With an
objective of fostering institutional arbitrations and making India a desirable
hub for international commercial arbitrations, the Indian Legislature has come
up with certain amendments to the Arbitration and Conciliation Act, 1996 (“Act”). The Arbitration and Conciliation
(Amendment) Act, 2019 (“Amendment Act,
2019”) received the assent of the President of India on 09.08.2019.
The key changes and effects brought in by the Amendment Act, 2019 are stated
below.
Ø ARBITRATION COUNCIL OF INDIA AND
ARBITRAL INSTITUTIONS
The
Amendment Act, 2019 has introduced the concept of Arbitration Council of India
(“Council”) under Section 43A to
Section 43M as Part 1A in the Act. The Part 1A provides for a regulatory
framework for arbitrations and for promotion of alternative dispute resolution
methods for resolving disputes. The Council will be established and
incorporated by the Central Government as a body corporate with its head office
at Delhi. Additionally, Section 2(1)(ca) has been inserted in the Act which
provides for the definition of Arbitral Institution. The Supreme Court of India
and the High Courts have been given power to designate such Arbitral
Institutions which have been graded under Section 43-I of the Act.
The
primary duty of the Council shall be to promote and encourage arbitrations,
mediation, conciliation or other alternative dispute resolution mechanisms for
which the Council shall frame policies and guidelines. Importantly, amongst
other duties, the Council has been bestowed with the responsibility for grading
of the Arbitral Institutions which shall be designated by the Supreme Court of
India and High Courts. The Arbitral Institutions shall be graded on the basis
of criteria inter alia relating to
infrastructure, quality and calibre of arbitrators, performance and compliance
of time limits for disposal of domestic or international commercial
arbitrations.
The
Council shall constitute of seven members including a Chairperson who shall
appointed by the Central Government in consultation with the Chief Justice of
India. As per Section 43C of the Act, a person who has been a Judge of the
Supreme Court of India / Chief Justice of a High Court / a Judge of a High
Court / eminent person having special knowledge and experience of arbitration
will be appointed as the Chairperson. The other members of the Council will
include:
·
An eminent arbitration
practitioner having experience of both domestic as well as international
institutional arbitration;
·
An eminent academician with
experience in research and teaching of arbitration and alternative dispute
resolution laws;
·
Secretary to the Government of
India in the Department of Legal Affairs, Ministry of Law and Justice (Ex-officio Member);
·
Secretary to the Government of
India in the Department of Expenditure, Ministry of Finance (Ex-officio Member);
·
Part time member – A representative
of recognized body of commerce and industry;
·
Chief Executive Officer – Member
Secretary (Ex-officio Member)
Ø SECTION 11: APPOINTMENT OF
ARBITRATOR
Substantial
changes have been brought by the Amendment Act, 2019 with respect to the
mechanism for appointment of arbitrator in cases where the procedure for
appointment of arbitrator is not provided under the arbitration agreement or on
failure of the procedure agreed between the parties.
Unlike
earlier, the function of appointment of arbitrator will not be directly
performed by the Supreme Court of India and the High Courts. Now, the
arbitrator shall be appointed by (upon making of an application) the Arbitral
Institutions designated by the Supreme Court of India (for international
commercial arbitrations) and the High Court (within its jurisdiction for
domestic arbitrations). The Amendment Act, 2019 also provides for the time line
of 30 days from the date of service of notice to the opposite party, for
disposal of the application for appointment of arbitrator. Further, the proviso
to Section 11 (3A) of the Act provides for the maintaining a panel of
arbitrators by the Chief Justice of such High Court, within whose jurisdiction
no graded Arbitral Institutions are available. The said proviso evidently
indicates towards the paramount object of the Indian Legislature to promote
institutionalized arbitrations.
With the
Amendment Act, 2019, Section 11(6A) and Section 11(7) of the Act which provided
for confinement to examination of the existence of an arbitration agreement and
finality of the decision of appointment respectively, have also been omitted.
