Arbitration and Conciliation: 2019 Amendments and Recent Developments

In August 2019, certain amendments were introduced to the Arbitration and Conciliation Act, 1996 (“the Amendment Act”). The recent amendments are aimed at removing the hurdles in timely conclusion of the commercial disputes and promoting institutional arbitration in India with the aim of making India a hub for domestic as well as international arbitration. The Amendments introduced are aimed at making the arbitral process prompt, economical and effective by leaving a very minimal scope for the intervention of Courts. The government intended to make India a hub of domestic as well as international arbitration, by bringing in changes in the Act for faster resolution of commercial disputes.

The Amendment Act imposes time limits for the conclusion of arbitral proceedings and has limited the extent of extension of time which the parties were resorting to before the recent amendments. It imposes a time limit on the filing of pleadings, granting of extensions of time and issuing of arbitral awards. Section 29 A provides that the award in matters other than international commercial arbitration shall be made by the arbitral tribunal within a period of twelve months from the date of completion of pleadings under sub-section (4) of Section 23. It further provides that the award in the matter of international commercial arbitration may be made as expeditiously as possible and endeavour may be made to dispose of the matter within a period of twelve months from the date of completion of pleadings under sub-section (4) of Section 23. If the award is made within a period of six months from the date the arbitral tribunal enters upon the reference, the arbitral tribunal shall be entitled to receive such amount of additional fees as the parties may agree. The parties may, by consent, extend the period beyond twelve months for making the award for a further period not exceeding six months. If the award is failed to be made even within the extended period, the mandate of the arbitrator(s) shall terminate unless the Court has, either prior to or after the expiry of the period so specified, extended the period. However, where an application for extension of period (which shall be disposed of by the Court as expeditiously as possible within a period of sixty days from the date of service of notice on the opposite party) is pending before the court, the mandate of the arbitrator shall continue till the disposal of the said application which shall be decided upon giving an opportunity of being heard to the arbitrator where the arbitrator’s fee is being reduced. Such extension of period may be granted on the application of any of the parties only for sufficient cause and on such terms and conditions as may be imposed by the Court. While extending the period, it shall be open to the Court to substitute one or all of the arbitrators and if one or all of the arbitrators are substituted, the arbitral proceedings shall continue from the stage already reached and on the basis of the evidence and material already on record, and the arbitrator(s) appointed under this Section shall be deemed to have received the said evidence and material.

The parties may, at any stage either before or at the time of appointment of the arbitral tribunal, agree in writing to have their disputes resolved by fast-track procedures, which would require the award to be made within six months from the date of entry of arbitral tribunal upon reference [Section 29 B], which is a significant development to make the arbitration proceeding more viable and optimistic. The parties to the arbitration agreement, while agreeing for resolution of disputes by a fast track procedure, may agree that the arbitral tribunal shall consist of a sole arbitrator who shall be chosen by the parties. The arbitral tribunal shall decide the dispute on the basis of written pleadings, documents and submissions filed by the parties without any oral hearing and the arbitral tribunal shall have power to call for any further information or clarification from the parties in addition to the pleadings and documents filed by them.  An oral hearing may be held only if all the parties make a request or if the arbitral tribunal considers it necessary to have oral hearing for clarifying certain issues.

The time limit for conclusion of the arbitral proceeding is aimed at  improving the efficiency of arbitration , however, there are concerns regarding its enforceability that if the time limits are not adhered to by the parties the objective of these changes would become difficult to achieve. Therefore, it would be judicious for all parties involved to attempt to manage arbitration proceedings in line with the timelines provided.

Section 11 (3A) of the Amendment Act further provides that the Supreme Court and the High Court shall have the power to designate, arbitral institutions, from time to time, which shall be graded by the Arbitration Council of India under Section 43-I of the Amendment Act, for the purposes of the Arbitration and Conciliation Act, provided that in respect of those High Court jurisdictions, where no graded arbitral institution are available, the Chief Justice of the concerned High Court may maintain a panel of arbitrators for discharging the functions and duties of arbitral institution and any reference to the arbitrator shall be deemed to be an arbitral institution for the purposes of this Section and the arbitrator appointed by a party shall be entitled to such fee at the rate as specified in the Fourth Schedule.

