Significant changes have been made to the Arbitration and Conciliation Act, 1996. The amendments will certainly dispel the drawbacks which undermine arbitration practice in India, boost investor confidence and pave the way for making India the next hub for international commercial arbitration.
The law of arbitration in India has undergone many changes and continues to evolve. However, despite significant progress towards promoting arbitration as an effective means of alternative dispute resolution, the law of arbitration in India has been subject to severe criticism. This is mainly due to due to inordinate delays, the heavy expenditure involved and a somewhat interventionist approach adopted by Indian Courts.
In this background, the Law Commission of India had submitted its 246th Report on “Amendment to the Arbitration and Conciliation Act, 1996” (“Act”) in August 2014 suggesting large-scale changes to the Act which are likely to have a substantial impact on arbitration in India. The Union Cabinet has recently approved these recommendations which will now be presented before the Parliament in the form of ‘The Arbitration and Conciliation (Amendment) Bill, 2015’. While the precise text on this is not available in the public domain, the key features of the proposed amendments are:
The Law Commission has recommended the insertion of a new provision as per which an Arbitral Tribunal shall make its award within a period of 12 months. Such period can be extended up to six months by the mutual consent of the Parties . Thereafter, it can only be extended by the Court, on sufficient cause. Further, while extending the period, the Court may also order reduction of fees of arbitrator(s) 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. If the award is made within a period of six months, arbitrator may get additional fees if the parties may agree.
This is a welcome development. Prolonged arbitrations spanning over number of years defeat the very purpose of alternate dispute resolution mechanisms which was to provide a speedy and timely mode of disposal of disputes. Indian Courts are overburdened with a huge backlog of cases and hence the arbitration mechanism was envisaged as a system which would take a large number of disputes outside the purview of the judicial system and provide parties with an independent and private forum for resolution of their disputes
One of the problems in case of an order passed under Section 17 granting interim relief by the Arbitral Tribunal is that there is no specific enforcement mechanism specified in the Act for enforcing such orders. As such, there is nothing to bind a party against whom an order is granted under Section 17 in case the same is breached. The Delhi High Court in the case of Sri Krishan v. Anand , held that any person failing to comply with the order of the arbitral tribunal under Section 17 would be deemed to be “making any other default” or “guilty of any contempt to the arbitral tribunal during the conduct of the proceedings” under section 27 (5) of Act. The remedy of the aggrieved party would then be to apply to the arbitral tribunal for making a representation to the Court to impose appropriate punishment.
The Law Commission has recommended amendments to Section 17 which would give teeth to the orders of the Arbitral Tribunal, making such orders statutorily enforceable in the same manner as orders of a Court (similar to orders passed under
Section 9 of the Act). This will ease the practical limitations faced by a party upon obtaining an order under Section 17. However, a party will still be required to wait until the constitution of an arbitral tribunal before seeking interim reliefs.
An Amendment to Section 36 of the Act has been proposed 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.
The law as it stands today, results in a situation where the mere filing of a Section 34 application before a Court results in an automatic stay on the execution of the award. The situation which ensues is that even though a party has succeeded in the arbitration proceedings after detailed hearing and leading detailed evidence, the said party is unable to enjoy the fruits of the award for a number of years merely because a Section 34 application has been filed by the counter party who has failed in the arbitration.
Therefore, the amendment is intended to remedy this anomaly where in order to get a stay on the enforcement of the award, a specific order of the Court will have to obtained for which the Court will also be empowered to put the unsuccessful party seeking a stay to terms by requiring them to deposit a certain amount which they are required to pay under the award.
The scope of the term ‘public policy’ under Section 34 has been substantially enlarged by the Supreme Court of India which has led to a surge of challenges against arbitration awards before the Courts on the ground of public policy. Taking note of this, an amendment to Section 34 has been proposed wherein an award shall be treated as being against the Public Policy of India only where making of award was induced or affected by fraud or corruption, or if it is in contravention with the fundamental policy of Indian Law or it is in conflict with the most basic notions of morality or justice.
The proposed amendment is a welcome development to as to give finality to an arbitration award which can be challenged only in certain limited cases where there is a major issue which requires interpretation and intervention by the Court. This also would result in saving a lot of time for the final conclusion of the proceedings and bring about certainty and predictability in the legal system and boost investor confidence.
In addition to the suggestions highlighted above, there are also other amendments including regulation of fees of the arbitrators, etc. which are intended to remedy and streamline the arbitration process to make it more effective. These pivotal amendments to the Act, if cleared, will certainly dispel the drawbacks which undermine arbitration practice in India, boost investor confidence and pave the way for making India the next hub for international commercial arbitration
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