Tag Archives: Arbitral Award

Arbitration & Conciliation Amendment Act 2015 : The Way Forward

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                             Arbitration and Conciliation Amendment Act 2015

The Arbitration and Conciliation Act 1996 was enacted with the optimism that it would serve as a quick redressal mechanism to commercial disputes. Over a period of time the legislation has tried to consolidate enforcement of domestic as well as foreign arbitral award owing to which arbitration has become one of most preferred options to settle commercial disputes. It has minimised the supervisory and intervensionary role of courts in the arbitral process.  The Arbitration and Conciliation Act, 1996 (hereinafter “the Act”) is based on the UNCITRAL Model Law on International Commercial Arbitration, 1985 and the UNCITRAL Conciliation Rules, 1980. The Act had been in force for almost 2 decades and although arbitration had fast emerged as a frequently chosen alternative to litigation it had become afflicted with various problems such as those of high costs, frequent delays etc.

The 246th Report of Law Commission highlighted certain shortcomings in the act and hence stressed upon amending those provisions in the act. The Law Commission has also submitted a Supplementary to Report No. 246 on “Amendments to the Arbitration Act, 1996 on ‘Public Policy’- Developments post Report 246″, wherein the Law Commission taking into account subsequent decisions of the Supreme Court had recommended reformulation of amendment in Section 34(2)(b) of the Act.[1] The Commission recommended the addition of section 34 (2A) to deal with purely domestic awards, which may also be set aside by the Court if the Court finds that such award is vitiated by patent illegality appearing on the face of the award or by an erroneous application of the law or by re appreciating evidence.

The Government of India felt the need to amend certain provisions of the act so as to make arbitration more user friendly as well as cost effective method of settling commercial disputes. Acting on the recommendations of the Law Commission, Modi led government promulgated the Arbitration and Conciliation Ordinance 2015 to amend certain provisions of the Arbitration and Conciliation Act 1996 which received the assent of the President of India. The Arbitration and Conciliation Amendment Bill 2015 was introduced in both the houses of parliament in order to replace the ordinance. The Amendment Bill was passed by the Lok Sabha and Rajya Sabha on 17th and 23rd December 2015 respectively. The Amendment Bill received assent from the President on 31.12.2015 and post notification in the official gazette on 1st January 2016 the amendment act was deemed to have been in force since 23rd October 2015.

Applicability of Part-I of the 1996 Act to International Commercial Arbitration

The Principal Act consists of 3 parts which includes Part-I which deals with domestic arbitrations and international commercial arbitrations when the seat of such arbitration is in India. The Ratio in case of Bhatia International v. Bulk Trading SA[2] was that Part I of the Act (which provided for remedies such as awarding interim relief under section 9 of the 1996 Act, and setting aside of arbitral awards) was applicable only to an arbitration seated outside of India.

The Supreme Court in case of Bharat Aluminum & Co. v Kaiser Aluminium and Co.[3] held that that Part I and Part II of the Act are mutually exclusive. It further held that Part I of the Act only applied to arbitrations seated within India. This meant that no interim relief was possible in a foreign seated arbitration where the assets of a party/project under dispute were located within India.

Through the amendment of Section 2(2) of the 1996 act, it has been clarified that there is a specific agreement to the contrary, provisions of Part I would be available to parties, who are subject to a foreign seated arbitration.

Hence the parties to a foreign seated arbitration can approach the courts in India for interim relief, Appeals etc after fulfilling the following conditions:

  1. There should be no agreement to the contrary by the parties; and
  2.  An arbitral award made or to be made in such place is enforceable and recognized under the provisions of Part II of the Arbitration Amendment Act.

Hence parties to international commercial arbitration which is enforceable under Part-II of the 1996 Act have the option of approaching the courts to seek interim relief.

High Court’s Jurisdiction over International Commercial Arbitration  

According to Section 2(2) of the 1996 act all forms of arbitration were subjected to the jurisdiction of Civil Court of original jurisdiction in a district. Though only in certain districts would the high court have the jurisdiction under the letters patent. This position has changed post amendment in the definition of the term “Court” under Section 2(e) of the principal act.

The term “Court” now differentiates between domestic arbitrations and international commercial arbitrations wherein:

(a) Domestic arbitrations are subject to the jurisdiction of districts courts and High Courts;                                               (b) International commercial arbitration is subject to the jurisdiction of only High Courts (in exercise of its ordinary civil jurisdiction).

This particular amendment has been introduced in the context of the recently enacted Commercial Courts Act, which provides for the constitution of Commercial Divisions and Commercial Appellate Divisions with High Courts. The constitution of committed divisions within the high court would facilitate scrupulous adjudication of commercial disputes.

