PROPOSED AMENDMENTS IN PRESENT LAW OF ARBITRATION PowerPoint Presentation

PROPOSED AMENDMENTS IN PRESENT LAW OF ARBITRATION

Chapter I:

WHY THE NECESSITY FOR AMENDMENT WAS FELT:

The lawmakers of our country devised the Arbitration and Conciliation Act, 1996 to regulate the conduct of arbitral proceedings through out the country. Even though the 1996 Act is a well drafted legislation, in its application, the Act defeats the very purpose for which it was enacted.

Nearly

two decades since the 1996 Act

came into force,

courts have interpreted the provisions of the Act in such a way which defeats the main object of such legislation.

Inconsistent

jurisprudence has resulted in uncertainty and confusion about the state of the law and has gravely undermined the core principles on which the 1996 Act is based. It has also given rise to concerns about India’s commitment to arbitration and severely dented its claim to be an attractive seat for international arbitration.

In light of the various difficulties manifest in

achieving the object of

the Act and with a view to remove the difficulties and lacunas in the 1996 Act so that Alternative Dispute Resolution method may become more

popular, the

Law Commission in its 246

th

Report has

proposed certain amendments to

the

1996 Act.

In

the above background,

on

26

th

August, 2015 the Union Cabinet chaired by the Prime Minister taking into consideration the Law Commission's

recommendations

and suggestions received from stake holders gave its approval to amend the 1996 Act by introducing the Arbitration and Conciliation (Amendment) Bill, 2015 in the Parliament.

Chapter II:

PROVISIONS OF 1996 ACT WHERE CHANGES

ARE FELT TO BE

REQUIRED

:

Application of Part I

The

primary area of judicial uncertainty relates to the application of Part I of the 1996 Act to international commercial arbitrations held outside India

.

The

Supreme Court

in the case of

Bharat Aluminum and Co. vs. Kaiser

Aluminium

and

Co.

decided

that Parts I and II of the Act are mutually exclusive of each other. The intention of Parliament that the Act is territorial in nature and sections 9 and 34 will apply only when the seat of arbitration is in India

.

However, the decision in

BALCO

was expressly given prospective effect and applied to arbitration agreements executed after the date of the judgment.

Definition of ‘Party’

The

definition of the word “party” in section 2(1)(h) refers to a “party” to mean “a party to an arbitration agreement.” This cannot be read restrictively to imply a mere “signatory” to an arbitration agreement, since there are many situations and contexts where even a “non-signatory” can be said to be a “party” to an arbitration agreement.

Costs

Since

arbitration is a mechanism in which parties replicate a judicial system for themselves, which otherwise is provided by the State, it certainly has considerable costs associated with it. However, with the current system prevalent in India, under Section 31(8) of the 1996 Act, each party generally bears its own costs for the proceedings. As a result, in absence of provision for the apportionment of costs between the parties there is nothing that dissuades the dishonest/frivolous party from contesting frivolous claims before the tribunal.

Appointment Of Arbitrators

The areas

which need to be addressed with regard to appointment of arbitrators are:

the

scope of

powers

– i.e. the scope of arguments which a Court (Chief Justice) will consider while deciding whether to appoint an arbitrator or not – i.e. whether the arbitration agreement exists, whether it is null and void, whether it is voidable etc; and which of these it should leave for decision of the arbitral tribunal.

the

nature of

intervention

– i.e. would the Court (Chief Justice) consider the issues upon a detailed trial and whether the same would be decided finally or be left for determination of the arbitral

tribunal.

Neutrality of arbitrators

In

the Act, the test for neutrality is set out in section 12(3

).

The Act does not lay down any other conditions to identify the “circumstances” which give rise to “justifiable doubts”, and it is clear that there can be many such circumstances and situations.

Powers of tribunal to order interim measures

Though

section 17 gives the arbitral tribunal the power to pass orders, the same cannot be enforced as orders of a court and it is for this reason only that section 9 gives the court power to pass interim orders during the arbitration proceedings.

Delays and time adherence by parties

Judicial

intervention in arbitration proceedings adds significantly to the delays in the arbitration process and frustrates the benefit of having alternative dispute resolution system. Moreover, at present the 1996 Act does not provide any timeframe within which an arbitral proceeding is to be concluded resulting in considerable delays.

Automatic Stay Of Enforcement Of The Award

Section

36 of the Act makes it clear that an arbitral award becomes enforceable as a decree only after the time for filing a petition under section 34 has expired or after the section 34 petition has been dismissed. In other words, the pendency of a section 34 petition renders an arbitral award unenforceable.

