Abstract

Arbitration and Conciliation is a mode of alternative dispute resolution method. It is very effective and popular method that helps in easy delivery of justice. The person who resolves the dispute between the parties is known as an arbitrator or conciliator whatever the case may be. This article is an analysis of all the amendments made by the Government of India in the Arbitration and Conciliation Act, 1996 till now, and how the Arbitration and Conciliation Act, 1996 have evolved since the British era.

Introduction

The origin of arbitration may be traced back to the old age system of village panchayats prevalent in ancient India. Decision of panchas taken as they are embodiment of voice of God, hence accepted and obeyed unquestionably. In course of time this divine dispensation of Justice underwent radical change with changing pattern of society and growth. Under the British regime a more specific arbitration act was enacted which came into force on 1st July 1940. The act was silent about the shortcomings inherent in individual private contracts.

Meaning of Arbitration

Arbitration is the mechanism to settle disputes between parties to a contract, determined in a quasi- judicial manner. The Arbitration and Conciliation Act, 1996 provides for legal framework for settlement of disputes outside the court. Arbitration is an arrangement agreed upon by parties concerned to refer the disputes to a neutral third party for settlement.

Arbitration and Conciliation Act, 1996

Based on UNCITRAL Model Laws, 1985 and UNCITRAL Conciliation Rules, 1980.

Problems of delays continued as once arbitration challenged under Section 34 award. Remains in- executable. The 1996 Act stands as an improvement in many respects over Arbitration Act, 1940 and it provides effective ADR a method that reduces involvement of courts in arbitration proceedings. The method of ADR provides a bye- pass system to the Judiciary and plays a very effective supplemental role to the Judiciary.

Arbitration and Conciliation (Amendment) Act, 2015

The Law Commission of India issued a report in 2014 (246th Report) which gave comprehensive overview of the problem and also suggested the solution as following-

a) Encouraging institutional Arbitration.

b) Introducing a schedule of fees for arbitrators in ad-hoc arbitration.

c) Restricting the use of “public policy” when challenging an award or resisting enforcement.

Government promulgated the Arbitration and Conciliation (Amendment) Ordinance, on 23rd October 2015.

Major Changes in 2015 Amendment

Section 9

Reduction in the powers of Court.

The power of the court u/s 9 and arbitral tribunal u/s 17 has become almost equal by virtue of the amendment of 2015. Two sections (2 and 3) have been added to Section 9.Sub Section (2) provides where before the commencement of the arbitral proceedings, a Court passes an order for any interim measures of protection under sub section (1), the arbitral proceedings shall be commenced within a period of 90 days from the date of such order or within such further time as the court may determine. Further sub section (3) limits on the jurisdiction of the court from entertaining any application under sub section (1) where the arbitral tribunal has been constituted. Once the arbitration tribunal is constituted, the court shall not entertain any interim applications unless such circumstances exist which may render the remedy under section 17 of the Act not efficacious. The above amendments have been made with a view to reduce involvement of Courts as similar efficacious remedy has been provided to Arbitrators under section 17.

Nandini Bhatia v. Navil Ratish Kadwadkar[1] [Judgment dated 18.06.2020]

The petitioner had filed various cases against the respondent, Section 12 of the Protection of Women from Domestic Violence Act, 2005, Section 125 of CrPC 1973 and Section 498-A read with Section 32 of IPC. The court reiterated that in view of Section 9(3) of the Arbitration Act, pursuant to the appointment of an arbitrator, a pre- existing petition under Section 9 of the Arbitration Act would no longer be maintainable before the Court, and the arbitrator would have no longer be maintainable before the Court, and the arbitrator would have to be moved in an application under Section 17 of the Arbitration Act.

Section 11

Whether appointment of Arbitrator is judicial or administrative act

The Supreme Court or the High Court shall now make the appointment of arbitrator, as the case may be, instead of the Chief Justice of India or the Chief Justice of the High Court. The amendment act of 2015 has made the position of arbitrator to be considered as exercise of judicial power or the administrative power very clear. Sub section 6(b) added by the amendment provides that the Supreme Court or the High Court shall not regard the designation of any person or institution by the Supreme Court or the High Court, for the purposes of this section as a delegation of judicial power. Thus if the power to appoint the arbitrator is exercised by the court itself it shall be considered as judicial power and when it is exercised by any designated person or institution, it shall be considered as the administrative power.

