Author: Nikhil Sukhija
Introduction
This article explains
the journey of the Arbitration & Conciliation Act, 1996 till the year 2015
Amendment Act and the salient features of 2015 Amendment Act along the reasons
of its enactment.
The Arbitration and
Conciliation Act, 1996 (“1996 Act”) is a consolidating Act. Part I of the Act
talks about domestic arbitration while the Part II of the Act talks about the
enforcement of New York Convention and Geneva Convention awards. There were
three Acts which were repealed by the introduction of 1996 Act:
1.
The Arbitration Act, 1940, which dealt
only with domestic arbitration.
2. The
Foreign Awards Act, 1961, which pertained to giving effect to the Convention on
the Recognition and Enforcement of Foreign Arbitral Awards, done
at New York.
3.
The Arbitration Act. 1937, which
pertained to giving effect to the Geneva Convention Act.
Foreign
Awards
All the Foreign awards
are not enforceable in India under the 1996 Act. Following are the types of
awards that can be enforced in India:
1.
An award passed under the New York
Convention from a country which is also a signatory to the New York Convention
& is notified by the Government of India under Section 44 of the Act.
2.
If the same is not notified by the
Government of India, it cannot be enforced under Part II of the Act.
3.
As far as the enforcement and
recognition of awards from thenon-notified countries are concerned, there
awards can be recognized if they become a decree in their respective countries
and are enforced as foreign decree in India under Section 44A of the Civil
Procedure Code, 1908.[1]
Geneva Convention was
passed in the year 1927. However, the usage of Geneva Convention has reduced so
much so that if there are 2 countries signatories to the New York Convention
then it automatically replaces the Geneva Convention.
Issues
with regards to the working of 1996 Act
Although, the 1996 Act
is a consolidating Act but there are certain areas in the Act which generated a
lot of judicial intervention and the need for amending certain provisions:
1.
Nature of power exercised under section
11 by the Chief Justice in making appointment of an arbitrator.
2.
The permissible extent of judicial
intervention under either Section 8 or Section 11.
3.
Arbitration of certain kinds of
disputes.
4.
Enforcement of domestic and foreign
awards.
5.
Public policy defence under section 34
and 48 of 1996 Act.
The above issues gave
rise to the Arbitration and Conciliation (Amendment) Act, 2015 (“2015 Act”).
Features
of Arbitration and Conciliation (Amendment) Act, 2015
1.
Definition of the term ‘Court’ was
redefined with respect to the International Commercial Arbitration the rights
are exclusively vested over the High Courts and with respect to the domestic
arbitrations, it has been said that court shall include the appropriate court
which will be the principle civil court of original jurisdiction in a district
or the High Courts where they are exercising Original Jurisdiction.
2.
Section 2(2) was amended wherein a
proviso was inserted. This was to make a provision for the availability of
interim relief under Section 9 and an appeal under Section 37 from an order
passed under Section 9.
3.
The availability of court’s assistance
in taking an evidence under Section 27 with respect to the foreign seated
International Arbitration because the foreign seated arbitration when they come
to India there was no provision in Part II of the Act which made provision for
Interim relief or for assistance in taking evidence and this came to light when
Bhatia International v. Bulk Trading S.A. and Ors.[2] (“Bhatia
International”) and Bharat Aluminium Company v. Kaiser Aluminium Technical
Services Inc.[3]
(“BALCO”) Judgement were ordered. Bhatia International judgement was rendered
by 3 judge bench which had said that Part I of Act would equally be applicable
to Part II to arbitration and foreign arbitration except if they were expressly
or impliedly excluded. The Constitution Bench in BALCO Judgement over-ruled
Bhatia judgement as well as Venture Global Engineering LLC and Ors. v.Tech
Mahindra Limited and Ors.[4] stating that Part I and Part II of the act
are entirely distinct. Part I does not apply to Part II. They are based on the
principle of territoriality. Part I is confined to domestic arbitrations or
arbitrations that seated in India and part II pertains to enforcement of
foreign seated arbitration.
