G. S. RAO

G S RaoIntroduction: The President of India has promulgated ordinance amending the Arbitration and Conciliation Act, 1996.This ordinance comes into force from 23rd October,2015. It is likely to be approved by the parliament in winter session and becomes part of the Arbitration Act, 1996 on its approval. In this article an attempt is made to analyze the amendments to appreciate the practicality or impracticality of these amendments.

Thrust of amendments:

The main thrust of amendments is to minimize the delays in arbitration process and courts’ intervention by

  • Empowering arbitral Tribunal with the same powers of a court for the purpose of granting interim measures/relief
  • Fixing time limits for passing of arbitral award and disposal of applications by courts
  • Mandating detailed disclosures/ guidelines for disqualification for ensuring impartiality, independence of arbitrators
  • Suggesting indicative Modal fee structure for Arbitral Tribunal

Amendments in Definitions:

Prior to amendment it is interpreted that Part-1 of the Act is applicable to both domestic and international commercial arbitrations having a seat of arbitration in India. Certain amendments were made in the definition of “court” “international commercial arbitration” and section 2(2) to remove the anomaly created by interpretation of definitions in part-1 by Supreme Court in Bharat Aluminium Co. vs. Kaiser Aluminium Technical Services Inc. [(2012) 9 SCC 552, Bhatia International and ventural Gloabal Engineering Sukanya holdings. By adding a proviso to section 2(2) , it is now made clear that specified sections namely section 9(interim measures),27( courts assistance for taking evidence) and 37(1)(a)(3) (appeal against orders of courts) are applicable to International Commercial Arbitrations, even if the seat of arbitration is outside India and award made or to be made shall be enforceable and recognized under Part-II. This is a welcome measure.

Interim relief:

Readers may be aware that prior to amendment, scope under Section 9 was wide enough to allow applications for relief before or during arbitral proceedings or after award but before it is enforced u/s 36. Now amendment made in Section 9 and section 17 certainly limit the scope for extending litigation through court It is a very significant amendment as courts will now entertain applications for grant of relief under Section 9 (interim measures)only before formation of Arbitral Tribunal. Arbitral Tribunal has to be constituted within 90 days from the date of order or within such time as the court may specify in its order granting interim relief.Once the arbitral tribunal has been constituted, the court shall not entertain any application under section 9. This intention is further strengthened by amending Section 17 which allows the Arbitral tribunal to exercise the same powers of a court for the purpose of granting interim relief including injunction orders and such orders of Tribunal are enforceable under CPC as if they are orders of court.

Appointment of Arbitrators:

Section 11 has been amended to replace the word ”Chief justice with the words “either Supreme Court or high court as the case may be or any person or institution designated by such court”. The effect of amendments can be briefly stated as follows:

  • Supreme Court or High court must confine itself to examination of existence of agreement while examining the application under this Section and said application must be disposed of within a period of 60 days from the date of service of notice on the opposite party
  • Before appointment of arbitrator, disclosure of parameters for appointment or conflict of interest must be obtained from the appointee.
  • It is clarified that power exercised by institution for appointment of arbitrator shall be regarded as delegation of judicial power.

Arbitrators’ fees

Fees payable to arbitrators is now linked to sum in dispute and model fee structure is given in Fourth Schedule (Section 11A) and it is not applicable to Institutional arbitrations and international arbitrations. High courts are given powers to frame rules on the model fee structure taking into account model fee. Central Government is given power to modify the model schedule of fees.

Disclosure of interest:

Arbitrators are now required to disclose their direct or indirect interest whether financial, business professional or any kind which is likely to give rise to justifiable doubts as to independence or impartiality and their ability to devote time to complete arbitration within 12 months. The disclosure has to be in format mentioned in Sixth schedule. Fifth Schedule is introduced to provide guidance to determine whether the arbitrator appointed is independent or impartial. This will ensure impartiality and independence of arbitrators and check on availability of arbitrators to complete arbitration in a time bound manner. The applicability of Section 12(5) can be waived by the parties by an agreement in writing.

Terms of contract and Trade usage:

The Tribunal while making award in all cases shall take into account not only the terms of contract but also trade usage applicable to transaction{section 28(3)}

Time limit for completion of arbitration:

By the newly inserted 29 A, a time limit of 12 months has been fixed for making an award. The counting of period will start from the date constitutions of arbitral Tribunal. Parties may however, by agreement in writing, extend the period by another 6 months on filing of application for extension by any one of the parties.If award is not made within the extended period, mandate of arbitrator’s shall terminate unless the court extends the period. Court can extend before expiry of additional 6 months or after expiry of 6 months. This time limit appears to be too short for complicated disputes and it should have been at least 2 years instead of 1 year. For fast track arbitration (small and simple claims) upper limit of one year time frame would have been ideal.

