Arbitration and Conciliation (Amendment) Bill, 2015

Introduction

The Government of India decided to amend the Arbitration and Conciliation Act, 1996 by introducing the Arbitration and Conciliation (Amendment) Bill, 2015 in the Parliament. The Union Cabinet chaired by the Prime Minister had given its approval for amendments to the Arbitration and Conciliation Bill, 2015 taking into consideration the Law Commission's recommendations, and suggestions received from stake holders.

What is need of it?

In an attempt to make arbitration a preferred mode of settlement of commercial disputes and making India a hub of international commercial arbitration. The committee was formed in line to the Arbitration and Conciliation (Amendment) Act, 2015 that was passed by the Parliament in December 2016. The act envisages quick enforcement of contracts, reduce the pendency of cases in courts, easy recovery of monetary claims and hasten the process of dispute resolution through arbitration. This will help in encouraging the foreign investment by projecting India as an investor friendly country that has a sound legal framework and ease of doing business in India.

Amendments

The following are the salient features of the new ordinance:

1. The first and foremost welcome amendment introduced by the ordinance is with respect to the definition of expression 'Court'. The amended law makes a clear distinction between an international commercial arbitration and domestic arbitration with regard to the definition of 'Court'. In so far as domestic arbitration is concerned, the definition of "Court" is the same as was in the 1996 Act, however, for the purpose of international commercial arbitration, 'Court' has been defined to mean only High Court of competent jurisdiction. 
2. Amendment of Section 2(2): A proviso to Section 2(2) has been added which envisages that subject to the agreement to the contrary, Section 9 (interim measures), Section 27(taking of evidence), and Section 37(1)(a), 37(3) shall also apply to international commercial arbitrations, even if the seat of arbitration is outside India, meaning thereby that the new law has tried to strike a kind of balance between the situations created by the judgments of Bhatia International and Balco v. Kaiser. 
3. Amendment to Section 8: (Reference of parties to the dispute to arbitration): In Section 8, which mandates any judicial authority to refer the parties to arbitration in respect of an action brought before it, which is the subject matter of arbitration agreement. The sub-section(1) has been amended envisaging that notwithstanding any judgment, decree or order of the Supreme Court or any court, the judicial authority shall refer the parties to the arbitration unless it finds that prima facie no valid arbitration agreement exists. A provision has also been made enabling the party, who applies for reference of the matter to arbitration, to apply to the Court for a direction of production of the arbitration agreement or certified copy thereof in the event the parties applying for reference of the disputes to arbitration is not in the possession of the arbitration agreement and the opposite party has the same.             
4. Amendment to Section 9 (Interim Measures): 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 the arbitration process and get their disputes settled on merit through arbitration. The exercise of power under Section 9 after the 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.
5. Amendment to Section 11 (Appointment of Arbitrators): 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 can lie from such an order for appointment of an 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 the Fourth Schedule.
6. Amendment to Section 12: Amendment to Section 12, as per the new law makes the declaration on the part of the arbitration about his independence and impartiality more onerous. 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. Any person not falling under any of the grounds mentioned in the Fifth Schedule is likely to be independent and impartial in all respects. Also, another schedule (seventh schedule) is added and a provision has been inserted that notwithstanding any prior agreement of the parties, if the arbitrator's relationship with the parties or the counsel or the subject matter of dispute falls in any of the categories mentioned in the seventh schedule, it would act as an ineligibility to act as an arbitrator. However, subsequent to disputes having arisen, parties may by expressly entering into a written agreement waive the applicability of this provision. In view of this, it would not be possible for Government bodies to appoint their employees or consultants as arbitrators in arbitrations concerning the said Government bodies.                                                 
7. Amendment to Section 14: Amendment of Section 14 aimed at filling a gap in the earlier provision, which only provided for termination of the mandate of the arbitrator. If any of the eventualities mentioned in sub-section (1) arises. The new law also provides for termination of the mandate of arbitration and substitution and his/her substitution by another one.
8. Amendment to Section 17 (Interim Measures by Arbitral tribunal): 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.