Determination of the fees of the arbitrators

Prior to the amendment, the parties to it determined the fees of the arbitrators and it was totally depended on the whims and fancies of the parties though subjected to the acceptance of the designated arbitrator. After the amendment, High Court has been empowered to frame rules for the purpose of determination of fees of the arbitral tribunal and the manner of such payment and it shall take into account the rates of fee specified in the Fourth Schedule to the Act while framing such rules. Section 11 A has been introduced which empowers the Central Government to revise the fee in the Fourth Schedule by following the procedure prescribed.

Section 17

Expansion of the power of arbitral tribunal for grant interim measures.

The arbitral tribunal shall have power to grant all kinds of interim measures, which the Court is empowered to grant under section 9 of the Act. Such interim measures can be granted by the arbitral tribunal during the arbitral proceedings or at any time after making the arbitral award, but before it is enforced under section 36 of the Act. Section 17(2) provides that any order issued by the arbitral tribunal for grant of interim measures shall be deemed to be an order of the Court and shall be enforceable under Code of Civil Procedure, 1908 in the same manner as an order of the Court.

In Halliburton Offshore Services Inc v. Vedanta Limited[2], decided on May 29 that if fraud, irretrievable injury or special equities are not proved, no injunction can be granted.

In Bhubaneswar Expressways Pvt. Ltd. v. NHAI[3], though the tribunal was constituted, it could not function because one of the co-arbitrators had recused. Therefore, the Delhi High Court held that the remedy under Section 17 was not efficacious and it would be necessary for it to entertain the petition under Section 9 of the Act.

Section 29A

Time limit for Arbitral Award 2015

Arbitral Tribunal shall pass the award within 12 months from the date on which the arbitration tribunal enters upon the reference. However the tribunal may extend the period by a maximum of 6 months with the consent of the parties to the arbitration agreement. If court finds that the extension is because of the delay on the part of the arbitrator, the court may order reduction in the fee of the arbitrator by an amount not exceeding 5% for each months delay. The court has also been empowered to impose actual and exemplary costs on the party at default. In NCC v. Union of India[4], Section 29A of the Act is intended to sensitize the parties as also the Arbitral Tribunal to aim for culmination of the arbitration proceedings expeditiously. It is with this legislative intent, Section 29A was introduced in the Act by way of the Arbitration and Conciliation (Amendment) Act, 2015. This provision is not intended for a party to seek substitution of arbitrator proceedings by the said arbitrator. The only ground for removal of the arbitrator under Section 29A of the Act can be the failure of the arbitrator to precede expeditiously in the adjudication process. 

Ongc Petro Additions Limited vs Fernas Construction Co. Inc[5] [Judgment dated 21 July 2020], the court held that the provisions of Sectio 29A (1) of the Arbitration Act, as inttroduced by the Arbitration and Conciliation (Amendment) Act, 2019 would have retrospective application.

Section 34

Defined Public Policy

Earlier the section provided that it would be considered as opposed to public policy of India, if the making of award was induced of affected by fraud or corruption now it also includes the following:

  • It is in contravention with the fundamental policy of Indian Law, and
  • It is in conflict with the most basic notions of morality or justice.

A proviso has been added, which provides that an award shall not be set-aside merely on the ground of an erroneous application of the law or by re- appreciation of evidence. The decision of ONGC’s case has been incorporated in sub Section 2A of the Section 34 whereby a domestic arbitral award could be set aside by courts on the grounds of patent illegality if there was an erroneous application of the law or by re- appreciation of evidence.

 In Oil & Natural Gas Corporation Ltd. V. Saw Pipes Ltd[6], Supreme Court held that an award would be “patently illegal, if it is contrary to the substantive provision of law, or provisions of the Act, or terms of the contract. Such an award would be considered as patently illegal and therefore in violation of public policy. This interpretation practically afforded the losing party an opportunity to re-agitate the merits of the case.

Patel Engineering Ltd. v. NEEPCO[7] [Judgment dated 22.05.2020], the Supreme Court reaffirmed the scope of ‘patent illegality’. It held that the domestic award it to be set aside only if it is patently illegal on any of the three grounds:

1. The decision of the arbitrator is found to be perverse, or so irrational that no reasonable person would have arrived at the same, or

2. The construction of the contract is such that no fair or reasonable person would take,

3. That the view of the arbitrator is not even a possible view.

The Supreme Court dismissed the review petitions filed by PEL, thereby affirming the Meghalaya HC’s decision to set aside the arbitral award and dismiss the review petitions before it.

