I. INTRODUCTION
In India, the transition from informal transactions in family and community business setups to formal, multilateral, billion dollar deals executed by sophisticated corporate conglomerates is a significant change.
The advent of Multi-National Corporations and industries brought together men and women working in and belonging to different cultural, professional and legal jurisdictions. With this, the risk of Dispute was inevitable! Litigating in national courts, which are already overburdened with cases dating back decades altogether, wasn’t a pleasant idea for business houses and MNCs for whom disputes arising out of the business transactions was common place. This is when a dire need for Alternate Dispute Resolution Methods was felt. Hence, Arbitration came into the picture.
Arbitration, owing to its faster, less-technical and neutral procedure was a game changer and was an immediate hit amongst members of the corporate world where complex and multilateral contracts, in case of disputes, require immediate, speedy and fair redressal. It also became popular because it prioritises the parties’ will, the letter of the law is undermined and its spirit is upheld. The Supreme Court of India has even expressed its views on this and stated that the law of arbitration must be simple, less technical, and more responsive to the actual reality of the situations[i]
II. LEGISLATION:
The legal framework and the laws relating to Arbitration in India have been laid down in The Arbitration and Conciliation Act, 1996 (hereinafter: the ACA). The ACA has its roots in the Model Law on International Commercial Arbitration (hereinafter: Model Law) proposed by the United Nations Commission on International Trade Law (UNCITRAL) in 1985.[ii] It was so proposed in order to aid states in successfully legislating the laws dealing with Arbitration with respect to both, Domestic and International Commercial Transactions in their respective jurisdictions and to build a uniform, arbitration-ready global legal space.
The earlier Arbitration Act, 1940 had become redundant and outdated. The Indian Parliament along with the Law Commission reshaped and remodelled the Act of 1940. Subsequently the Act of 1940 was repealed.
The ACA is very different from the Arbitration Act, 1940 and therefore, has to be interpreted and construed independently. No reference to the former Act of 1940 must be made. In order to completely comprehend the provisions of the ACA, a reference to the Model Law must be made instead of the 1940 Act[iii]
The ACA is a complete code in itself. It has been divided into two parts, namely Part I and Part II. Part I extensively comprises of issues according to the UN Model Law viz. arbitrability of disputes, appointment of arbitrators, jurisdiction of the arbitral tribunal, extent of intervention by the courts etc. with respect to both, domestic and international arbitrations. Any arbitration concluded in the Republic of India shall be governed by Part I of the Act, irrespective of the nationalities of the parties. Part II deals with enforcement of foreign awards governed by the New York Convention or the Geneva Convention, of which India is a signatory.
III. JURISDICTION OF THE ARBITRAL TRIBUNAL
The principle of “Competence-Competence” is strictly followed in India. The Arbitral Tribunal instituted by the Court or with the mutual consent of the parties decides itself whether it has jurisdiction to render an award or not or whether an arbitration agreement exists or not. The Arbitral tribunal rules on its own jurisdiction.
A decision of the arbitrator on the question of jurisdiction is not an award and cannot be challenged under S. 34 of the Act. An application under S.34 of the Act would not lie for setting aside the order of the arbitrator on the question of jurisdiction[iv]. No appeal lies against the decision of the arbitrator that he has jurisdiction to decide the dispute.
The principle of “Separability” is also followed in India implying that an arbitration agreement is considered to be an agreement independent of the main contract out of which the cause of action arises. The invalidity or termination of the main contract will not render the arbitration agreement incapable of providing relief to either of the parties which has to be dealt with separately by the arbitral tribunal.
IV. CHANGING TRENDS
The legislation of laws exclusive to Arbitration, the liberal economic policies of the governments , the will of the parties to submit disputes to Arbitration and the relatively faster process of dispute resolution have all been factors corroborating in ushering an era of smooth and fair resolution of disputes pertaining to commercial transactions.
