The Arbitration and Conciliation Act, 1996, is an Act to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards, and to define the law relating to conciliation and for matters connected therewith. The Arbitration and conciliation (amendment) act was passed under Article 123 of the constitution, under the pleasure of the President when the parliament was not in session.
REASON FOR ARBITRATION LAW IN INDIA
The first direct law on Arbitration in India was Arbitration and India act, 1899 applicable only to presidency towns of Calcutta, Bombay and Madras. Post that, India got its first consolidated legislation on arbitration in the year 1940, Arbitration act which was based in English Arbitration act, 1934. With the liberalization in the year 1991, foreign investors required a stable business environment and a strong commitment to the rule of law, based on a predictable and efficient system of resolution of disputes. Thus, alternative systems like arbitration were seen as a prerequisite to attract and sustain foreign investment.
In order to address these problems, the earlier regime was sought to be replaced by the Arbitration and Conciliation Bill, 1995 which was introduced in Parliament. Since the requisite legislative sanction could not be accorded to the 1995 Bill, the President of India promulgated the Arbitration and Conciliation Ordinance, 1996 on the same lines as the 1995 Bill. The Parliament passed the Bill in terms of the Arbitration and Conciliation Act, 1996 and with its commencement it had a retrospective effect of eight months in the year 1996.
- The first amendment has come in defining the term “court” for both domestic and international arbitration. In the case of domestic arbitration the definition of “court” is same as it was in The Arbitration and Conciliation Act, 1996 whereas in the case of international arbitration definition of “court” includes only High Courts having original jurisdiction and jurisdiction to decide the question forming the subject matter of arbitrational proceeding.
- Amendment to section 2(2): While defining the scope of Article 2, in sub clause 2 where the scope was limited to where the place of arbitration in India has been expanded; section 9 of The Arbitration and Conciliation Act, 1996 (interim measures by court), section 27 (asking for court’s assistance in taking evidence) and section 37 (1)(a) will also apply to international arbitrations even if the seat of the arbitration is outside India.
- Amendment to section 7: The ways by which arbitration agreements can be also includes ‘communication through electronic means’ apart from the means already laid down in sec 7 of The Arbitration and Conciliation Act, 1996.
- Amendment to section 8: The amendment to section 8(1) has inserted that no judgment, decree or order of the Supreme Court will stop the parties to enter into arbitration as soon as either of the parties submits their first statement unless it is seen that no arbitration agreement exists. Amendment to section 8(2) it is inserted in the clause that if the party applying for arbitration does not have the original arbitration agreement and the certified copy is with the other party, the party approaching the court can make an application praying the court to call upon the other party for the certified copy of the arbitration agreement.
- Amendment to section 9: The amended section envisages that if the Court passes an interim measure of protection under the section before commencement of arbitral proceedings, then the arbitral proceedings shall have to commence within a period of 90 days from the date of such order or within such time as the Court may determine. Also, that the Court shall not entertain any application under section 9 unless it finds that circumstances exist which may not render the remedy under Section 17 efficacious. The above amendments to Section 9 are certainly aimed at ensuring that parties ultimately resort to arbitration process and get their disputes settled on merit through arbitration. The exercise of power under Section 9 after constitution of the tribunal has been made more onerous and the same can be exercised only in circumstances where remedy under Section 17, appears to be non-efficacious to the Court concerned.
- Amendment to section 11: In so far as section 11, “appointment of arbitrators” is concerned, the new law makes it incumbent upon the Supreme Court or the High Court or person designated by them to dispute of the application for appointment of arbitrators within 60 days from the date of service of notice on the opposite party. As per the new Act, the expression ‘Chief Justice of India’ and ‘Chief Justice of High Court’ used in earlier provision have been replaced with Supreme Court or as the case may be, High Court, respectively. The decision made by the Supreme Court or the High Court or person designated by them have been made final and only an appeal to Supreme Court by way of Special Leave Petition (under Article 136) can lie from such an order for appointment of arbitrator. The new law also attempts to fix limits on the fee payable to the arbitrator and empowers the high court to frame such rule as may be necessary considering the rates specified in Fourth Schedule.
- Amendment to section 12: The scope of section 12(i) has been increased widely by inserting clause (a) and (b). A schedule has been inserted (Fifth Schedule) which lists the grounds that would give rise to justifiable doubt to independence and impartiality of arbitrator and the circumstances given in Fifth Schedule are very exhaustive; which makes it mandatory for the arbitrator to be appointed to disclose his relation with either of the parties or subject matter which might influence his decision or any other deterrent which would stop the arbitrator from completing the arbitration in twelve months. The disclosure is to be made by the arbitrator to be appointed in the form situated in the sixth schedule.
- Amendment to section 14: The mandate of an arbitrator to terminate and the substitution of the arbitrator will be chosen if under the sub section (1) of article 14 any eventualities occur or situation arises.