9. Amendment to Section 23: The new law empowers the Respondent in the proceedings to submit the counter claim or plead a set-off and hence falling within the scope of the arbitration agreement.
10. Amendment to Section 24: It requires the arbitral tribunal to hold the hearing for the presentation of evidence or oral arguments on day to day basis, and mandates the tribunal not to grant any adjournments unless sufficient causes were shown. It further empowers the tribunal the tribunal to impose exemplary cost where adjournment.
11. Insertions of new Section 29A and 29B( Time limit for an arbitral award and Fast Track Procedure): 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 an arbitrator by up-to 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 an arbitral proceeding may opt for a fast track procedure for settlement of the 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 the 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.
12. Amendment to Section 25: The new Act empowers the tribunal to treat Respondent's failure to communicate his statement of defence as forfeiture of his right to file such statement of defence. However, the tribunal will continue the proceedings without treating such failure as an admission of the allegations made by the Claimant.
13. Amendment to section 28: The new law requires the tribunal to take into account the terms of contract and trade usages applicable to the transaction. In the earlier law, the arbitral tribunal was mandated to decide disputes in accordance with the terms of the contract and to take into account the trade usages applicable to the transaction. To that extent, the new law seeks to relieve the arbitrators from strictly adhering to the terms of the contract while deciding the case. However, the arbitrator can still not ignore the terms of the contract. Therefore, the new amendment seems to bring in an element of discretion in favour of the arbitrators while making of an award.
14. Amendment to Section 31: This provides for levy of future interest in the absence of any decision of the arbitrator, on the awarded amount @2% higher than the current rate of interest prevalent on the date of award. The current rate of interest has been assigned the same meaning as assigned to the expression under Clause (b) of Section 21 of the Interest Act, 1978. In addition, the new Act lays down detailed parameters for deciding cost, besides providing that an agreement between the parties, that the whole or part of the cost of arbitration is to be paid by the party shall be effective only if such an agreement is made after the dispute in question had arisen. Therefore, a generic clause in the agreement stating that cost shall be shared by the parties equally, will not inhibit the tribunal from passing the decision as to costs and making one of the parties to the proceedings to bear whole or as a part of such cost, as may be decided by the tribunal.
15. Amendment of Section 34 (Limiting the gamut of Public Policy of India): As per the new amendment, an award passed in an international arbitration, can only be set aside on the ground that it is against the public policy of India if, and only if, – (i) the award is vitiated by fraud or corruption; (ii) it is in contravention with the fundamental policy of Indian law; (iii) it is in conflict with basic notions of morality and justice. The present amendment has clarified that the additional ground of "patently illegality" to challenge an award can only be taken for domestic arbitrations and not international arbitrations. Further, the amendment provides that the domestic awards can be challenged on the ground of patent illegality on the face of the award but the award shall not be set aside merely on the ground of an erroneous application of law or by re-appreciation of evidence. The new Act also provides that an application for setting aside of an award can be filed only after issuing the 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. Significantly, there is no provision in the new Act which empowers the court or the parties to extend the aforesaid limit of one year for disposal of the application under Section 34.
16. Amendment to Section 36 (Stay on enforcement of award): The 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 a stay on the operation of the arbitral award for payment of money subject to the condition of deposit of whole or a part of the awarded amount.
17. 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. As regards enforcement of certain foreign awards, the new law seeks to add an explanation of Sections 48 and 57 thereby clarifying as to when an award shall be considered to be in conflict within public policy of India. The parameters are the same as are provided under Section 34. Similarly, the expression "Court" used in Sections 47 and 56 have been defined to mean only the High Court of competent jurisdiction.

Conclusion

The amendment brought to the 1996 Act is certainly a positive step towards making arbitration expeditious, efficacious and a cost effective remedy. 

The new amendments seek to curb the practices leading to wastage of time and making the arbitration process prohibitively a costly affair. 

The new law also makes the declaration by the arbitrator about his independence and impartiality more realistic 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.

