Arbitration Laws in India (Part I - The 2015 Amendment)
Hari Narayan & Kavya Varma[i]
Arbitration is a method of Alternative Dispute Resolution (“ADR”) that allows a party to resort to outside court settlements to resolve disputes. The process of arbitration has emerged as a common method to resolve disputes among international actors. Parties that resort to arbitration to settle disputes include an ‘arbitration clause’ within the contract. If not an arbitration clause, it can also be in the form of a separate agreement. The law of arbitration is grounded on the principle of ‘l’autonomie de la volonte’ which means freedom of contract. The arbitration mechanism has been widely acknowledged as a cost-effective and time-efficient mechanism for the settlement of commercial disputes in the international and national spheres.
The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (“NYC”) and UNCITRAL Model Law on International Commercial Arbitration, 1985 (“Model Law”) are the most authoritative instruments for international arbitration. The NYC forms a basis for the recognition and enforcement of arbitration agreements and foreign awards on a global scale. The model law does not replace the NYC, however, works parallel with it.
In India, The Arbitration and Conciliation Act, 1996 provides for domestic arbitration, international commercial arbitration, enforcement of foreign award and conciliation. The 1996 Act has been subjected to amendments in 2015 and 2019. This series of articles shall mainly focus on the notable developments that happened in the field of arbitration. It shall cover the following topics with discussions of judicial decisions in the respective areas:
The key changes incorporated by the 2015 and 2019 Amendment Acts.
Two Indian parties choosing a foreign seat of arbitration and ousting the jurisdiction of Indian Courts.
The position of non-signatories to an arbitration agreement with respect to an arbitration proceeding in India.
II. AMENDMENT ACTS OF 2015 AND 2019
Before analyzing the 2015 and 2019 Amendment Act, the lacunae in the 1996 Act must be looked into. As far as the 1996 Act is concerned, a key issue with arbitration then was that most of the arbitral awards were challenged until they reach the highest court of the land, thus ultimately resulting in interference by Court. This resulted in making the dispute settlement process more time consuming and defeating the overall objective and purpose of the legislation. Hence, the 1996 Act has been subjected to Amendments to improvise the field of arbitration in India.
The 2015 Amendment Act shall be analyzed based on the judicial pronouncements that paved the way for the same. It incorporated changes in pre, during and post arbitral proceedings, which are as follows:
1. Pre-Arbitral Proceedings
1.1. Amendment to Section 2(e)- Section 2(e) as amended by the 2015 Amendment Act makes a clear distinction between international commercial arbitration and domestic arbitration with respect to the definition of ‘Court’. The definition has been kept intact so far as domestic arbitration is concerned, however, for in cases of international commercial arbitration, Court has been defined to only mean High Courts of competent jurisdictions. This necessarily means that District courts will no longer have jurisdiction and hence, the parties get recourse to speedier remedy directly by the High Court.
1.2. Amendment to Section 2(2)- A proviso to Section 2(2) has been inserted which states that Section 9, Section 27 and Section 37(1)(a) and 37(3) which essentially talks about interim measures, taking of evidence and appealable orders respectively, shall apply to international commercial arbitrations, even if they are seated outside India unless the parties to the arbitration agreement have agreed to the contrary.
1.3. Amendment to Section 8- Section 8 has been amended so as to allow a judicial authority to refer the matter to arbitration, if an application has been made by the party to the arbitration agreement or any person claiming through or under him.
1.4. Amendment to Section 9- In so far as Section 9 interim measures are concerned, it envisages that if an interim measure of protection is passed by the Court before the commencement of arbitral proceedings, then such arbitral proceedings must commence within 90 days or any further time as determined by the Court.
1.5. Amendment to Section 11- In case of appointment of arbitrations, the SC or the HC or any person or institution designated by such Court has been empowered to appoint the arbitrator.
1.6. Amendment to Section 17- Section 17 provides for the interim measures provided by the arbitral tribunal. As per the 2015 Amendment Act, a party is allowed to make an application for interim measures before the arbitral tribunal, during the arbitral proceedings or at any time after making the arbitral award but before it is enforced and such orders issued by the arbitral tribunal shall be enforceable as if it is an order of a Court.
2. During Arbitral proceedings.
2.1 Insertion of Section 29A and Section 29B- The arbitral proceedings under the 1996 Act have been subjected to recurrent criticism that it was a long-drawn process. Hence to address the issue, Section 29A and 29B have been inserted, providing for time-bound arbitrations. Section 29A provides for a time limit of twelve months for arbitrations seated in India. Section 29B brings forth expedited/fast track arbitration procedure to resolve disputes within a time frame of six months. It allows parties to have their dispute resolved through fast track procedure by an agreement made in writing either before or at the time of appointment of the arbitral tribunal. 29B(3) states that an oral hearing regarding the dispute may be held, if and only if the parties request or the arbitral tribunal considers it necessary to do so.