Fast track arbitration:

Section 29 B has been inserted to provide for resolution of dispute by Fast track procedure. Parties to arbitration may (before or after constitution of Tribunal) agree in writing to adopt fast track procedure. Parties may even agree for appointment of sole arbitrator. The dispute shall be decided by Tribunal on the basis of written pleadings, documents and submissions and without oral hearings. The award shall be made within six months from the date of constitution of Tribunal. Fess payable to Tribunal can be decided by the parties by mutual agreement.

Other Amendment for expediting arbitration:

Section 23 is amended to permit set off of counter claim in the same arbitration to avoid multiplicity of litigation. Section 24 is amended to ensure that Tribunal (as far as possible) shall hold oral hearings on day to basis and does not grant adjournments unless sufficient cause is shown. Power is given to Tribunal to impose costs on party seeking adjournment without valid reason Now tribunal has power to treat the right of respondent to file counter claim/defence statement as forfeited, if   Respondent fails to take steps.

It is provided in Section 29A(2) that Arbitral Tribunal shall be entitled to such additional fee as may be may be agreed by parties, if an award is made before six months. If award is not passed within time frame and delay is attributable to the arbitrators their fees will be reduced by the court not exceeding 5% for each month of delay {Provisio to Section 29A(4)}. Court can also impose exemplary cost, if delay is attributable to any party.

Interest on award:

The existing Section 31(7)(b), which allows interest @ 18% p.a on sum awarded, has been amended. Now the amendment provides that a sum directed to be paid as arbitral award, shall carry interest @ 2% higher than the rate of current rate interest prevalent on the date of award and such interest is payable till the awarded sum is paid. Further explanation added to the subsection clarifies that expression “current rate of interest” shall have the same meaning as assigned to it under clause (b) of Section 2 of Interest Act,1978. In means the highest of maximum interest rates at which interest may be paid on different classes of deposits by different classes of scheduled banks.

Costs of arbitration

The manner of determination of costs of arbitration will be as per provisions of newly inserted Section 31A.This new Section provides for awarding costs of arbitration and also litigation costs arising out of arbitration by arbitrator or court. As a general rule, the costs will be borne by the unsuccessful party. The new section gives power to Arbitral Tribunal to impose costs and at the same time he is bound to give reasons for deviation from general rule.Thus the possibility of a litigant who obstruct/delays arbitration process is likely to pay more costs.

Challenge to award:

An application challenging award u/s 34 can be filed only after serving notice on the other party and such application has to be disposed of by courts as expeditiously as possible and within a period of 1 year from the date of service of notice on the other party.

An explanation has been added to Section 34 to clarify the meaning of public policy. It is says that award will be in conflict with public policy, if it is in it is induced by fraud or corruption or in violation of Section 75(confidentiality) or Section 81(admissibility of evidence in other proceedings), or if it is in contravention with the “fundamental policy of Indian law” or if it in conflict with the “most basic notions of morality or justice”. A new ground of “patent illegality has been added. These clarifications will also be subject to interpretations of the courts and it may lead to extended litigation. Further Section 36 has been amended to clarify that filing of application for challenge of award does not render the award unenforceable unless court grants stay on a separate application made in this regard.

Grey areas:

It is not expressly stated whether the amendments are prospective in application or retrospective. Only in Section 12(5) it is mentioned that the said section is not applicable for appointments made prior to Ordinance .However as per cardinal principle of construction of statute, every statue is prospective in nature unless expressly stated to be retrospective. It creates a doubt whether some of the sections apply to pending arbitrations or not. Going by the spirit of the amendments and also language of sections, inference has to be drawn.

Conclusion: The intentions expressed through the amendments are no doubt good especially, power given to Tribunal to grant interim relief, modal fees, checks on independence or impartiality of arbitrators and time limit for arbitration, time lines for disposal of applications. However on the other side of it i.e time frame fixed for passing of award appears to be too short especially for arbitrations involving issues or questions of law. Similarly interpretation of words “patent illegality”, “basic notions of morality or justice” may lead to litigation.

Source: (i).Arbitration and Conciliation (Amendment) Ordinance 2015( ii)Judgments of Supreme court

Tags: (i) Arbitration and Conciliation Act,1996 (ii) Arbitration and Conciliation (Amendment) Act 2015

Disclaimer: This article contains interpretation of the Act and personal views of the author are based on such interpretation. Readers are advised either to cross check the views of the author with the Act or seek the expert’s views if they want to rely on contents of this article

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