- Amendment to section 17: The old Act had lacunae where the interim orders of the tribunal were not enforceable. The Amendment removes that lacunae and stipulates that an arbitral tribunal under Section 17 of the Act shall have the same powers that are available to a court under Section 9 and that the interim order passed by an arbitral tribunal would be enforceable as if it is an order of a court. The new amendment also clarifies that if an arbitral tribunal is constituted, the Courts should not entertain applications under Section 9 barring exceptional circumstances.
- Amendment to section 23: The respondent will have the power to submit a counter claim or plead a set off provided it is in the scope of the arbitration agreement.
- Amendment to section 24: To specifically honour the objective of arbitration proceeding which is speedy justice so all the evidence and the proceedings will be held on orally and no adjournments will be provided unless sufficient cause is submitted and the tribunal will have the power to impose costs if adjournments are taken without sufficient cause.
- Amendment to section 25: When a respondent defaults in communication his defense, the arbitral tribunal shall continue the proceedings without treating the failure is acceptance of the allegations of the claimant and the tribunal shall have the discretion to treat the right of the respondent to file the defense as it has been forfeited.
- Insertions of new Section 29A and 29B: To address the criticism that the arbitration regime in India is a long drawn process defying the very existence of the arbitration act, the Amended Act envisages to provide for time bound arbitrations. Under the amended act, an award shall be made by the arbitral tribunal within 12 months from the date it enters upon reference. This period can be extended to a further period of maximum 6 months by the consent of the parties, after which the mandate of the arbitrator shall terminate, unless the Court extends it for sufficient cause or on such other terms it may deem fit. Also, while extending the said period, the Court may order reduction of fees of arbitrator by upto 5% for each month such delay for reasons attributable to the arbitrator. Also, the application for extension of time shall be disposed of by Court within 60 days from the date of notice to the opposite party. The Ordinance also provides that the parties at any stage of arbitral proceeding may opt for a fast track procedure for settlement of dispute, where the tribunal shall have to make an award within a period of 6 months. The tribunal shall decide the dispute on the basis of written pleadings, documents and submissions filed by the parties without oral hearing, unless the parties request for or if the tribunal considers it necessary for clarifying certain issues. Where the tribunal decides the dispute within 6 months provided additional fees can be paid to the arbitrator with the consent of the parties.
- Amendment to section 31: In the arbitration award a sum to be paid will carry an interest rate of two percent more than the market interest rate at the date of the award, unless otherwise explicitly mentioned in the award.
- Insertion of new section 31A: The arbitration tribunal has all the discretion to determine costs involved in the arbitration proceeding and who is supposed to pay the cost, irrespective of anything contained in code of civil procedure, 1908.
- Amendment to section 34: The amendment in The Arbitration and conciliation act, 1996 states that the award is in conflict with the public policy of India if- i)the making of the award was induced or affected by fraud, ii)it is in contravention of the public policy of Indian law, iii) it is in conflict of the basic notion of morality or justice. The award can be set aside, other than an international award on the ground of patent illegality appearing on the face of the award. The new Act also provides that an application for setting aside of an award can be filed only after issuing prior notice to the other party. The party filing the application has to file an affidavit along with the application endorsing compliance with the requirement of service of prior notice on the other party. A time limit of one year from the date of service of the advance notice on the other parties has been fixed for disposal of the application under Section 34.
- Amendment to section 36: Ordinance provides that an award would not be stayed automatically by merely filing an application for setting aside the award under Section 34. There has to be a specific order from the Court staying the execution of award on an application made for the said purpose by one of the parties. The Ordinance aims to remove the lacunae that existed in the previous Act where pending an application under Section 34 for setting aside of arbitral award, there was an automatic stay on the operation of the award. The new law also empowers the Court to grant stay on operation of arbitral award for payment of money subject to condition of deposit of whole or a part of the awarded amount.
- Amendment to Section 37: Under Section 37(1), the new law makes provision for filing of an appeal against an order of judicial authority refusing to refer the parties to arbitration under Section 8.
The amendment brought to the 1996 Act is certainly a positive step towards making arbitration expeditious, efficacious and a cost effective procedure. The new amendments seek to curb the practices leading to wastage of time and uphold the basic premise for which the Arbitration act was first consolidated: speedy justice. The new law also makes the declaration by the arbitrator about his independence and impartiality more realistic and gives the arbitrator a wide scope to see his incapability of any form to be an arbitrator as compared to a bare formality under the previous regime. Making the arbitrator responsible for delay in the arbitration proceedings, for the reasons attributable to him, would ensure that the arbitrators do not take up arbitrations, which are beyond their capacities. Such a deterrent would imbibe self-discipline and control amongst the arbitrators. It can be said that the present amendments certainly travel an extra mile towards reducing the interference of the Court in arbitration proceedings that has been a consistent effort of the legislature since passing of the 1996 Act.
Mohit Seth, 5th Year, BA LLB(Hons.), Scool of Law, KIIT University