OVERVIEW OF AMENDMENTS TO THE ARBITRATION AND CONCILIATION ACT, 1996: ONE STEP FORWARD AND TWO STEPS BACK

INTRODUCTION

In recent years, the volume and intensity of cross-border
investment, trade and commerce have become the key indicators for defining the
developmental growth index of a sovereign state. The Government of India has
implemented a myriad legislations and policies to attract investments and make
it easier to do business in India.

A key impediment of doing business in India has been the
difficulty of enforcing contracts and the time taken by courts and tribunals to
give determinations. An effective and efficient dispute resolution mechanism is
critical for instilling confidence in investors and to achieve the goals of a
growing economy.

Against this backdrop, the Government of India (GoI) after a
period of almost 20 years, in the year 2015 made much-needed amendments to the
Arbitration and Conciliation Act, 1996 (the 1996 Act) to ensure that
arbitrations are quicker and smoother. The amendments were indeed
path-breaking, since some of the amended provisions went well beyond what the
law in even arbitration-friendly countries provided for. These included
disclosures of impartiality (adopting the International Bar Association’s
Guidelines on Conflicts of Interest in International Arbitration, in the Act
itself) and providing for strict timelines within which an arbitration is to be
completed.

However, the GoI and the stakeholders in the arbitration
process felt that various provisions required clarifications or amendments. The
GoI, which has been closely watching the situation, was eager to provide
necessary support to the legislative framework for arbitrations in India.

A high-level committee under the chairmanship of Justice B.N.
Srikrishna, former judge of the Supreme Court of India, was constituted by the
Central Government to submit a report on how to achieve the goal of making
India an arbitration hub, to explore the lacunae in the effective
implementation of the 1996 Act and the Arbitration and Conciliation
(Amendment), 2015 (2015 Amendment) and also to provide a robust scheme of
legislation aligned with the letter and spirit of the UNCITRAL Model Law and
the Convention on the Recognition and Enforcement of Foreign Arbitral Awards
(the New York Convention).

Based partly on the report of the high-level committee, the
Arbitration and Conciliation (Amendment) 2019 Bill (the Bill) was framed and
placed before both the Houses of Parliament for approval. Both Houses swiftly
approved the Bill and the Arbitration and Conciliation (Amendment Act) 2019
(2019 Amendment) was passed. The 2019 Amendment received Presidential assent on
9^th August, 2019 and by a Gazette Notification dated 30^th
August, 2019 bearing No. S.O. 3154(E) (Gazette Notification), certain
provisions, namely, section 1, section 4-9 (both inclusive), sections 11-13
(both inclusive) and sections 15 of the 2019 Amendment were brought into force.
Some of the other provisions are yet to be notified. The speed at which such
amendments were passed and came to be implemented makes GoI’s intention to
support arbitrations clear. But has the GoI been successful? Some of the
amendments have given rise to mystifying questions which will be explored in
this article.

KEY
AMENDMENTS UNDER THE 2019 AMENDMENT

Definition of arbitral institution

Section 1(ca) inserted by the 2019 Amendment provides for the
definition of ‘arbitral institution’ to mean ‘arbitral
institutions designated by the Supreme Court / High Court under the Act’.
This would mean that the established arbitral institutions such as the
International Court of Arbitration (ICC), the Singapore International
Arbitration Centre (SIAC), the London Court of International Arbitration
(LCIA), etc., would have to necessarily be designated to fall within the scope
of the definition of arbitral institution under the amended 1996 Act. This
section has been notified under the Gazette Notification. However, it is
unclear how arbitral institutions of the world will be designated and what
criteria will be required to be met to be recognised under the 1996 Act.

Arbitral appointments u/s 11

Sub-section 3A, inserted by the 2019 Amendment, empowers the
Supreme Court and High Court to designate arbitral institutions graded by the
Arbitration Council of India (ACI) u/s 43-I to make arbitral appointments. It
further provides that in cases where the High Court concerned does not have any
graded arbitral institutions within its jurisdiction, the Chief Justice of such
High Court is empowered to maintain a panel of arbitrators to discharge the
functions within the meaning of ‘arbitral institution’ under the amended 1996
Act. The arbitrators shall be entitled to fees as prescribed under the Fourth
Schedule of the amended 1996 Act.