SUMMARY

The Lok Sabha on 17 December 2015 passed the Arbitration and Conciliation (Amendment) Bill, 2015. The Bill aims to make the arbitration process friendlier and cost effective for investors, ensuring speedy disposal of cases. The Bill aims to amend Arbitration and Conciliation Act, 1996..

Provisions of the Bill

1. It amends Section 12 to the effect that when a person is approached in connection with the possible appointment of an arbitrator, he shall disclose in writing about the existence of any relationship or interest of any kind, which is likely to give rise to justifiable doubts.
2. Further, if a person is having a specified relationship, he shall be ineligible to be appointed as an arbitrator.
3. It states that the Arbitral Tribunal shall make its award within a period of 12 months. Parties may extend such period up to six months. Thereafter, it can only be extended by the Court, on sufficient cause.
4. It calls for fast track procedure for conducting arbitration. Parties to the dispute may agree that their dispute be resolved through fast track procedure. Award in such cases shall be given in six months period.
5. It provides that application to challenge the award is to be disposed of by the Court within one year.
6. It states that mere filing of an application for challenging the award would not automatically stay execution of the award. The award can only be stayed where the Court passed any specific order.
7. It adds that an application for appointment of an Arbitrator shall be disposed of by the High Court or Supreme Court as expeditiously as possible within 60 days.
8. It also provides comprehensive provisions for costs regime. It is applicable both to arbitrators as well as related litigation in Court. It will avoid frivolous and meritless litigation/arbitration.
9. It empowers the Arbitral tribunal to grant all kinds of interim measures which the Court is empowered to grant and such order shall be enforceable in the same manner as if it is an order of Court.

Justice B.N. Srikrishna committee

The high powered committee set up in the directions of the Prime Minister of India, Shri Narendra Modi to prepare a road map to turn India into an international hub of arbitration. The Justice BN Srikrishna Committee, set up by the Law Ministry on January 13, 2017, to suggest reforms in India’s arbitration mechanism, has recommended the reforms mentioned below. The Committee has divided its Report into three parts

1. The First Part is devoted to suggesting measures to improve the overall quality and performance of arbitral institutions in India and to promote the standing of the country as the preferred seat of arbitration. The Committee is also of the opinion that the National Litigation Policy (NLP) must promote arbitration in Government Contracts.
2. The Committee in Part II of the Report reviewed the working of ICADR working under the aegis of the Ministry of Law and Justice, Department of Legal Affairs. The Institution was set up with the objective of promoting ADR methods and providing requisite facilities for the same. The Committee has preferred for declaring the ICADR as an Institution of national importance and takeover of the Institution by a statute. The Committee is of the view that a revamped ICADR has the potential be a globally competitive institution.
3. As regards the role of arbitrations in matters involving the Union of India, including bilateral investment treaties (BIT) arbitrations, the Committee in Part III of the Report has inter alia recommended for creation of the post of an ‘International Law Adviser’ (ILA) who shall advise the Government and coordinate dispute resolution strategy for the Government in disputes arising out of its international law obligations, particularly disputes arising out of BITs. The Committee has emphasized that ILA may be consulted by the Department of Economic Affairs (DEA), at the time of negotiating and entering into BITs.

The key recommendations include:

• Key amendments in the existing arbitration laws and the establishment of Arbitration Promotion Council of India (APCI) among other suggestions.
• The recommendations include setting up a dedicated bar for arbitration and creating special arbitration benches for commercial disputes in courts.
• The APCI will recognize professional institutes providing accreditation of arbitrators and “interact with law firms and law schools to train advocates with interest in arbitration and with a goal to create a specialist arbitration bar comprising of advocates dedicated to the field”.
• The committee has recommended the creation of the post of an International Law Advisor (ILA) to advise the government and coordinate dispute resolution strategy for the government in disputes arising out of its international law obligations.
• The committee has also said the department of economic affairs (DEA) should consult the ILA at the time of negotiating and entering into bilateral investment treaties.
• Changes have been suggested in various provisions of the 2015 Amendments to the Arbitration and Conciliation Act with a view to making arbitration speedier and more efficacious and incorporate international best practices.