To overcome this lacuna
in a foreign seated arbitration where there was a requirement of interim
relief. Section 9 appearing in part I
would not automatically apply to part II so this proviso was introduced in
Section 2(2) to say that even for foreign seated arbitrations one could move
under Section 9, the appended provision under Section 37 and also they could
move the Indian Courts for assistance in taking evidence under Section 27. So
to this limited extent these three sections, they became important to overcome
the lacuna in the Act.
4.
Another important section which demands
our attention is Section 8. Two significant amendments were introduced in Section
8 which talks about the power of the judicial authority to make a reference to
arbitration. First, not only the party to the arbitration agreement but any
person claiming through or under a party could file an application before a
judicial authority for reference to arbitration. This was done to overcome this
lacuna and it brought it at par with section 45 in Part II of the Act which
contains this provision that any person claiming through or under a party could
also move an application for reference for arbitration. The second significant
amendment in Section 8 was that an non-obstante clause was introduced which
provided that notwithstanding anything contained in any judgement, decree or
order of Supreme Court or any other court, the parties would be referred to
arbitration unless it finds that prima facie no valid arbitration agreement exists.
This was done to overcome legislatively certain decisions passed by the courts,
wherein it had been held that certain issues had to be decided at the thresh
hold and only after they were resolved could the matter be referred for
arbitration. The whole principle of Arbitration is minimum judicial
intervention and party autonomy. Once a tribunal is constituted then it is for the
tribunal to decide all the jurisdictional objections and issues and not the
court. This situation was resurrected by the 2015 Amendment Act.
5.
Section 11 was the next provision where
substantive changes were made. The power under the principle act was conferred
on the Chief justice of the High Court with respect to the domestic arbitration
and Chief Justice of India with respect to the International Commercial Arbitration
for the appointment of an arbitrator. If the parties failed to make an
appointment for any reason, they could move the court under Section 11 which is
termed as the default power of appointment which would be exercised by the High
Court for domestic arbitration and by the Supreme Court for the International
Commercial Arbitration seated in India. Now, the power was shifted from the CJI
to the Supreme Court itself and from Chief Justice of High Court to the High Court
itself. This was a significant change in Section 11. The second aspect was that
a clarificatory
amendment was made that this power would not be treated as a delegation of
judicial power.
Another important aspect
was that a very important sub-section which continues to be in operation
sub-section 6 (a) to Section 11 was introduced. Section 11(6) (a) provides the
scope of examination when the court makes an appointment of an arbitrator. It
is confined only to the examination of the existence of an arbitration
agreement and no more. There is a difference between section 8 and section 11.
Section 8 talks about the existence of the valid arbitration agreement and
Section 11 talks about the existence of an arbitration agreement. So, the scope
is narrower in Section 11.
6.
These amendments had been over-ruled by
the judgement of S.B.P. and Co. v. Patel Engineering Ltd. and Ors.[5], where
the constitution bench which had said that this power is a judicial power and
cannot be delegated to any institution or a person. It was also stated that the
issues regarding jurisdiction and arbitrability had to be decided by the court
before making any reference. The Arbitration (Amendment) Act, 2015 (“2015
Arbitration”) stated that this is no longer valid and it has to be done by the
tribunal and not the court. The court must just see, if there is existence of
any Arbitration Agreement then the matter shall be referred to the arbitrator for
deciding the issue.
7.
Section 11(6) (b) is another new provision
that has been introduced in Section 11 providing that the delegation of the
power by the Supreme Court or High Court shall not be regarded as a delegation
of the power. These are the more significant amendments with respect to Section
11 which talks about the power of appointment.
Third important category
of amendments with respect to the Section 12 is on conflict of interest of an
arbitrator in deciding an issue. There was a vast amount of jurisprudence which
emanated from the courts with respect to a sole arbitrator being appointed or a
named appointment particularly in the context of the government contracts, as
to whether there would be conflict of interest or not because lack of biasness,
independence and impartiality of an arbitrator is a non-derogable provision of
the Act.
8.
