by different High Courts and the Apex Court in several cases. The Supreme Court in F.C.I. v. Joginderpal Mohinderpal,(1989)2 SCC 347, at paragraph no. 7, observed that the law of arbitration shall be made simple, less technical and more responsible to actual realities of the situation. It must be responsive to the canons of justice and fair play and make the arbitrator adhere to such process and norms which will create confidence, not only by doing justice between the parties, but by creating a sense that justice appears to have been done.

        The 1940 Act was mainly criticised by the Judiciary because the procedure of alternative dispute redressal system involved therein was time consuming, complex and expensive. After liberalisation of the economy in the year 1991, it was considered that an efficient system of alternative resolution of disputes is a pre-requisite to attract and sustain foreign investment. With a view to eradicate all the prevailing lacunas of the prevailing alternative dispute redressal system, the Arbitration and Conciliation Act 1996 was enacted to cover domestic arbitrations, enforcement of foreign awards and conciliation. The 1996 Act was made applicable to both domestic and international arbitration. The Act aims at curtailing the delays in the arbitral process, minimising supervisory role of the courts in arbitral process and enforcement of the final arbitral award in the same manner as if it was a decree of the court. Special concentration has been given in the said Act to comprehensively cover international commercial arbitration and conciliation and domestic arbitration and conciliation.

176th Report of the Law Commission on Amendments to Arbitration and Conciliation Act:

In the year 2001, Government made a reference to the Law Commission to undertake a comprehensive review of the 1996 Act in view of various shortcomings observed in the working of the Act and various representations received by the Government in this regard. The UNCITRAL Model (prepared by the United Nations Commission of International Trade Law) on the basis of which the 1996 Act was enacted was mainly intended to enable various countries to have a common model for ‘International Commercial Arbitration’, but the 1996 Act had made provisions of such a Model Law applicable also to cases of purely domestic arbitration between Indian nationals. Therefore, certain difficulties had arisen in the implementation of the said Act. Besides, there were several conflicting judgements of various High Courts with regard to the interpretation of the provisions of the 1996 Act. Several other aspects about the difficulties in the working of the Act was also noticed by the Commission for which the Law Commission made its recommendations for bringing amendments in the Arbitration and Conciliation Act,1996 in its 176th Report.

246th Report of the Law Commission:

In the year 2010, the Ministry of Law and Justice vide (Notification) F.No.A-60011/48/2010-Admn.III (LA), requested the Law Commission to undertake a study of the Amendment proposed to the 1996 Act. Pursuant to such reference, the Law Commission set up an expert committee to study the proposed amendments and made the suggestions accordingly. The following are some of the observation made by the Commission in brief with regard to the amendment of the said Act.

1. A) Since the litigation in the Courts in India is a time-consuming and expensive exercise, achieving of justice becomes difficult. Therefore, it was stated that one must examine “arbitration” as a method of dispute resolution that aims to provide an effective and efficient alternative to traditional dispute resolution through court.
2. B) Delays are inherent in arbitration process and the costs of arbitration can be tremendous for which the quick alternative dispute resolution in the country has been frustrated.
3. C) There is an urgent need to revise certain provisions of the 1996 Act to deal with the problems which frequently arise in the arbitral process.
4. D) The institutional arbitration could be distinctively advantageous in resolving disputes. However, the 1996 Act neither promotes nor discourages parties to consider institutional arbitration. Therefore, definite attempts should be made to encourage the culture of institutional arbitration in India.
5. E) There is a complain of high costs associated with arbitration, more particularly, the ad hoc arbitration. It was observed that there was an arbitrary, unilateral and disproportionate fixation of fees by many arbitrators and therefore, as a cost effective solution for dispute resolution, the need of a mechanism to rationalise the fee structure for arbitrations is emphasised by the Commission.
6. F) The Commission has emphasised on the proper conduct of arbitral proceedings and observed that the arbitral proceedings should not be a replica of court proceedings. The Arbitration Tribunals should use the existing provisions in the Act to reduce delays. The culture of frequent adjournments should be kept in check.
7. G) A balance between the scope of judicial intervention and judicial restraint has to be achieved since judicial interventions in arbitration proceedings add significantly to the delays in arbitration proceedings.