However, Section 11(6B) of the Act which puts bar on delegation of judicial
power has been retained. The cumulative effect of such omissions and retention
is that the Arbitral Institutions shall not be delegated with and / or exercise
the judicial powers and that the decisions of the Arbitral Institutions in appointment
of arbitrators can be challenged unlike under un-amended Act.
The other
crucial amendment under Section 11 of the Act is with respect to the fees of
arbitrator under Fourth Schedule of the Act. Before the Amendment Act, 2019,
various High Courts have opined different views on the applicability of Fourth
Schedule of the Act as being mandatory or directory, which lead to an avoidable
confusion. However, with the Amendment Act, 2019 coming into force, the
inconsistency has been removed. Now, the fee of the arbitrator and the manner
of its payment is to be determined by Arbitral Institutions subject to
the rates specified under Fourth Schedule of the Act.
By inter alia replacing the words ‘after taking into consideration the rates
specified in the Fourth Schedule’ in the un-amended Act with words ‘subject to the rates specified under Fourth
Schedule’, the Legislature has capped the fees to the maximum of what has
been prescribed under the Fourth Schedule. Critically, the international
commercial arbitrations (where parties have not agreed for determination of
fees as per the rules of arbitral institutions) have been excluded from the
purview of Section 11(14) of the Act.
Ø INTERIM ORDERS – SECTION 17
The
Amendment Act, 2019 has omitted ‘or at any
time after making of the arbitral award but before it is enforced in accordance
with Section 36’ from the language of Section 17(1) of the Act. The effect
of the said amendment is that the arbitral tribunal after passing of the award
shall not have any power to pass any interim award. The Section 17 of the
un-amended Act has been under debate before various Courts as well as in the
Parliament for its inconsistency with Section 32 of the Act which inter alia provides for the termination
of arbitral proceedings after passing of the final arbitral award. However, by
the amendment, not only this inconsistency has been cured but it also indicates
towards the power of the Courts under Section 9 to make interim awards.
Therefore, the parties are not left remediless and they may approach Courts
under Section 9 of the Act seeking interim measure, even after the making of
the final arbitral award.
Ø TIMELINES FOR ARBITRATION
The
Amendment Act, 2019, has further structured the timelines for completion of
pleadings and making the arbitral award. Section 23(4) has been introduced in
the Act which lays down a maximum period of 6 months for completion of
pleadings, from the date the arbitrator (or all the arbitrators) receive the
notice of appointment. Additionally, in line with time lines for completion of
pleadings, Section 29A(1) of the Act has been amended so as to state that the
time period of 12 months for making of award shall commence from the date of
completion of pleadings under Section 23(4) of the Act. In other words, unlike
earlier, the time taken for completion of pleadings
(with a capping of 6 months from the date of receipt of notice of appointment)
shall not be considered while computing the period of 12 months provided under
Section 29A(1) of the Act. Notably, international commercial arbitrations have
been exempted from such timelines. Further, arbitral proceedings shall not be
at halt during the pendency of application for extension of time before the
Courts.
Ø SECTION 34 – PRE AND POST
AMENDMENT
The
grounds and basis of challenge to an arbitral award under Section 34 of the Act
and the extent to which the Courts can adjudicate upon the fact findings of the
arbitral tribunal has always been a major point of determination under every
case. With the amendment to Section 34 of the Act, the Legislature, in
consonance with the narrow scope of Section 34 of the Act, has replaced the
words ‘furnishes proof’
appearing in Section 34(2)(a) of the un-amended Act with the words ‘establishes on the basis of the record of
the arbitral tribunal’. Therefore, the erstwhile position where, during
the challenge to an arbitral award on the grounds mentioned in Section 34(2)(a)
of the Act, the Courts could have relied upon the proof furnished by the
parties, has been done away with by the Amendment Act, 2019.