Chapter III:

PROPOSED AMENDMENTS:

Amendment to the Preamble

The Law Commission has proposed an addition to the preamble of the Act to include a basis for the Arbitral Tribunal to function in a manner that ensures justice to the parties.

An amendment has been proposed to further demonstrate and re-affirm the Act’s focus on achieving the objectives of fairness, speed and economy in resolution of disputes through arbitration.

Section 2:

In order to prevent parties from seeking unnecessary hearings with irrelevant evidence as well as unnecessary adjournments, the Law Commission has proposed the addition of the second proviso to section 2(1) to ensure continuous sittings of the Arbitral Tribunal for the purposes of arguments and recording evidence.

Sub-section 1 clause (e)

While defining ‘Court’, jurisdiction of the principal Civil Court of original jurisdiction to exclude international commercial arbitration. This is to solve the problem of conflict of jurisdiction that would arise in cases where interim measures are sought in India in case of arbitrations seated outside India.

Section 6

Considering the issue of costs in arbitration proceedings, the Law Commission has proposed to insert section 6A to the Act, which would enable the arbitral tribunal as well as courts to decide the costs on the basis of rational and realistic criterion. This amendment would ensure that arbitration ceases to be as expensive a proposition as litigation.

Section 7

It has been proposed by the Law Commission that section 7 of the Act be amended to include sections 7(3A) and 7(3B), to bring the Indian law related to arbitration in conformity with the UNCITRAL Model Law.

Section 8

The Law Commission has proposed to amend the section with explanations to the effect that if

the judicial authority is prima facie satisfied about the existence of an arbitration agreement, it shall refer the parties to arbitration and leave the final determination of the existence of the arbitration agreement to the arbitral tribunal in accordance with section 16, which shall decide the same as a preliminary

issue.

Further an explanation has been proposed to the effect that any

pleading filed in relation to any interim application which has been filed before the judicial authority shall not be treated to be a statement on the substance of the dispute for the purpose of this section.

The Law Commission has proposed to add a proviso to the section, which will contemplate

a two-step process to be adopted by a judicial authority when considering an application seeking the reference of a pending action to

arbitration:

The

judicial authority shall not refer the parties to arbitration only if it finds that there does not exist an arbitration agreement or that it is null and void.

If

the judicial authority is of the opinion that prima facie the arbitration agreement exists, then it shall refer the dispute to arbitration, and leave the existence of the arbitration agreement to be finally determined by the arbitral tribunal. However, if the judicial authority concludes that the agreement does not exist, then the conclusion will be final and not prima facie. The amendment also envisages that there shall be a conclusive determination as to whether the arbitration agreement is null and void.

Section 9

The

Law Commission has proposed to amend the section to the effect that

where

, before the arbitral proceedings, a Court grants any interim measure of protection under sub-section (1), the arbitral proceedings shall be commenced within 60 days from the date of such grant or within such shorter or further time as indicated by the Court, failing which

the interim

measure of protection shall cease to operate

.

The

Law Commission has

further proposed

to amend the section to the effect that once the Arbitral Tribunal has been constituted, the Court shall, ordinarily, not entertain an Application under this provision unless circumstances exist owing to which the remedy under section 17 is not efficacious.

Section 11

Since its takes a long time for disposal of an application for appointment of arbitrator under Section 11, the Law Commission has proposed that the power of appointment of arbitrators should be vested in the Supreme Court and the High Court instead of the Chief Justice of such Court and further proposed that the process of appointment should be a non-judicial act, so as to entice the Courts to delegate the power of appointment to specialized institutions and persons.

An amendment to Section 11 subsection 7 has been proposed by the Law Commission to the effect that the decisions of the High Court, when an arbitrator has been appointed, are non-appealable and final.

A new sub-section in Section 11 has been proposed to be added to the effect that an application for appointment of an Arbitrator shall be disposed of by the High Court or Supreme Court as expeditiously as possible and an

endeavour

should be made to dispose of the application preferably within 60 days.

Section 12

In order to ensure neutrality of arbitrators, it has been proposed by the Law Commission to amend Section 12 to the effect that when a person is approached in connection with possible appointment of arbitrator, he shall disclose in writing about existence of any relationship or interest of any kind, which is likely to give rise to justifiable doubts. Further, if a person is having specified relationship, he shall be ineligible to be appointed as an arbitrator. Anyone who has been an employee, consultant or adviser to a party, or has had business with one of the parties, shall not be allowed to sit as arbitrator in that case.