A. THE NEW ARBITRATION AND CONCILIATION AMENDMENT ORDINANCE, 2015:
The ACA, though comprehensive was often thought of as not in tune with the contemporary arbitration laws around the world and was seen as an impediment by prospective foreign investors. Industry Experts, Lawyers, Arbitrators and even the Law Commission were of the view that the Act needed immediate attention and required immediate amendments in order to accelerate investment and economic growth in the country. The Law Commission had also proposed changes in its 246th Law Commission Report.
In light of this, to encourage ease of doing business in India and in a bid to promote foreign investment in India, President Pranab Mukherjee has promulgated the Arbitration and Conciliation Amendment Ordinance, 2015[v]. The said Ordinance seeks to streamline and reshape the Commercial Arbitration scenario in the country, both for domestic and international arbitration issues.
The proposed changes, though controversial in some ways have taken hints from the 246th Report of the Law Commission of India. The amendments, if implemented may have diverse effects.
Some of the proposed amendments which will greatly affect the status quo are as follows:
1. Under S.2(1)(e) the definition of the word “Court” has been amended. A distinction has been made with regards to jurisdiction for international commercial arbitration, and for all other matters.
2. The following sections shall apply to international commercial arbitration even when the place of arbitration is not in India:
• Section 9: Dealing with Interim Measures by the Court
• Section 27: Dealing with Court Assistance in Taking Evidence
• Section 37(1) (a): Appeal shall lie on orders granting or refusing to grant measures under Section 9, and
• Section 37(3): No second appeal shall apply in such cases
3. If the court passes any interim measure under S.9, the arbitral proceedings must commence within 90 days of the court doing so.
4. No application for interim measures under S.9 shall be entertained after the arbitral tribunal has been constituted unless the remedies under S. 17 have been rendered inefficacious.
5. The High Court may frame rules for the purpose of determining of fees of the arbitral tribunal and the manner of its payment to the arbitral tribunal. However, the same rules shall not apply to international commercial arbitration and in cases, where the parties have agreed for determination of fees as per the rules of an arbitration institute.
6. The provisions to ensure independence of arbitrators have been elaborated under S.12 of the Act. A potential arbitrator must disclose in writing, circumstances, such as the existence of direct or indirect, past or present relationship with any of the parties or in relation to the subject matter of the dispute, which is likely to raise doubts as to his independence, and circumstances which are likely to affect his or her ability to devote time towards the arbitration.
7. S.17 has been amended to ensure the same enforcability of interim relief, including that of injunction, granted by an arbitrator as an order of the court.
8. Section 29A proposes a time limit of twelve months from the date of the constitution of the tribunal and an extension of six months subject to the consent of the parties, wihtin which an award shall be rendered.
9. Additional fees shall be paid to the tribunal if an award is rendered within 6 months of the tribunal’s constitution. The fees of the Arbitral Tribunal may be reduced in case the time limit of twelve months is not adhered to not exceeding 5 percent for each month of delay.
10. Section 29B introduces a Fast Track Procedure wherein parties may agree in writing to have their disputes resolved through a fast track procedure implying that the award shall be made within six months, there shall be no oral hearing and awards will be rendered on the basis of the written submissions and documents filed by the parties, along with any further information called for by the tribunal.
B. EFFECTS OF THE ORDINANCE:
The Amendments proposed via the Ordinance method certainly hint that India does not want to lag behind and lose out on an exorbitant amount of foreign investment owing to shortcomings in the legislation related to dispute resolution. The amendment also, certainly, suggests that the government does not want to take too long in bringing about the changes proposed by the industry and legal experts and also by the 246th Report of the Law Commission of India.
1. Many of the changes are a welcome relief and will certainly encourage foreign investment. On the other hand, a few of the amendments are impractical, utopian and look good only on paper.
2. 2. India is probably the only country to adopt the guidelines prescribed by the International Bar Association with respect to Conflicts of interest of arbitrators in International Arbitration.
3. The shoddy drafting, an ambitious attempt to bring about an amendment is pretty evident and if implemented may lead to chaos and confusion since much is dependent on how the courts and arbitrators interpret the amendments.