Now, the
party challenging an arbitral award has to rely only upon the arbitral record
to establish the grounds of challenge. This amendment emanates from the age old
legal principle that no new material, which is not a part of trial record, can
be introduced at the stage of appeal / challenge. It can also be concluded that
the said amendment further restricts even the limited scope, as observed by the
Supreme Court of India,
of consideration of any material (whether relevant or not but not forming part
of the arbitral record) at the stage of challenge.
Ø QUALIFICATION AND EXPERIENCE OF
ARBITRATORS - THE EIGHTH SCHEDULE
The
Amendment Act, 2019 has introduced Eighth Schedule to the Act, which enumerates
the qualification, experience and general norms applicable to the arbitrators.
The minimum qualification and experience as mentioned in the Eighth Schedule
are also referred to in Section 43J of the Act, which provides for the norms of
accreditation to be considered by the Council. However, whether Eighth Schedule
shall be applicable to the arbitrators other than those appointed by the
arbitral institutions is still not clear and is yet to be seen.
Ø PROSPECTIVE EFFECT OF ARBITRATION
AND CONCILIATION (AMENDMENT) ACT, 2015
Section 87
has been inserted by the Amendment Act, 2019, which clarifies that in absence
of any specific agreement between the parties, all the amendments brought in by
the Arbitration and Conciliation (Amendment) Act, 2015 shall be applicable
prospectively to such arbitration proceedings which have commenced on or after
23.10.2015 and the related court proceedings Interestingly, the said
clarification overrules the observation made by the Supreme Court of India in Board
of Control for Cricket in India v. Kochi Cricket Pvt. Ltd, wherein it was held that the amendment (of
2015) in Section 36 of the Act to remove the automatic stay to arbitral award
shall be applicable retrospectively. The significant effect of introduction of
Section 87 of the Act is yet to be seen on such cases which are at advance
stage of enforcement after following the verdict of the Supreme Court.
Ø It
will not be wrong to conclude from the above discussions that the said
introductions, insertions and omissions have been primarily made with a view to
strengthen the institutional arbitrations (both domestic as well as
international commercial arbitrations) in India and to remove certain
inconsistencies which existed either by virtue of contradiction with any other
law or by observations of the Supreme Court. By providing an overriding effect
to the appeals / appealable order, the Amendment Act, 2019 has attempted to
harmonize the commercial laws of the Country.
However, in our opinion, removal of finality of the decision of appointment of
arbitrator can be still considered to be inconsistent with the basic principle
of the Act i.e. to minimize the role of Courts’ in the arbitrations. What
remains to be seen is the efficacy of the Council and concept of arbitral
institutions as introduced by the Amendment Act, 2019.
Certain amendments of the Amendment Act,
2019 came into force w.e.f. 30.08.2019 vide
SO 3154(E). However, other amendments are yet to be enforced by the Central
Government by way of notification in the Official Gazette. See Section 1(2) of
the Amendment Act, 2019.
See Section 11(3A) of the Act. The
amendments for appointment of the Arbitrator and role of Arbitral Tribunals are
discussed in the next topic.
See Section 11(14) of the Act.
Section 23(4) of the Act only mentions
about time limits for statement of Claim and Defence. Therefore, as per the
literal interpretation the time taken for filing of the rejoinder shall not be
considered for computing the time spent for completion of pleadings.
See Section 29A(5) and provisos to Section
29A(4) of the Act.
Please See ‘Emkay Global Financial Services
Ltd. Vs. Girdhar Sondhi’ Civil Appeal No. 8367 of 2018 decided on 20.08.2018. The Supreme Court in the said judgment also
took note of the identical amendment proposed in the Arbitration and
Conciliation (Amendment) Bill of 2018, being Bill No.100 of 2018.
See Section 37 and Section 50 of the Act.
Prior to the Amendment Act, 2019, the
appealable orders and appeal under Section 37 of the Act was inconsistent and
overlapping with the wider scope of appeal under Commercial Courts Act, 2015
which provides for a general right to appeal against the orders of Commercial
Courts / Commercial Divisions of High Courts in respect of commercial disputes.