With respect to the above Section 12 was
substantially amended, there are 2 schedules which have been introduced in the
Act, that is, Schedule 5 & 7 sets out the degree and nature of
relationships where a conflict of interest can be considered to be a ground for
an arbitrator to be removed from the position of adjudicating the dispute
between the parties. Schedule 5 & 7 are based on the IBA conflict of
interest of arbitrators. These guidelines have been treated as soft law in foreign
jurisdictions that is they are not binding but the legislature has incorporated
these schedules and have given it a statutory flavour (India is probably the
only country which has incorporated it in its statute). The arbitrators are now
required to make 2 mandatory disclosures:
·
With respect to the independence and
impartiality of both the subject matter and the parties of suit.
·
The time availability and the number of
cases they are dealing with while taking the case.
9.
Section 17 has now empowered the
arbitral tribunal to grant interim relief and has brought it at par with
section 9 which is the provision where courts can grant interim relief to
parties either before the commencement of the proceedings or during the proceedings
or after the award is made. Section 9 (3) on the constitution of arbitral tribunal,
the court shall not grant interim relief during the pendency of the
proceedings.
10.
Next important provision is a salutary
provision that is Section 29A which provides a time bound period for the
proceedings to be completed and the award to be delivered. Prior to the 2015 Amendment,
arbitrations went for an indefinite period of time and there was a huge time
lag even before the award was delivered. Arbitrations also became extremely
expensive as the arbitrators charged per sitting fee and cost mounted too much.
In order to overcome this situation, the provision was incorporated so that the
proceedings could be completed and award may be rendered within a period of 12
months after entering upon reference. If the proceedings were still not concluded
the parties could agree to a six month extension. If, yet, in the 12+6 months
the proceedings still did not get completed, the parties could make an
application before the court and the court would decide as to what would be the
period of extension they would grant if
sufficient cause was made out for the delay in concluding the proceedings.
11.
Another significant amendment was made
in Section 31(7) (b) in 2015 Amendment which was taking into account the ground
realities. It provides a statutory rate of interest which will start running on
the amount awarded post the award. The statutory rate of interest under the
principle Act was 18%, this was amended as it was found to be extremely high
amount of rate and due to its uniform nature. The legislature amended it to +2%
over the prevailing rate on the date of passing of the award.
Section 34 has also
been amended with respect to the public policy defence wherein it has been
narrowed as a consequence of the decisions passed in the case of Oil & Natural
Gas Corporation v. Western Geco International Ltd.[6],
which was with respect to the reasonableness of an award. To overcome this,
Section 34 has been amended that an award can be set-aside on the public policy
ground only if:
·
Either it was induced or affected by
fraud or corruption or was in violation of Section 75 or Section 81; or
·
If it was in contravention with the
fundamental policy of Indian Law.
12.
The most important amendment introduced
by the 2015 Amendment Act was the Section 36 which has been completely
substituted. Section 36 in the principle Act was interpreted in National Building
Construction Corporation Ltd. v. Lloyd Insulation India Ltd.[7] to
mean that a minute party files objections under Section 34, the award becomes
unenforceable, there is an automatic suspension of the award. To overcome this
situation, it was considered appropriate to completely change the section which
now provides that once the award is passed, it does not become automatically
unenforceable, a party must obtain a stay and the same shall be in terms which
the court deems appropriate and the grounds for granting even a partial stay
must be recorded in writing. So they have made more stringent now.
Timelines
in 2015 Amendment Act
1.
Where an application is filed for
appointment for an arbitrator under Section 11. Section 11(13) states that it
should normally be disposed of within a period of 60 days.
2.
Section 29A(9), if an application is
moved before the court for extension of time to conclude the proceedings and
make the award, that application shall be decided within a period of 60 days.
3.
Section 34 states that where objections
are filed the court should normally dispose it off within a period of one year.
These are directory
provisions but have been incorporated to dispose of court proceedings as
expeditiously as possible. The 2015 amendment have been lauded internationally
India’s rating in the ease of doing business has got enhanced from being 77 it
has come down to 63 along with Insolvency and Bankruptcy Code and new Companies
Act.
[1]
Badat and Company v. East India Trading Company 1964 (4) SCR 19
[6]
Civil Appeal Nos. 3415/2007
[7] AIR
2004 Delhi 235
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