Neutrality of Arbitrators

The amendment act aims to negate the factor of partial adjudication on part of the arbitrator, thus to ensure fair and equitable arbitration proceedings it amended provision under Section 12 which lays down the grounds and procedure to challenge the appointment of an arbitrator. Thus under the amendment, the person approached in connection with possible appointment of arbitrator, shall disclose in writing about existence of any relationship or interest of any kind, which is likely to give rise to justifiable doubts. The inherent ambiguity in Section 12(1) (a) has been addressed vide the Arbitration Amendment Act, which elaborates on the type of circumstances that may raise justifiable doubts regarding the neutrality of the arbitrator. In addition, Section 12(1)(b) requires that a potential arbitrator should also disclose in writing any ground that may affect his ability to complete the arbitration within the prescribed time limit of 12 months. Furthermore Schedule 5 has been added which provides the guidelines to determine whether the circumstances exists which give rise to justifiable doubts as to the independence or impartiality of an arbitrator.

Interim Relief by the arbitral tribunal in arbitration proceedings

The Principal act provided for no statutory mechanism whereby the arbitral tribunal could provide effective and enforceable interim relief. This amendment of Section 17 aims to empower the tribunals with special powers which would reduce the burden upon the Courts.

The amendment act empowered the tribunal to grant all kinds of interim measures which the court is empowered to grant under Section 9 and such order as granted by the tribunal shall be enforceable in same manner as if it was an order of the court.

An arbitration proceeding shall commence within a period of 90 days after the declaration of interim relief by the court. This provision shall limit the instances wherein the parties use the court procedures to deliberately delay the disposal of arbitration matters, and will ensure that arbitration is commenced in a time bound manner.

Stringent Timelines for determining Arbitral Award

In accordance with the arbitration-friendly jurisdictions, the amendment act has introduced a fast track procedure whereby arbitrations can be completed expeditiously. The arbitral tribunals have been granted a 12 month window for completion of arbitrations seated in India, which can be extended by six months with the consent of the parties. If the award is made within a period of six months, the arbitrator may get additional fees upon agreement by the parties. If the award is not made within specified period or extended period, the mandate of the arbitrator shall terminate unless the time is extended by the court. The Court while extending the period may also order reduction of fees of arbitrators not exceeding five percent for each month of delay, if the court finds that the proceedings have been delayed for reasons attributable to the arbitral tribunal. The amendment act inserted new provisions in form of Section 29A, 29B which solely deals with the fast track procedure to be followed by the arbitral tribunal as mentioned above.

Regulating the grounds of challenge

An arbitral award can be challenged only in accordance with the grounds provided under Section 34 of the 1996 Act. One such ground of challenge is when an arbitral award is made in conflict with the public policy. This aspect of public policy is subjected to wide interpretation, and hence over these years it has led to increase of vexatious claims. The new provision brought under Section 34 prescribes a time period of 1 year within which an application for setting aside the award needs to be filed. Secondly the party filing such an application needs to issue a prior notice to the other party regarding the same.

The scope of the term ‘public policy’ has been further qualified by amendments to the Explanations under Section 34(2) that that provide that an award shall be considered as against ‘Public Policy’ only when the making of an award was: (a) induced or affected by fraud or corruption; or (b) is in contravention with the fundamental policy of Indian Law; or (c) is in conflict with the most basic notions of morality or justice. Explanation 2 to Section 34(2)(b) provides that the test to determine whether an award is against the fundamental policy of India shall not entail a review of the merits of the dispute.

Time-bound disposal of Arbitral Awards

Addition of two new sub-sections (5) and (6) to Section 34, has paved way for speedy disposal of applications to set aside an award. A period of one year has been prescribed for the same that shall ensure time bound disposal of arbitration matters.

Section 36 has been amended to the effect that mere filing of an application for challenging the award would not automatically stay execution of the award. Award can only be stayed where the Court passed any specific order on an application filed by the party. Previously due to absence of such a provision, any party which would remain unsatisfied with the arbitral award would move to the court and get a stay over execution of such an award. The Court would further have to look into the matter all over again which would ultimately be a very time and cost consuming process.

Computation of Costs

Computation of cost to be awarded to the parties under the Act are to include factors like conduct of parties, whether frivolous counter claims are made, whether reasonable offer to settle dispute is refused by any party, etc. The amount awarded by the tribunal shall carry interest at rate of 2% p.a. more than the current rate of interest, from the date of award to the date of payment.

Section 31A has been added to provide for comprehensive provisions for cost regime. It shall be applicable to both the arbitrators as well as related litigations in the court. It will avoid frivolous, merit-less litigation/arbitration. This Section has been inserted in parallel to provision under Section 36. The ultimate aim of both the sections is to avoid frivolous merit-less litigation and execution of arbitral award as decided by the arbitral tribunal.

Conclusion

These amendments are aimed at taking drastic and reform-oriented steps to bring the Indian arbitration law on a par with global standards and provide an effective mechanism for resolving disputes with minimal court interference.

Since the inception of the 1996 Act, there have been no amendments to the act whatsoever leading to affecting the functioning of arbitral tribunals in large run. This amendment was introduced with the ultimate aim of restoring confidence in the institution of Arbitration as a mode of dispute settlement.

 

[1] The 246th Law Commission Report, http://lawcommissionofindia.nic.in/reports/Report246.pdf .

[2] (2002) 4 SCC 105

[3] (2012) 9 SCC 552