The 2019 Amendment provides an explanation to sub-section 14
of section 11 that the rates as per the Fourth Schedule shall not be applicable
in cases of international commercial arbitration and in arbitrations (other
than international commercial arbitration) where parties have agreed for
determination of fees as per the rules of the arbitral institution. It may be
inferred from this that parties can agree to determination of fees by an
arbitral institution which is designated by the Supreme Court / High Court.
However, what happens in cases where an arbitral institution is not designated
with the Supreme Court / High Court remains unanswered.

The amendment also states that such panel of arbitrators as
maintained by the High Court is subject to review by the Chief Justice of the
High Court concerned. Although it may seem that the intention behind the
amendment to section 11 is to popularise institutional arbitration in India,
however, the intervention and excessive supervision may hamper party autonomy.
These provisions have not been notified as yet. There are several
representations pending with the GoI to revisit these provisions.

TIMELINES

The 2015 Amendment introduced a timeline of 12 months from
the date an arbitrator entered reference to complete the arbitration. This was
extendable by six months by consent of the parties. Further extensions could be
granted only by the courts.

The 2019 Amendment now provides that an arbitral tribunal has
to render an award within 12 months from the date of completion of pleadings
u/s 23(4) in cases of domestic arbitrations. Section 23(4) has been introduced,
providing a timeline for filing of the pleadings as six months from the date of
the arbitrator/s receiving notice of appointment. It may be noted that this
provision does not take into account the timelines for filing counterclaims and
defence thereto, rejoinders and sur-rejoinders. This provision has been
notified under the Gazette Notification. There could be challenges in some
cases, especially since there are times when parties seek additional time to
permit settlement talks, even once an arbitrator is appointed. The 12-month
timeline does not apply to international commercial arbitration. It is not
clear why international commercial arbitrations have been excluded from such
timelines and such distinction between domestic and international arbitrations
seems artificial. It is unlikely that foreign parties choosing arbitration in
India would appreciate this, since they would also desire that the arbitration
is concluded within the timeframe.

The Delhi High Court in its recent judgment in the matter of Shapoorji
Pallonji & Co. Pvt. Ltd. vs. Jindal India Thermal Power Limited¹
 has clarified that the new
timelines set out in the 2019 Amendment would be applicable not only to
arbitration proceedings which have commenced after the 2019 Amendment, but also
to arbitration proceedings which are pending as on the date of enactment of the
2019 Amendment. This will add to additional uncertainty, since there may be
pending arbitrations in which pleadings have not been filed within six months.

Amendment to section 34

The amendment to section 34 provides that the challenge to an
arbitral award could be established only on the basis of the record of the
Arbitral Tribunal.

The amendment was a welcome step to ensure speedy disposal of
challenges by losing parties, wherein the parties seek to produce new /
additional documents and lead evidence before the courts at the stage of
challenge to an award, thus fundamentally trying to re-open the arbitral
dispute itself. However, in September, 2019 the Supreme Court in Canara
Nidhi Limited vs. M. Shashikala²  clarified the legal position that a challenge
u/s 34 ‘will not ordinarily require anything beyond the record that was
before the arbitrator and that cross-examination of persons swearing into the
affidavits should not be allowed unless absolutely necessary.’ It will be
interesting to see how this judgment is used further as it provides for an open
field for the practitioners to adduce additional evidences, by proving that
their case falls within the exceptional circumstances contemplated under the Canara
judgment.

CONFIDENTIALITY

The issue of confidentiality pertaining to arbitral
proceedings has been debated extensively in international arbitrations. The
1996 Act did provide for confidentiality to be maintained in cases of
conciliation, but not in arbitration. In international arbitrations, the
parties have the option to apply the confidentiality provisions under the
International Bar Association (IBA) Guidelines and Rules; however, the IBA
Rules and Guidelines can only act as a soft law. The insertion of section 42A
provides the disclosure of the arbitral award to be made only where it is
necessary for implementing or enforcing the award. It is a welcome move to
provide statutory backing to the concept of confidentiality in arbitral
proceedings and ensuring that the stand taken by the Indian legislation is akin
to the international best practices. However, the interplay between the ACI’s
power to keep a depository of arbitral awards and confidentiality provisions is
something to be seen in future.