4. The amendment to S.17 granting same powers to the arbitral tribunals as courts with respect to interim measures after the award has been made but before it has been enforced is a welcome change but is not in consonance with S.32 [which has not been amended] which states that: “The arbitral proceedings shall be terminated by the final arbitral award or by an order of the arbitral tribunal….”
5. With respect to fixing the fees and time limits, India is probably the only country to propose a legislation for the time limit for arbitration and to fix fees for arbitrators. Though fixing of time limits may sound like a wonderful thing to do, given the nature of Indian courts and ad hoc arbitrations, it can be very cumbersome and troublesome. For complex corporate transactions, construction contracts etc. it shall be utopian and over ambitious to expect an arbitrator to award damages within such a short span of time.
6. The provisions relating to the time limits, fixing of fees, reduction of arbitrators’ fees and expecting arbitral tribunals to meet overambitious deadlines will certainly result in recusal of a lot of retired judges serving as arbitrators to take up arbitrations.
7. The extension of time after the lapse of the prescribed time limit to render an award shall result in a huge number of parties lining up at the courts to seek an extension thus, defeating the purpose. This would burden the courts and further delay the process of what was supposed to be a “speedy” method of dispute resolution.
8. The amendment to S.24 providing for imposition of costs for seeking frivolous adjournments was a much needed amendment and shall deter parties from seeking adjournments on flimsy grounds.
9. The Amendment is silent on the issue whether it will have a retrospective effect on existing arbitrations or not. But since there has been no express mention of the application of amendments retrospectively, it shall be construed that procedural amendments[vi], amendments which are merely declaratory in nature (clarifying a previous position of law) shall have a retrospective effect[vii]
10. The issue of confidentiality of proceedings and of documentation which are submitted to the court in case an award is challenged, has been left untouched by the legislators.
11. The issue of enforcement of foreign awards seems to be incoherent with the provisions of the New York Convention. According to S.44 of the ACA, a two-fold requirement for the enforcement of foreign awards has been laid down, the first being that the award be made in a reciprocating country, and second, the reciprocating country must be declared as such by the Central Government by notification in the Official Gazette implying and suggesting, that even if an award is made in a country which is a signatory to the New York Convention it shall not automatically be enforceable in India, and it shall have to be an award of a country which has been notified by the Central Government in the Official Gazette to be enforceable in India. It is pertinent to note that only about 50 countries have been so notified by the Central Government and over 150 countries are signatories to the New York Convention.[viii]
V. CONCLUSION
Arbitration continues to be one of the most important means of dispute resolution and has become the default choice for adjudication of commercial disputes.
The ever growing economic sector in the country and expectations of huge foreign investments, in addition to the “ease of doing business” proposition of the government, must be complemented with sound, contemporary and favourable dispute resolution laws to further encourage and lead to the realisation of such ambitious goals.
The Arbitration & Conciliation Amendment Ordinance, 2015 brought in after two futile efforts in 2001 and 2010 is largely based on the 246th Report of the Law Commission of India. The amendments proposed are a step in the right direction. However, the lacunae in the legislation may cause a lot of problems and the silence or confusion on issues may lead to conflicting judgements and interpretations, ultimately defeating the purpose.
All we can hope for is, a bit of tidying up of the law be done by the legislators thus, clearing the air around the grey areas and making the laws pertaining to Arbitration water tight which shall take the country a long way in terms of economic growth.
– Akriti Kataria (V-III)
ENDNOTES
[i] Food Corporation of India v. Joginderpal, AIR 1981 SC 2075
[ii] http://www.uncitral.org/pdf/english/texts/arbitration/ml-arb/06-54671_Ebook.pdf Date accessed: December 20
[iii] Sundaram Finance Ltd. v. NEPC India Ltd., AIR 1999 S.C. 565
[iv] Nirma Ltd. v. Lungi Energie Und Ensorgun GMBH AIR 2003 Guj 145
[v] http://lawmin.nic.in/la/Arbitration.pdf , Date accessed: December 20
[vi] Dayavati v. Inderjit, AIR 1966 SCC 1423
[vii] Shyam Sunder v. Ram Kumar, (2001) 8 SCC 24
[viii] http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention_status.html Date accessed: December 20