Section 42A of the Amendment Act provides for confidentiality of information pertaining to the arbitration proceedings. It states that n otwithstanding anything contained in any other law for the time being in force, the arbitrator, the arbitral institution and the parties to the arbitration agreement shall maintain confidentiality of all arbitral proceedings except In case of an arbitral award where its disclosure is necessary for the purpose of implementation and enforcement of the award. This provision is a welcome move in line with the international norms mainly ICC.

The 2019 Amendment Act further provides for the establishment and incorporation of the Arbitration Council of India (“ACI”) (Sections 43A to 43M) under  Part 1A which enables the Central Government to constitute the ACI by a  notification in the Official Gazette, the head office of which shall be at Delhi. The ACI shall be composed of (i) a Chairperson who has been, a Judge of the Supreme Court or, Chief Justice of a High Court or, a Judge of a High Court or an eminent person, having special knowledge and experience in the conduct or administration of arbitration; (ii) a Member who shall be an eminent arbitration practitioner having substantial knowledge and experience in institutional arbitration, both domestic and international, to be nominated by the Central Government; (iii) a Member who shall be an eminent academician having experience in research and teaching in the field of arbitration and alternative dispute resolution laws, to be appointed by the Central Government in consultation with the Chairperson; (iv) a Member, ex officio  who shall be Secretary to the Government of India in the Department of Legal Affairs, Ministry of Law and Justice or his representative not below the rank of Joint Secretary; (v) a Member, ex officio  who shall be Secretary to the Government of India in the Department of Expenditure, Ministry of Finance or his representative not below the rank of Joint Secretary; (vi) a Part-time Member who shall be a representative of a recognised body of commerce and industry, chosen on rotational basis by the Central Government; and (vii) a Member-Secretary ex officio who shall be the Chief Executive Officer. Section 43D of the Amendment Act further provides that i t shall be the duty of the ACIto take all such measures as may be necessary to promote and encourage arbitration, mediation, conciliation or other alternative dispute resolution mechanism and for that purpose to frame policy and guidelines for the establishment, operation and maintenance of uniform professional standards in respect of all matters relating to arbitration.

Under Section 43I it has been provided that t he ACI shall make grading of arbitral institutions on the basis of criteria relating to infrastructure, quality and calibre of arbitrators, performance and compliance of time limits for disposal of domestic or international commercial arbitrations, in such manner as may be specified by the regulations. Though the accreditation system is a positive step in bringing the uniformity across the country, a foreign party appearing before the Supreme Court and seeking appointment of an arbitrator will be limited to institutions which have ACI accreditation and the arbitrators on their panel.

The qualifications, experience and norms for accreditation of arbitrators shall be in conformity with the Eighth Schedule, as introduced by the Amendment Act, 2019 [Section 43D]. The Eighth Schedule stipulates nine categories of persons which inter alia includes  an advocate, a chartered accountant, a cost accountant, a company secretary having ten years of practice experience. Thus, a foreign lawyer, retired judges, scholar or a retired foreign officer is outrightly disqualified to be an arbitrator under the Amendment Act, 2019. For obvious reasons, foreign parties will be discouraged to opt for Indian institutional arbitration where the choice of candidates as their potential arbitrators is limited by nationality, likelihood of lack of experience and specialization – both academic and professional – in handling international arbitrations.

Recently in M/s Mayavati Trading Private Limited vs. Pradyuat Deb Burman [( 2019) 8 SCC 714] the Hon’ble Supreme Court held that power in respect of the appointment of an arbitrator under Section 11 is confined only to the examination of the existence of a valid arbitration agreement and the court cannot decide on the arbitrability of a dispute and that the preliminary disputes are to be examined by the arbitrator and not by the court since the Courts have limited scope under Section 11 of the Arbitration Act and Conciliation Act, 1996 to appoint the arbitrator. 

