March 30, 2017

Evolution of the arbitration regime in India

The growth and popularity of arbitration as a form of dispute resolution in the early 1990s was a direct consequence of the liberalisation of the Indian Economy. As India’s economy opened up, it led to a proliferation of international transactions, and thereby to Indian companies being exposed to international commercial arbitrations more frequently. While the Arbitration Act, 1940 was largely equipped to deal with domestic arbitrations, there was a pressing need for a legal regime to regulate international commercial arbitrations. This, clubbed with the fact that the UN Commission on International Trade Law had adopted the UNCITRAL Model Law on International Commercial Arbitration in 1985, led to the enactment of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”).

In the subsequent decades, as India’s economy bloomed significantly, arbitration emerged as the preferred mode of dispute resolution in commercial transactions. In no small part also because of the perennial problem of judicial delay that plagued India. However, during this time, with parties resorting to arbitration more frequently, the Supreme Court, the various High Courts and the legislature have had an opportunity to tinker with various provisions of the Arbitration Act.

A consolidation of all these interpretations, amendments and principles established by lawmakers over 3 decades of the Arbitration Act, led to the enactment of the Arbitration and Conciliation (Amendment) Act, 2015 (“2015 Amendment”) on October 23, 2015. The 2015 Amendment was brought pursuant to the 246th Law Commission Report, and with a view to encourage foreign investment and economic activity in India by facilitating more user-friendly, cost effective and expeditious disposal of cases, quick enforcement of contracts, easy recovery of monetary claims and award of just compensation for damages suffered.

While the 2015 Amendment was a significant and necessary step which overhauled the arbitration regime in India; upon its implementation, certain issues with respect to practical enforcement of the 2015 Amendment became prominent. The most significant of these issues was the applicability of the 2015 Amendment to court proceedings initiated after October 23, 2015 with respect to arbitrations which had initiated prior to October 23, 2015 (For a more detailed analysis of the issues originating from the 2015 Amendment, please read my earlier post on this issues).  The second significant issue which the 2015 Amendment had failed to address was the need for institutionalised arbitration in India.

Upon a commendably early diagnosis made of the issues posed by the 2015 Amendment, a High Level Committee headed by Justice B.N.Srikrishna, Retired Judge, Supreme Court of India was appointed by the Department of Legal Affairs, Ministry of Law and Justice, to suggest reforms to the 2015 Amendment. This High Level Committee submitted its report in August, 2017 (“Srikrishna committee Report”).

The findings of the Srikrishna Committee Report formed the basis for the Arbitration and Conciliation (Amendment) Bill, 2018  approved by the Union Cabinet to be introduced in the Parliament (“Bill”).  The Press Information Bureau of India released a notification with the salient features of the Bill on March 07, 2018 (“Notification”). We have analysed the Notification in detail below:

What’s in it for the votaries of arbitration in India?

Arbitration Council of India

The Bill provides for creation of an independent body, being the Arbitration Council of India (ACI) with a view to grade arbitral institutions and accredit arbitrators. The ACI will be chaired by a Judge of the Supreme Court or Chief Justice or Judge of any High Court or any other eminent person. It would comprise eminent academicians, government nominees etc. in addition to various judges and eminent persons mentioned above. The ACI shall have the power to make rules necessary to promote and encourage arbitration, conciliation, mediation and other alternative dispute resolution mechanisms.

A noteworthy aspect of the ACI’s powers and functions is maintenance of an electronic depository of all arbitral awards. However, the Notification fails to specify whether: (i) all awards passed in arbitrations seated in India would be deposited with such depository; or (ii) will the depository be limited to awards passed in domestic arbitrations or for arbitrations conducted by institutions accredited and recognized by the ACI. The Notification also does not clarify whether the parties can choose to opt out of depositing their awards with the depository if they so wish.

Appointment of Arbitrators

The Bill proposes an amendment to Section 11 of the Arbitration Act, to speed up the process of appointment of arbitrators instead of moving the court for the same. Section 11 will be amended so that the Supreme Court or the relevant High Court may designate specific arbitral institutions to make the appointments of such arbitrators. This will remove the requirement of filing applications for appointment of arbitrations in courts and will result into quicker appointment of arbitrators.

