Foreign Arbitrators and Party Autonomy: The Arbitration and Conciliation (Amendment) Act, 2019
Keywords: Arbitration and Conciliation (Amendment) Act, 2019, Qualification of Arbitrators, Foreign Arbitrators, Party Autonomy
Ved Thakur and Ishaan Paranjape*
The Arbitration and Conciliation (Amendment) Act, 2019 (“Act”) which was based on the report submitted by the B. N Shrikrishna Committee came into effect from August 9, 2019. This amendment inserted certain clauses that dealt with the necessary qualification of arbitrators. One such qualification is that the arbitrator must be an advocate under the Indian Advocates Act, 1961. Furthermore, the arbitrator is expected to be ‘conversant’ with the Indian Constitution. This leaves hardly any room for the arbitrators of foreign jurisdictions to be part of ad hoc arbitrations in India. Hence it is possible to say that the autonomy of parties will be rendered to be a mere academic exercise. This inter alia hampers the Arbitration regime in India. In light of this argument, the authors seek to examine the 2019 Amendment through this post.
Understanding the Flagrant Nexus between Schedule 8 and Section 43
The Indian Arbitration and Conciliation Act, 1996 has seen minuscule changes on the basis of the report submitted by the High-Level Committee headed by Justice (Retd.) BN Shrikrishna. This committee posited for inserting Schedule 8 through the Act. The committee further recommended adding Section 43-J which covers the topic of ‘qualification, experience and accreditation of the arbitrators’. It is imperative to read Schedule 8 in consonance with Section 43J of the said Act. On a bare reading of the text, it can be deduced that the Schedule 8 lays down two conditions for an advocate to be a qualified arbitrator- i) he is an advocate as per the Indian Advocates Act, 1961 and ii) he must possess an experience of at least ten years. Hence, it is possible to imply that the arbitrators from foreign jurisdiction will be held unqualified for Arbitration in India. At the very same time, one cannot ignore another abysmal condition laid down in the Schedule 8 i.e. “the arbitrator shall be conversant with the Constitution of India, principles of natural justice, equity, common and customary laws, commercial laws, labour laws, the law of torts, making and enforcing the arbitral awards”. This too will lead to the disqualification of foreign arbitrators.
Section 43-J prescribes for grading of arbitrators and this grading is laid down on the buttress of Schedule 8. Hence, it is possible to ascertain the problems arising out of Schedule 8 i.e. advocate under the Advocate’s Act, conversant with the Indian Constitution, so on, and so forth. Another prominent issue that has to be acknowledged at this juncture is that Section 43-I empowers the Arbitration Council of India (ACI) to be a super-powerful entity. The text of section 43-I talks about the grading of arbitral institutions on the basis of quality and caliber of the arbitrators by the ACI. So it is possible to claim that this grading becomes the creature of the subjectivity of ACI thereby giving a practical veto to determine which institute is fit and which is unfit for Arbitration. This again strikes at the heart of party autonomy which stands at the center stage of Arbitration.
Excursus on Violation of Party Autonomy
The fundamental reason for parties moving out of litigation and taking recourse of Arbitration is not only expedient outcomes but also party autonomy, owing to which parties get a right to choose their own arbitrator. However, the problem here is that when Schedule 8 is taken into consideration, there are explicit limitations on the qualifications of an arbitrator, this, in turn, inflicts a scar on the notion of party autonomy as restrictions are imposed on the arbitrator who practices in a foreign jurisdiction who might not be conversant with the Indian Constitution to be appointed in India seated arbitration. This in itself hampers the essence of Arbitration and thus leads to a negative impact on the Indian Arbitration regime.
Analyzing International Counterparts
The entire argument from the International context can be recapitulated in the following two points- i) The said schedule bars the foreign individuals who are not well versed with the Indian Constitution from qualifying as an arbitrator in India. This is a euphemistic move that will trample international arbitration in India and ii) Under the veil of ‘quality control’, the Indian Government has taken up such half-witted and maverick steps to impose restrictions on Foreign Arbitrators. However, the International scenario presents an antithetic approach and opposes such provisions.