Protection afforded to an arbitrator for action taken in
good faith

Under the newly-inserted section 42B of the 2019 Amendment,
immunity is now provided to the arbitrators against liabilities for acts
performed in their capacity as arbitrators, so long as they are in good faith.
This section should act as an incentive for more people to act as arbitrators.

Arbitration Council of India

The 2019 Amendment sought to insert an altogether new Part
‘1A’ to the 1996 Act for the establishment and incorporation of an independent
body corporate, namely, the Arbitration Council of India (ACI) for the purposes
of grading of arbitral institutions as per the qualifications and norms
contained in the Eighth Schedule (as inserted vide the 2019 Amendment) which
includes criteria relating to the infrastructure, quality and calibre of
arbitrators, performance and compliance of time limits for disposal of domestic
or international commercial arbitrations, etc., formulating policies and training
modules to adept professionals in the field of arbitration and ADR mechanisms.

Section 43C(1) provides that the ACI shall be composed of a
retired Supreme Court or High Court judge, appointed by the Central Government
in consultation with the Chief Justice of India, as its Chairperson; an eminent
arbitration practitioner nominated as the Central Government Member; an eminent
academician having research and teaching experience in the field of
arbitration, appointed by the Central Government in consultation with the
Chairperson, as the Chairperson-Member; Secretary to the Central Government in
the Department of Legal Affairs, Ministry of Law and Justice and Secretary to
the Central Government in the Department of Expenditure, Ministry of Finance,
both as ex-officio members; one representative of a recognised body of
commerce and industry, chosen on rotational basis by the Central Government, as
a part-time member; and Chief Executive Officer-Member-Secretary,
ex-officio.

The Ministry of Law and Justice has, in its press release
dated 12^th February, 2020, enlisted the draft rules prepared to set
in motion the proposal of the ACI and has invited comments from various
stakeholders on the following:

(1)   The
Arbitration Council of India (the Salary, Allowances and other Terms and
Conditions of Chairperson and Members) Rules, 2020;

(2)   The
Arbitration Council of India (the Travelling and other Allowances payable to
Part-time Member) Rules, 2020;

(3)   The
Arbitration Council of India (the Qualifications, Appointment and other Terms
and Conditions of the service of the Chief Executive Officer) Rules, 2020;

(4)  The
Arbitration Council of India (the Number of Officers and Employees of the
Secretariat of the Council and the Qualifications, Appointment and other Terms
and Conditions of the officers and employees of the Council) Rules, 2020.

This provision has received vastly
differing views from the arbitration fraternity. On the one hand, it is said to
enhance the use of institutional arbitration over ad hoc, as well as an
attempt to ensure that there is some quality control over institutions and
arbitrators. On the other hand, stakeholders have taken the view that being
accredited by government officials amounts to regulation and excessive control
of arbitrators. This is all the more significant, given that the government is
one of the largest litigants in India. The provisions relating to the ACI have
not been notified yet.

The Eighth Schedule

One of the biggest benefits for
parties opting for arbitration rather than a court process to dispute
resolution is the right to nominate an arbitrator of their choice. This gives
flexibility in the process and often parties can nominate domain experts to
determine a particular matter, rather than someone who may be a qualified
lawyer or a retired judge but who may not be as well versed in the subject
matter of the dispute. The 2019 Amendment has introduced an Eighth Schedule
setting out the eligibility requirements for the accreditation and
qualification of an individual as an arbitrator. These provisions have not been
notified as yet.

RESTRICTING FOREIGN LAWYERS?

While such accreditation and
qualification of individuals acting as arbitrators may, at first glance, seem
attractive as a measure for quality control, some of the eligibility criteria
are highly restrictive and will infringe on a party’s right to appoint an
arbitrator of its choice, keeping in mind the nature of the dispute.