Section 16

The Law Commission has proposed an amendment to Section 16 of the Act, to the effect that the arbitral tribunal shall

have

the power to make an award on "a serious question of law, complicated questions of fact or allegations of fraud, corruption etc,."

Section 17

An amendment to Section 17 has been proposed by the Law Commission for empowering the Arbitral tribunal to grant all kinds of interim measures which the Court is empowered to grant under Section 9 and such order shall be enforceable in the same manner as if it is an order of Court.

In addition to this, the Law Commission also proposes the recognition and enforcement of the interim orders granted by emergency arbitrators.

Section 20

The Law Commission has proposed to replace the phrase ‘place’ with ‘seat’ and ‘venue’ to

make the wording of the Act consistent with the international usage of the concept of a “seat” of arbitration, to denote the legal home of the arbitration. The amendment further legislatively distinguishes between the

“legal

seat” from a

“mere

venue” of arbitration

.

Section 23

In order to curtail the delays in the arbitral process, the Law Commission has proposed that a new ‘Explanation’ be added to Section 23 of the Act, ensuring that counter claims are decided by the arbitrator, without seeking a new or additional or reference.

Section 24

The Law Commission has proposed to add further provision in the proviso of the section to the effect

that the arbitral tribunal

shall

, as far as possible, hold oral hearings for the presentation of evidence or for oral argument on continuous days, and not grant any adjournments unless sufficient cause is made out and may impose costs, including exemplary costs, on the party seeking the adjournment.

Section 31

The Law Commission has proposed an amendment to section 31 of the act, so as to provide a clarification as to the scope of the arbitral tribunal to award compound interest as well as to take a step away from the current rate of 18%, to a market based determination, which was in accordance with the reality of the commercial sector.

Section 34

A challenge to an arbitral award remains pending before the court for a long time and in the light of the same, it has been proposed by the Law Commission that an appeal challenging an arbitral award be disposed off within one year from the date of the notice.

Amendment has also been proposed to restrict the term 'Public Policy of India“ by explaining that only where making of award was induced or affected by fraud or corruption, or it is in contravention with the fundamental policy of Indian Law or is in conflict with the most basic notions of morality or justice, the award shall be treated as against the Public Policy of India.

Section 36

The Law Commission has proposed an

a

mendment to Section 36 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.

Section 37

The Law Commission has proposed to insert provision under this section to

provide for appeal in cases of orders refusing to refer parties to arbitration under Section 8 (mirroring the existing provision in section 50) and to provide an appeal where the High Court refuses to appoint an arbitrator respectively

.

The Law Commission has further proposed to amend sub-section 3 to the effect that ‘second appeal’ to include letters patent appeal.

Section 48

Amendment

has also been proposed to restrict the term 'Public Policy of India“ by explaining that only where making of award was induced or affected by fraud or corruption, or it is in contravention with the fundamental policy of Indian Law or is in conflict with the most basic notions of morality or justice, the award shall be treated as against the Public Policy of India.

The

Law Commission has proposed to insert a provision to the effect that an objection under this section

shall

not be made after three months have elapsed from the date on which the party making such objections has received notice of the application under section 47 of the

Act. However, the Court can condone a delay of 30 days over 3 months on satisfactory explanation.

The

Law Commission has proposed to insert a provision to the effect that an objection under this section shall be disposed off expeditiously and in any event within a period of one year from the date on which the notice issued pursuant to an application under section 47 is served

.

The Law Commission has proposed to insert a provision to the effect

that the

costs regime set out in section 6A of the Act shall apply to a proceeding in relation to sections 47 and 48 of the Act.

Section 85A

The Law Commission has proposed to insert a new Section after Section 85 clarifying that provisions of the amended Act shall have a prospective effect and shall apply only to fresh arbitrations and fresh applications.

Fresh arbitrations will mean

arbitrations where there has been no request for appointment of arbitral tribunal; or application for appointment of arbitral tribunal; or appointment of the arbitral tribunal, prior to the date of enforcement of

the amended Act.

Fresh applications will mean

applications to a court or arbitral tribunal made subsequent to the date of enforcement of

the amended Act.

However, the prospective effect of the amended Act shall have the following exceptional situations:

the provisions of section 6-A shall apply to all pending proceedings and

arbitrations;

the provisions of section 16 sub-section (7) shall apply to all pending proceedings and arbitrations, except where the issue has been decided by the

court/tribunal

;

the provisions of second proviso to section 24 shall apply to all pending arbitrations.

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