Time Limit for Arbitration

To address the criticism of delayed arbitration proceedings in India, the 2015 Amendment had introduced Section 29A to the Arbitration Act, which mandates that an award be made within 12 months of the tribunal having entered reference in an arbitration, extendable to a period of 18 months by the consent of the parties and approval of the court.

Practical issues that arise as a consequence of this provision are: (i) whether such limited time period is enough for arbitrators to record evidence, hear arguments and pass awards in each individual case; and (ii) whether such limited time period is adequate to resolve complex issues arising in commercial arbitrations.

To deal with this issue, the Bill proposes to amend the time limit under Section 29A of the Arbitration Act to commence from the date of completion of pleadings. It has also proposed exclusion of international commercial arbitrations from the scope of Section 29A of the Arbitration Act.

Confidentiality

A constant criticism of the Arbitration Act, both pre and post the 2015 Amendment pertain to the absence of any provision for confidentiality of arbitration proceedings.

The Bill proposes the introduction of a new Clause 42A, which would provide for confidentiality of all arbitration proceedings under the Arbitration Act, except for the arbitration award.

Arbitrator Immunity

Another new section proposed to be introduced by the Bill is a new section 42B, which provides immunity to an arbitrator from civil suits or other legal proceedings in respect of  any action or omission made by arbitrator in good faith during the course of arbitration proceeding.

Application of the 2015 Amendment to court proceedings initiated after the 2015 Amendment

Another hotly debated issue regarding the 2015 Amendment was its application to court proceedings initiated after the 2015 Amendment where the arbitration proceedings had commenced prior to the 2015 Amendment.

The Delhi, Bombay, Madras and Calcutta High Courts passed conflicting judgments with respect to this issue. The Supreme Court was seized of this issue when a bunch of special leave petitions were filed before it, in which the petitioners sought clarity as to the applicability of the 2015 Amendment to court proceedings initiated after the 2015 Amendment. These special leave petitions were clubbed together and were being led by the matter of Board of Cricket Control of India Vs. Kochi Cricket Private Limited.

While the Supreme Court was still seized with this issue in the BCCI case, the Bill was approved by the Union Cabinet to be presented in the Parliament. The Bill proposed the introduction of a new Section 87 to the Arbitration Act. The proposed Section 87 stipulates that unless otherwise agreed by the parties, the 2015 Amendment: (i) will not apply to arbitration proceedings commenced before the 2015 Amendment; and (ii) will not apply to any court proceedings arising out of or in relation to such arbitration proceedings initiated prior to the 2015 Amendment, irrespective of whether or not such court proceedings were filed before or after the 2015 Amendment.

On March 15, 2018, the Supreme Court rendered its judgment in the BCCI Case, where it has held that: (i) arbitration proceedings commenced after the 2015 Amendment will be governed by the 2015 Amendment; (ii) arbitration proceedings commenced prior to the 2015 Amendment may be governed by the 2015 Amendment if so agreed by the parties; and (iii) Court proceedings initiated after the 2015 Amendment Act will be governed by the 2015 Amendment, irrespective of whether or such court proceedings arise out of and relate to arbitration proceedings commenced prior to or after the 2015 Amendment.

This judgment stands in complete contradiction to the provisions of the proposed Section 87. Addressing the above contradiction in his judgment in the BCCI Case, Justice Rohinton F. Nariman, has advised the government to reconsider the proposed Section 87. The Supreme Court has also directed that copies of the judgment in the BCCI Case be circulated to the government so that the government can appropriately reflect the principles laid down in the judgment in the proposed Bill.

However, Live Law has reported that despite the explicit direction of the Supreme Court, the Bill, released on March 19, 2018, fails to reflect the principles laid down in the BCCI Case.

Where are we headed now?

While the Bill seeks to introduce provisions, fill many lacunae, and iron out important creases in the Arbitration Act and the 2015 Amendment, the contradiction between the proposed Section 87 and the judgment in the BCCI Case sticks out like a sore thumb. It would be interesting to see how the Parliament eventually resolves this issue. Till this issue is resolved, the applicability of the 2015 Amendment with respect to court proceedings (arising out of arbitrations commenced prior to October 23, 2015) remains uncertain.