2.2. Insertion of Section 31A- The newly added Section 31A has provided for a detailed determination of costs by the arbitral tribunals seated in India. It allows the Court or the arbitral tribunal to determine whether costs are payable by one party to another, the amount and the time of payment of such costs. 31A (3) provides for the circumstances which shall be duly regarded by the Court or tribunal in the determination of the said costs.
3. Post-Arbitral Proceedings
The post arbitral proceedings stage necessarily involves the challenges made to the arbitral award. Section 34 of the 1996 Act provides for the grounds under which an arbitral award may be set aside by the Court. And one such ground is that of the award in conflict with the public policy of India. Public policy does not remain static in any given society and often changes from time to time. Owing to this difficulty, there were remarkable judgments pronounced by the Courts in India in determining the concept of public policy.
In Renusagar Power Co. Ltd. v. General Electric Co.[ii], the SC dealt with the concept of public policy and stated that enforcement of a foreign award would be refused on the ground that it is contrary to public policy if such enforcement would be contrary to i) fundamental policy of Indian law ii) interests of India iii) justice or morality. In Renusagar, the SC gave a narrow interpretation to the term public policy, which was later on widened in the case of ONGC v. Saw Pipes.[iii] The SC held that public policy connotes some matter which governs the public good or the public interest. What is for the public good or public interest or what would be injurious or harmful to the public good or public interest has varied from time to time.[iv] The judgment provided for a wide scope for interpretation of the term public policy, which in turn provided the Courts with more power to set aside arbitral awards being violative of public policy. The wider power for the Court to set aside the arbitral award on the ground of violation of public policy was narrowed down by the 2015 Amendment Act.
3.1. Amendment to Section 34- Setting aside an arbitral award on grounds of public policy under Section 34 has been amended to include those awards which are a) vitiated by fraud or corruption b) is in contravention with the fundamental policy of Indian law c) is in conflict with the basic notions of morality and justice. Section 34(2A) clarified that an additional ground of “patent illegality” to challenge an award can only be taken for domestic arbitrations and not international arbitrations. Section 34(5) provides that an application for setting aside an arbitral award can be filed only after issuing prior notice to the opposite party. Section 36 of the 1996 Act was highly criticized that it defeats the very objective of the ADR mechanism.[v] To be specific, the Act provided for automatic stay provisions under Section 36.[vi]
3.2. Amendment to Section 36- As far as automatic stay provisions are concerned; an award would not be automatically stayed by filing an application for setting aside the award under Section 34. The amendment mandates that there has to be a specific order from the Court staying the application made for the said purpose by one of the parties. Hence, the amendment shall be viewed as a positive step towards rendering arbitration a speedy remedy than it was under the 1996 Act.
If a conclusion as to the 2015 amendment is drawn, it could be noticed that the changes incorporated are a positive step towards making arbitration an effective remedy. An interesting pronouncement was made by the SC in the case of BCCI v. Kochi Cricket Pvt. Ltd.[vii], wherein the SC held that 2015 Amendment Act is prospective in nature, however, took a different view in so far as Section 36 is concerned. As a general rule, the retrospective application can be allowed in cases of procedural rights. Section 36, being a procedural provision, it is obvious that the context of Section 36 is that the expression “has been” would refer to Section 34 petition filed before the commencement of Amendment Act and would be one pointer to the fact that the said Section would indeed apply, in its substituted form, even in such petition.[viii] Hence, Section 36 would apply retrospectively as stay on enforcement was a procedural matter rather than a substantive and vested right.
Therefore, the 2015 Amendment can be viewed as that one step allowing India to be an arbitration friendly jurisdiction.
(To be Continued)
[i] Hari Narayan is a Senior Partner at United Maritime Law Chambers, a boutique admiralty law firm based out of Cochin, Kerala. Hari through his firm, UMLC has acted for a wide variety of institutions involved in International trade including MNC’s, FMCG’s, ship owners, Corporate Houses, insurers, and P & I Clubs. Hari is also a visiting faculty and Counsel, Indian Maritime University, and Gujarat Maritime University. Hari has served as a faculty for training Judges from the Federal Capital Territory High Court of Nigeria. He regularly holds Master Class on Ma-rine Insurance and Cargo claims at Dubai, Singapore, and Kuala Lum-pur. Kavya Varma is a Graduate of National University of Advanced Legal Studies (NUALS). [ii] Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp. (1) S.C.C. 644. [iii] ONGC v. Saw Pipes, (2003) 5 S.C.C. 705. [iv] Id, ¶30. [v] National Aluminium Company Ltd. v. Pressteel & Fabrications (P) Ltd., (2004) 1 S.C.C. 540. [vi] Section 36, Enforcement- Where the time for making an application to set aside the arbitration award under Section 34 has expired, or such application has been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 in the same manner as If it were a decree of the Court. [vii] Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd., (2018) 6 S.C.C. 287. [viii] Id, ¶45.
Preferred Citation: Hari Narayan and Kavya Verma, Arbitration Laws in India, Arbitration & Corporate Law Review, Published on 15th August 2020.
Note: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of the Arbitration & Corporate Law Review.