Evaluation of reports

Its recommendations on bilateral investment treaty (BIT) arbitration assume importance as India is currently battling 20-odd BIT disputes. These recommendations are largely on the issue of managing and resolving BIT disputes.

Dispute management

For better management of BIT disputes, the committee recommends the creation of an inter-ministerial committee (IMC), with officials from the Ministries of Finance, External Affairs and Law. 

It also recommends hiring external lawyers having expertise in BITs to boost the government’s legal expertise; creating a designated fund to fight BIT disputes; appointing counsels qualified in BITs to defend India against BIT claims; and boosting the capacity of Central and State governments to better understand the implications of their policy decisions on India’s BIT obligations.

The most significant recommendation is the creation of the post of an ‘international law adviser’ (ILA) to advise the government on international legal disputes, particularly BIT disputes, and who will be responsible for the day-to-day management of a BIT arbitration. The intent here is laudable, i.e. augmenting the government’s expertise on BITs and designating a single authority to deal with all BIT arbitrations. However, this recommendation will amount to duplicating the existing arrangement to offer advice on international law, including BITs, to the government.

The Legal and Treaties (L&T) division of the External Affairs Ministry is mandated to offer legal advice to the government on all international law matters including BIT arbitrations. Instead of creating a new office — which will only intensify the turf wars between ministries, and deepen red tape — the L&T division should be strengthened. This division could be made the designated authority to deal with all BIT arbitrations and thus act as the coordinator of the proposed IMC. Furthermore, the IMC should have a member from the Commerce Ministry as well. This ministry, while dealing with India’s trade agreements — that also cover investment protection — works in tandem with the Finance Ministry. Thus it is only prudent that both be a part of an IMC on BIT dispute management.

Dispute resolution

In resolving BIT disputes, the committee has made some useful interventions such as mentioning the possibility of establishing a BIT appellate mechanism and a multilateral investment court. However, its conclusion that the investor-state dispute settlement (ISDS) mechanism, given in Article 15 of the Indian Model BIT, provides an effective mechanism for settling BIT disputes between an investor and state is problematic for the following reasons.

1. First, Article 15 requires foreign investors to litigate in domestic courts at least for a period of five years. Assuming that proceedings end in five years but the investor is not happy with the outcome, the investor can initiate a BIT claim provided it is done within 12 months from the conclusion of domestic proceedings. Out of these 12 months, the next six months must be spent trying to amicably settle the dispute with the state. If not, then the investor has to serve a 90-day notice period to the state, and only after this can she actually submit the dispute for BIT arbitration. In short, even if an investor is extremely alert, she only has a window of three months to actually submit a dispute for BIT arbitration. Such strict limitation periods dilute the effectiveness of the ISDS mechanism. 
2. Second, there are many other jurisdictional limitations given in Article 13 that also limit the usefulness of ISDS. 
3. Third, the ISDS mechanism in the Indian Model BIT extends from Articles 13 to 30 covering issues such as the appointment of arbitrators, transparency provisions, enforcement of awards, standard of review, which have a bearing on the efficiency of the ISDS mechanism. The report is silent on all these critical issues.

Conclusion of Report

BIT arbitration has three aspects: jurisdictional (such as the definition of investment), substantive (such as provision on expropriation) and procedural (ISDS mechanism). While the commission’s mandate was to focus on BIT arbitration, i.e. on all the three parts, strangely, it narrowed it down to just the procedural aspect. This is even more surprising because the committee had organised a conference earlier this year to brainstorm on topics covering all three aspects mentioned earlier, especially in the context of Indian Model BIT. The committee’s explanation that since issues like expropriation require greater debate, it decided not to make any recommendations on these issues is weak. Despite making some useful suggestions, the committee has squandered a great opportunity to comprehensively push for the recalibration of the Indian BIT regime, which has oscillated from being pro-investor to being pro-state.