South East Asia Marine Engineering and Constructions Ltd. v. Oil India Limited[8] [Judgment dated 11.05.2020] The Supreme Court has set aside an arbitral award on the ground that the interpretation adopted by the arbitral tribunal was not a possible interpretation of the contract and therefore, did not pass the muster under Section 34 of the Arbitration Act.

Mohan Steels Limited v. Steel Authority of India[9] [Judgment dated 04.03.2020] the Delhi High Court held that the arbitrator committed a patent illegality by placing the reliance on the circulars that were never a part of the tender conditions or the contract. Further, it was held that since the circulars were beyond the terms of the contract and were not within the knowledge of the parties, they could not be relied upon for interpreting the clauses of the contract.

Glencore International AG v. Hindustan Zinc Limited[10] [Judgment dated 08.06.2020]

The Court held that the proceedings before the Rajasthan High Court couldn’t come in the way of the Petitioners enforcing the Award before this Court. The Court observed that it is for the ward holder to locate the money of the JD and in case after filing the application it is unable to find money, it can file another application at another place and locate another property.

Schedule IV

Inserted the Model Fees Schedule

By inserting Fourth Schedule, the legislators have tried to regularize the fees of arbitrators in domestic arbitration as opposed to leaving it to the discretion of arbitral tribunal or parties. Prior to the 2015 Amendment, Section 31(8) of the Arbitration Act provided that fees of the arbitrators would be fixed by the tribunal if it has not been already agreed upon by parties.

In Ram Vikas Nigam Limited v. Simplex Infrastructures Limited[11], Court held that the petitioner has been unable to make out a case for termination of the mandate of the learned Tribunal. The court further said that according to the court the learned Tribunal has fixed the fees strictly as per Schedule IV while fixing fee for arbitration can be a valid ground for termination, are wholly inapplicable to the facts of the present case.

Applicability of Arbitration and Conciliation (Amendment) Act, 2015

In Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd[12], Supreme Court held that Section 36 was a procedural provision and a party could not enjoy the right of an automatic stay by filling a petition under Section 34 of the Act by relaying upon the phrase “has been” which was inserted under Section 36 by the 2015 amendment to mean petitions filed under Section 34 of the Act before October 23, 2015. It was reasoned that the execution of a decree is a procedural right, and there can be no vested right accrued upon a party to agitate the execution of an award in a certain manner or resist the execution of an award if it is not made in a certain manner. Supreme Court also clarified that 2015 amendment was prospective in nature.

The Arbitration and Conciliation (Amendment) Act, 2019

The Arbitration and Conciliation (Amendment) Ac, 2019 was passed by the lower house of Parliament on 1st August 2019 and after on 9th August 2019, the 2019 Amendment Act received the assent of the President and was published as Act No. 33 of 2019. The Amendment Act of 2019 aims on streamlining and encouraging institutional arbitration by establishing an independent body and promoting ADR in India as detailed subsequently in this article.

Section 11(3A)

Appointment by Arbitral Institution

The Supreme Court of India and the High Courts shall have the power to designate arbitral institutions, which have been graded by the Arbitration Council of India (ACI). Alternatively, it provides for maintaining the panel of arbitrators by the Chief Justice of the concerned High Court for discharging function of the arbitral institutions.

Section 23

Sub clause 4 has been added to the section, which requires statement of claim and defence to be completed within a period of 6 months from the date of Constitution of the Tribunal.

Section 29A

It mandates that an award shall be passed in a matter within 12 months of the arbitral tribunal entering upon the reference and that the parties may, by consent, extend the time for making an award by another six months.

Insertion of Section 42A

Confidentiality

It proposes that the arbitrator and the arbitral institutions, except the award where its disclosure is necessary for the purpose of implementation and enforcement of award, shall keep the arbitration proceedings confidential.

Insertion of Section 42B

Protection to Arbitrators.

It proposes to protect an Arbitrator for act and/or omission done during the arbitration proceedings i.e. the arbitrator shall not be subject to a suit or other legal proceedings for any action or omission done in good faith in the course of arbitration proceedings.