In order to analyze the qualification criteria of arbitrators in an international context, we should consider the situation in the United Kingdom and the USA. On perusal of the Federal Arbitration Act of the USA, it becomes clear that there is no condition on the qualification of an Arbitrator as prescribed by its Indian counterpart. Even the arbitration law in England is adorned with the same principle - no qualification for an arbitrator. The arbitration laws in Singapore and Hong Kong are also on the same lines. Also, on a bare reading of the Model Law (UNCITRAL), we find no clause restricting an arbitrator on the basis of his qualification. Even, the prominent Arbitral Institutions have repelled to accept conditions that mandate an arbitrator to be conversant with the native Constitution. The American Arbitration Association (AAA) and Singapore International Arbitration Centre (SIAC) prescribes no criteria regarding native Constitutional knowledge. The only criteria laid down by the Chinese European Arbitration Centre (CEAC) are eight years of experience or a Professor of law. Hence, it can be deduced that the 2019 Amendment is outrightly contrary to the International scenario.
Analysis and Conclusion
The said contention regarding the prohibition of Foreign Arbitrators in India due to being non-conversant with the Indian Constitution is made on the buttress of not only “party autonomy” but also about the problem of generating “satellite litigation”. One must not and cannot be unmindful of the problems arising due to satellite litigation. Simply put, this phenomenon stands for one or more new lawsuits that arise in the subject matter due to disagreements in the parties. This obviously raises the cost of proceedings and slows down the process of dispute resolution. Lately, several Indian parties have displayed a penchant for appointing arbitrators of foreign jurisdiction as there is a multitude of disputes between the domestic and foreign corporations. One of the cardinal reasons for choosing foreign arbitrators is that in certain fields of law, some countries are more evolved than India, and in such specialized fields, they (foreign arbitrators) can solve the dispute in a relatively better manner.
Even if we accept a hypothetical contingency wherein it becomes inescapable for the arbitrators to be ‘conversant’ with the Indian Constitution, even then it is impossible for the lawmakers to exhaustively define the term conversant and this inter alia leaves a wide aperture for ambiguity. Therefore, it is manifest that the entire notion of ‘party autonomy’ will be vitiated by the subjective satisfaction of lawmakers in question pertaining to the qualification of arbitrators. For instance, a contract in the Industrial sector might warrant an engineer to be the arbitrator. It will be inordinate to expect a foreign engineer to be well acquainted with the Indian Constitution. The authors in their persuasive capacity submit that it is imperative to carve out exceptions in this regard. The ‘exception clause’ can be worded as follows “an arbitrator of foreign jurisdiction does not necessarily mean an advocate within the meaning of the Advocates Act, 1961. Such arbitrator who is conversant with his/her native law need not be necessarily conversant with the Constitution of India.”
Irrespective of the award being brought before the court for execution even then it will be deemed as the arbitrators are not qualified as per Indian Law under Schedule 8, thereby slowing down the process. The said amendment is a hurdle not only for India but also for the world. The major reason for resorting to Arbitration is ‘party autonomy’. These qualifications clip the wings of this phenomenon in toto. So, under the garb of the 2019 Amendment, the lawmakers have resorted to a unipolar approach and are thereby ready to sacrifice party autonomy in the altar of quality control. Hence, the authors conclude that this amendment is one step forward and two steps backward.
*Ved Thakur and Ishaan Paranjape are 3rd year students of Gujarat National Law University, Gandhinagar and Adv. Balasaheb Apte College of Law, Mumbai, respectively. Any discussion related to this topic can be made via mail to email@example.com.
This article was coedited by Arnav Maru (Co-founder and Managing Editor) and Shruti Dhonde (Associate Editor).
Preferred Citation: Ved Thakur and Ishaan Paranjape, “Foreign Arbitrators and Party Autonomy: The Arbitration and Conciliation (Amendment) Act, 2019”, Arbitration & Corporate Law Review, Published on 5th July 2020.