Arbitration & Conciliation Act of India 2019: Intent v Purpose?
04 December 201904 December 2019
In this update, we have examined the recent amendments introduced in the Arbitration & Conciliation Act, 1996 (the Act) of India, as amended by the Arbitration & Conciliation (Amendment) Act, 2019.
The legal framework surrounding Arbitration in India has witnessed a paradigm shift in recent years. Prior to the Arbitration & Conciliation (Amendment) Act, 2019 (‘2019 Act’), the Indian legislation had brought a number of significant changes in the original Act by virtue of the Arbitration & Conciliation (Amendment) Act, 2015 (‘2015 Act’).
The material amendments made by the 2019 Act are as follows:
Effect of arbitration and related court proceedings commenced before the 2015 Act came into force (i.e. 23 October 2015);
Establishment of an independent body called the Arbitration Council of India;
Appointment of Arbitrator;
Interim measures ordered by the Arbitral Tribunal;
Time limit for arbitral award;
Appealable Orders of Court and tribunal;
Power of Judicial Authority to refer parties to arbitration in International commercial arbitration; and
Schedule 8 regarding qualifications and experience of arbitrator.
Below is a summary of each of the amendments mentioned above:
Effect of arbitral and related court proceedings commenced before the 2015 Act came into force
In BCCI v. Kochi Cricket Private Limited (2018) 6 SCC 287, 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 a domestic award under Section 36 as amended by the 2015 Act. The erstwhile regime of enforcement of domestic award stipulated an automatic stay of domestic awards until the 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 the 2019 Act, was largely contrary to the observations of the Supreme Court in BCCI v. Kochi Cricket Private Limited (Supra).
Consequently, the position which emerged was that:-
The 2015 Act will not apply to arbitral proceedings commenced before 23 October 2015. Therefore, the position on no automatic stay of enforcement of a domestic award under Section 36 as amended by the 2015 Act reverted to the position under the Act.
Effectively, position laid down by the Supreme Court in BCCI v. Kochi Cricket Private Limited (supra) was diluted.
Recently, 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, inter-alia, relying on the doctrine of manifest arbitrariness. The Court in no unequivocal terms observed that the retrospective resurrection of an automatic-stay not only turns the clock backwards contrary to the object of the 2015 Act, 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.
In effect, the BCCI judgment (supra) will continue to apply so as to make applicable the salutary amendments made by the 2015 Act to all court proceedings initiated after 23 October 2015.
Establishment of an independent body called the Arbitration Council of India
**Part IA has not yet been notified.
With a view to strengthen institutional arbitration in India, the 2019 Act has envisaged establishment of an independent body called Arbitration Council of India (‘Council’), for grading of arbitral institutions and accreditation of arbitrators. For this purpose, Part IA in the Act has been introduced.
Appointment of Arbitrator
**Amendments proposed to Section 11 have not been notified.
The amendment has widened the scope of Court intervention in appointment of arbitrator(s) which was earlier limited to scrutinizing only the existence of arbitration agreement. This is evident from removal of Section 11(6A) from the Act.
With this Amendment, the deadline for the arbitral institution or the Court to appoint arbitrator(s) is made 30 days from the date of service to the opposite party. However, it is to be seen whether this is a directory or mandatory provision.
Under the 2019 Act, the fee of arbitrator(s) and the manner of its payment is made subject to Fourth Schedule of the Act which provides a template for fee structure of the arbitrator(s). Therefore, Fourth Schedule may be required to be compulsorily taken into account.
Interim measures ordered by the Arbitral Tribunal
Under the 2015 Act, the parties were at liberty to seek interim measures from the Arbitral Tribunal both pre, during and post arbitration. However, the 2019 Act, has done away with the right of the parties to apply for interim measures post rendering of the award.
Time limit for arbitral award
The 2019 Act extends the deadline for the arbitrator(s) to make an award. By 2015 Act, it was twelve months from the date the arbitrator(s) enters upon the reference whereas the 2019 Act makes it twelve months from the date of completion of pleadings. However, the timelines appear to be mandatory only for domestic arbitration.
With the new amendments, if the award is not made in twelve months, the mandate of arbitrator(s) will continue till the application for extension of time filed by the parties under Section 29(A)(5) of the Act, if any, before the court is decided. This begs the question whether time to pass an award will be included during this period.
Appealable Orders of Court and tribunal
Certain non-obstante provisions have been included under Section 37 and 50 of the 2019 Act which deal with appeals. In this regard, it appears that the non-obstante provisions have been incorporated to bring consistency with the Commercial Courts Act, 2015 dealing with appeals.
The 2019 Act introduced the concept of confidentiality in the Indian Arbitration regime as per which the parties are required to maintain confidentiality of all arbitral proceedings except in case such disclosure is necessary for implementation and enforcement of award. It will be interesting to see how this provision plays in court proceedings vis-à-vis arbitral proceedings.
Power of Judicial Authority to refer parties to arbitration in International commercial arbitration: Shin-Etsu debate
The Supreme Court in Shin-Etsu Chemical Co Ltd v. Aksh Optifibre Ltd & Anr. (2005) 7 SCC 234 inter alia held that the approach to be taken by the judicial authority in reviewing the validity of the arbitration agreement under section 45 is that of a prima facie review. The majority judgment reasoned that to take a “final and determinative approach” would result in proceedings being prolonged at an early stage, increasing costs and uncertainty for parties. However, the concurring judgement added a qualification that where the judicial authority refuses to refer the parties to arbitration, it would have to decide on whether the arbitration agreement is null and void, inoperative, or incapable of being performed after recording its detailed reasoning.
Amendment to Section 45 by introducing the phrase ‘unless it ‘prima facie finds’ appears to undermine the observations of the Supreme Court in Shin-Etsu Chemical Case Co. Ltd. (Supra) above. As such the phrase in the 2019 Act can lead to refusal of reference without assigning detailed reasons thereto.
Schedule 8 regarding qualifications and experience of arbitrator
**Schedule 8 has not yet been notified.
The 2019 Act introduces a new Schedule 8 which deals with qualifications and experience of arbitrator. However, Schedule 8 does not enumerate qualification and experience criteria for foreign arbitrators. Thus, by implication this could militate against Section 11(9) of the Act which empowers appointment of arbitrator(s) of a nationality other than the nationalities of the parties where the parties belong to different nationalities.
While various provisions under 2019 Act are yet to be tested before the Indian courts, it will be interesting to see how provisions such as confidentiality, time period for conducting arbitration and appointment of arbitrator(s) pans out in actual practice. As far as the applicability of Section 87 is concerned, the Supreme Court’s recent decision is reflective of its inclination to bolster investment and encourage economic activity.
The 2019 Act, if followed in letter and spirit, could lay the platform for India to finally emerge as a hub of arbitration.