Section 43A to 43M

Constitution of Arbitration Council of India (ACI)

The Amendment Act of 2019 mandates establishment of ACI as a body corporate. Clause 10 of 2019 Amendment Act proposes to insert new sections 43A to 43M in Arbitration Act for incorporating the ACI. Functions of ACI are as following:

  • Framing policies to grade arbitral institutions.
  • To evolve policy and guidelines for the establishment, operation and maintenance.
  • Hold training, workshops etc.
  • To establish and maintain an electronic depository of all the arbitral awards made in India.
  • To promote and encourage ADR mechanisms.

Insertion of Section 87

Applicability of 2015 Amendment Act 2015 Amendment Act shall not apply to:

a) The arbitral proceedings that have commenced prior to the introduction of 2015 Amendment Act and,

b) To the Court proceedings arising out of or in relation to such arbitral proceedings irrespective of whether such court proceedings have commenced prior to or after the commencement of 2015 Amendment Act, unless parties agrees otherwise.

In BCCI v. Kochi Cricket Private Limited[13], the Supreme Court observed that Section 87 which was sought to be inserted by the legislature and spoke of applicability of 2015 Act, should consider the observations of the Supreme Court as regards applicability of enforcement of domestic award under Section 36 as amended by the 2015 Act. The enforcement of a domestic award stipulated and put automatic stay of domestic awards until Section 34 proceedings had been decided. Therefore, the Supreme Court advised the legislature to accordingly decide the operation of Section 87. Section 87 as ultimately inserted in 2019 Act, was largely contrary to the observations of the Supreme Court in BCCI v. Kochi Cricket Private Limited. Consequently, the position, which emerged that 2015 act, will not apply to arbitral proceedings commenced before 23 October 2020. Effectively the position laid down by Supreme Court in BCCI v. Kochi Cricket Private Limited was diluted. Later, in Hindustan Construction Company & An. V. Union of India, pronounced on 27 November 2019, the Hon’ble Supreme Court struck down Section 87 inserted by the 2019 Act, relaying on the Doctrine of Manifest Arbitrariness, the court in no unequivocal terms observed that the retrospective resurrection of an automatic stay but also results in payments already made under the amended Section 36 to award- holders in a situation of no stay or conditional stay now being reversed.

Schedule VIII

It provides standardized eligibility requirements for the appointment of an individual as an arbitrator.

The Eight Schedule states that ‘a person shall not be qualified to be an arbitrator unless..’ the amendment leaves an ambiguity on the appointment of foreign counsel as arbitrators. Therefore, it can be interpreted to imply that no foreign legal professional can act as an arbitrator in India- seated arbitration.

Conclusion

The motive behind the amendments is good but we can see the applicability is not flawless. The amendments have made various provision of the act clear. The amendment is a step towards the right direction, where we apply the basic law in society and then realise the need of amendment by seeing how it is nurturing in the society. The amendments are the latest series of changes to the Act. The deletion of the restrictive requirement in the schedule Eight is a welcome step.

[1] https://indiankanoon.org/doc/183317303/

[2] https://indiankanoon.org/doc/123403504/

[3] https://www.lawyerservices.in/Bhubaneshwar-Expressways-Pvt-Ltd-Versus-National-Highways-Authority-of-India-2020-06-03

[4] https://www.casemine.com/judgement/in/5c276a8a9eff4309efed9077

[5] https://www.livelaw.in/pdf_upload/pdf_upload-378759.pdf

[6] http://www.legalservicesindia.com/article/584/ONGC-v-Saw-Pipes.html

[7] https://ibclaw.in/aca-case-name/patel-engineering-ltd-vs-north-eastern-electric-power-corporation-ltd-neepco/

[8] https://www.lexology.com/library/detail.aspx?g=d711d988-0114-4633-b71a-4dbbc93635d1

[9] https://www.barandbench.com/columns/survey-on-arbitration-law-in-india-2020

[10] https://www.mondaq.com/india/arbitration-dispute-resolution/960710/glencore-international-ag-v-hindustan-zinc-limited

[11] https://indiankanoon.org/doc/159727106/

[12] https://www.mondaq.com/india/trials-appeals-compensation/873536/the-supreme-court-strikes-down-section-87-of-the-arbitration-and-conciliation-act-1996–reinstates-bcci-v-kochi-cricket

[13] Supra note 12.

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