Some qualifications under the Eighth
Schedule require an arbitrator to, inter alia, have knowledge of the
laws in India such as the Constitution of India and the labour laws. Such
knowledge may not have any connection with a dispute at hand, such as, say,
whilst determining a matter relating to a contractual dispute governed entirely
by foreign law.

The Eighth Schedule also speaks of
appointment of advocates having ten or more years’ experience and being
registered under the Advocates Act in India. This throws open the question
whether this would potentially restrict foreign lawyers from acting as
arbitrators in India. This may prove to be an issue in a contract in disputes
having smaller value. A lawyer of ten or more years’ experience may charge an
amount that is a substantial portion or even more than the amount in dispute.
Besides, the ban on foreign qualified lawyers acting as arbitrators would be
contrary to the ethos of international arbitration and could discourage foreign
parties from seating their arbitrations in India since they would be prevented
from appointing an arbitrator of their choice. This may be more significant if the arbitration itself is
governed by foreign law (although seated in India).

Of the changes and standards
introduced under the 2019 Amendment, the Eighth Schedule by far contains the
most restrictive provisions which might take a toll on the promotion of
arbitrations in India. In the interest of promoting India as a hub for
arbitration, it is hoped that the government will reconsider this amendment
and, inter alia, allow foreign lawyers to act as arbitrators.

Insertion of section 87

When
the 2015 Amendment came into force, there was a huge debate as to whether the
amendments would apply retrospectively or prospectively. This was ultimately
settled by the Supreme Court in Board of Control for Cricket in India vs.
Kochi Cricket Private Limited and Ors³. Interestingly, the
GoI had filed an affidavit in the matter stating that its intention was to have
the 2015 Amendment apply only to arbitrations invoked after the 2015 Amendment
came into force. However, in the judgment, despite the position of the GoI stated
on affidavit, on an interpretation of a plain reading of the language used in
the 2015 Amendment it was ultimately held, inter alia, that the 2015
Amendment applied to applications which were pending in various courts
challenging an award in an arbitral proceeding which commenced before the
enactment of the 2015 Amendment. The judgment also went on to analyse and hold
exactly which section of the amendment would apply to ongoing arbitrations and
proceedings arising therefrom and which amendments would apply to arbitrations
invoked after the 2015 Amendment came into force.

The 2019 Amendment attempted to undo
the position held in the above judgment. The 2019 Amendment provides that,
unless otherwise agreed by parties, it shall not apply to:

(a)   the
arbitral proceedings commenced prior to the 2015 Amendment;

(b) the
Court proceedings arising out of or in relation to such arbitral proceedings
irrespective of whether such court proceedings have commenced prior to or after
the commencement of the 2015 Amendment.

MAKING INDIA AN ARBITRATION HUB?

It was further clarified that the
2015 Amendment shall only apply to arbitral proceedings that have commenced on
or after the introduction of the 2015 Amendment and to court proceedings
arising out of or in relation to such arbitral proceedings.

However, in the matter of Hindustan
Construction Company Limited & Anr vs. Union of India⁴
the Supreme Court has now held that section 87 of the 2019 Amendment is
manifestly arbitrary and unconstitutional. This judgment goes on to clarify
that the 2015 Amendment, in its original form, shall be applicable as held in
the Board of Control for Cricket in India matter.

Observing the latest arbitration
trends in India, there is not an iota of doubt that the GoI is leaving no stone
unturned to try to make India an arbitration hub. However, the continuous
change in the position of the arbitration law has left many questions
unanswered. Some well-intentioned amendments also have underlying issues that
need to be revisited.

It
is also noteworthy that the Constitutional validity of the 2019 Amendments is
under challenge before the Supreme Court in Writ Petition (Civil) No. 76 of 2020
filed under Article 32 of the Constitution. The main challenge is to the
provisions relating to the qualification required to be an arbitrator and the
mandatory requirement for the Arbitral Institutions to register themselves
before the High Courts and the Supreme Court of India. This petition is subjudice
before the Supreme Court. It would be interesting to follow the developments in this matter as they might
lead to defining the arbitration regime in India.