The amendments to the Arbitration and Conciliation Act, 1996 proposed by the Law Commission in its 246th Report:

The Chapter-III of the Law Commission’s 246th Report has provided for the proposed amendments to the said Act. Some important amended suggested by the Report are explained as follows-

1. The Preamble to the 1996 Act was proposed to be amended in order to further demonstrate and reaffirm the Act’s focus on achieving objectives of fairness, speed and economy in resolution of disputes through arbitration.
2. Amendments in relation to cost: By proposing the insertion of a new Section 6A into the parent Act, the Commission has suggested that in relation to an arbitration proceeding or any proceeding under the provisions of the Act, the court/arbitral tribunal, notwithstanding anything contained in the Code of Civil Procedure, 1908, has the discretion to determine whether cost are payable by one party to another and the amount of those costs, when they are to be paid. Costs include the fees and expenses of the arbitrators/courts and witnesses, legal fees and expenses, any administration fees of the institution supervising the arbitration, and other expenses incurred in connection with the arbitral/court proceedings and the arbitral award. It is expected that such a provision will disincentivize frivolous proceedings and inequitable conduct.
3. Certain amendments have been proposed by the Commission in the Section 7 of the Act. Those suggestions are made to clarify that only when the nature of the dispute is arbitrable in the first place, the same can be placed for arbitration under the said Act. Further the insertion of sub-sections (3A) and (3B) are proposed in order to bring Indian Law in conformity with the UNCITRAL Model Law on International Commercial Arbitration and to clarify that an arbitral agreement can be concluded by way of electronic communication as well.
4. The commission has suggested certain amendments in the Section 9 of the Act firstly, to ensure timely initiation of arbitration proceedings by a party who is granted an interim measure of protection, secondly, to reduce the role of the Court in relation to grant of interim measures once the Arbitration Tribunal has been constituted. After all once the Tribunal is seized of the matter it is most important for the Tribunal to hear all interim applications related to the matter.
5. The Section 11 of the Act is proposed to be amended to the effect that reference by the High Court to any person or institution designated by it shall not be regarded as a delegation of judicial power, an affirmative judicial finding regarding the existence of arbitration agreement and the administrative act of appointing arbitrator are final and non-appealable. It is also proposed that the High Courts should be given liberty to frame their own rule in relation to the fees of the arbitration in accordance with the Sixth Schedule of the Act.
6. Required amendments are suggested in the Section 12 of the Act in order to ascertain the independence or impartiality of the arbitrators in an endeavour to give legislative colour to the phrase “independence or impartiality” as is used in the Act.
7. Likewise, the Section 14 of the Act is proposed to be amended in the interest of principle of natural justice that is an interested person cannot be adjudicator. The suggestion is that if the arbitrator’s relationship with the parties, counsel or subject matter of dispute falls under one of the categories set out in the fifth schedule, such an arbitrator shall be unable to perform his function.
8. It is suggested by the commission that the Section 16 of the Act shall be amended to the extent that the arbitrator shall have the power to make an award or give a ruling notwithstanding that the dispute before it involves a serious question of law, complicated questions of fact or allegations of fraud, corruption etc.
9. The Commission has recommended certain amendments in the section 17 to provide the arbitral tribunal the same powers as a civil court in relation to grant of interim measures. Such provision, as per the Commission, will force the defaulting parties to approach the Arbitral Tribunal for interim relief once the tribunal has been constituted. The arbitral tribunal should continue to have powers to grant interim relief post-award.
10. The Commission has recommended addition of the Second proviso to Section 24(1) to the Act, which is intended to discourage frequent and baseless adjournments and to ensure continuous sittings of the arbitral tribunal for the purpose of recording evidence and for arguments.
11. The Commission recommends addition of Section 34(5) and 48(4) which require that an application under those sections shall be disposed of expeditiously and in any event within a period of one year from the date of service of the notice.

        The Law Commission has recommended several other amendments for an efficient working of the Arbitration and Conciliation Act, 1996.

Conclusion:

The Law Commission of India has submitted its 246th Report in August, 2014.In the Month of October, 2015, the President of India promulgated an ordinance to bring into force umber of those amendments recommended by the Law Commission to the Arbitration and Conciliation Act, 1996 and ultimately the Arbitration and Conciliation (Amendment) Act, 2015 have come into force on 23rd October, 2015. The said Amendment Act is certainly a welcome move and has been hailed for providing the much needed impetus to the growth of India’s arbitration regime. Despite some deviations, the Amendment Act is largely in consonance with the Law Commission Report.