InPerkins Eastman  Architects DPC & Anr. vs. HSCC (India) Ltd. [2019 SCC Online 1517] the issue raised before the Supreme Court was with respect to the validity of arbitration clause  authorising one of the parties to the contract to appoint the sole arbitrator for adjudication of disputes. The Hon’ble Supreme Court while deciding the issue held that the person who is an interested party in the outcome of the award must not have the power to appoint a sole arbitrator. This decision of the court is an outcome of the principle laid down in Section 12(5) that a person who was to act as an arbitrator in terms of the arbitration clause of the parties would be rendered statutorily incompetent to act as an arbitrator since such person holds a  relationship with the parties or counsel or the subject-matter of the dispute falls under the categories specified in the Seventh Schedule of the Arbitration and Conciliation Act, 1996.

In Hindustan Zinc Limited v. Ajmer Vidyut Vitran Nigam Limited  [2019 SCC Online SC 1683], the Rajasthan Electricity Regulatory Commission passed two orders dated 22/05/2006 and 23/06/2006, thereby deciding that it will, on its own, decide the dispute between the above -mentioned parties and by order dated 12/02/2007, the Commission appointed an arbitrator under Section 86(1)(f) of the Electricity Act, 2003. The Hon’ble Supreme Court determined the scope of arbitration proceedings under Section 86(1)(f) of the Electricity Act, 2003 and referred to Gujarat Urja Vikas Nigam Ltd. v. Essar Power Ltd. (2008) 4 SCC 755 which had observed that the word ‘and’ in Section 86(1)(f) between the words ’generating companies’ and ‘to refer any dispute for arbitration’, in fact, means ‘or’ as the same would lead to an anomalous situation because obviously, the State Commission cannot both, decide a dispute itself and also refer it to an arbitrator. Hence the word ‘and’ in Section 86(1)(f) means ‘or’. The reference for arbitration can only be between licensees and generating companies and not in any other way. The High Court’s statement is correct in saying that the arbitrator could not, in law, have been appointed by the State Commission under Section 86 of the Electricity Act, 2003.

In a recent judgment of Mankastu Impex Private Limited v. Airvisual Limited  [2020 SCC Online SC 301] the Hon’ble Supreme Court held that since the arbitration is seated at Hong Kong, the petition filed by the petitioner under Section 11(6) of the Act will not be maintainable in India. The Court held that the seat of arbitration is a vital aspect of any arbitration proceedings and operates as the determining factor with respect to the applicable law and arbitration procedure as well as judicial review over the arbitration award.

In MMTC Limited v. Anglo American Metallurgical Coal Pty Ltd.  [(2015) 221 DLT 421]; the Hon’ble Supreme Court held that on the basis of the general principles of Section 37, the Court should forbear from interfering in drawing conclusions of fact reached by the Tribunal, however, if the Court finds that a conclusion of inference drawn by the Arbitral Tribunal, even if upheld in proceedings under Section 34, is not supported by a plain, objective and clear-eyed reading of documents which  goes to the root of the matter, the Court would not be required to shy away from interfering or correcting such conclusion. It was held to be permissible for the Court to interfere where certain non-existent words had been taken into consideration by the Arbitral Tribunal as forming a part of the communication exchanged between the concerned parties along with the omission of considering the plain meaning of the text of the relevant documents.

The initial years of the implementation of the Arbitration and Conciliation Act, 1996 saw a regressive interpretation that allowed frequent and widespread judicial intervention from Indian Courts. However, in recent times, the judgments of the Supreme Court and High Courts as discussed above, have broken the trend and have taken a positive view to restore confidence in the Indian judicial system towards making India a potential arbitration destination.

Unlike the previous regime where parties to the arbitration seated outside India did not have recourse to Indian Courts under Part I of the Arbitration and Conciliation Act, 1996 the recent amendment extends certain provisions of Part I to foreign-seated arbitrations, subject to an agreement to the contrary. The amendments enable a foreign investor to obtain protective orders in India against an Indian party who has the assets  pertaining to the subject matter of the arbitration seated in a foreign country, in India. This change will significantly reduce the risk of waiting until the outcome of the arbitration proceeding. A foreign award is required to be presented for enforcement under Section 47 of the Arbitration and Conciliation Act, and the Indian Courts would have  limited jurisdiction to review a foreign award so as to examine whether it satisfies the conditions as enumerated in  Section 48 of the Arbitration and Conciliation Act, 1996.

The definition of “court” under the Arbitration and Conciliation Act, 1996 has been amended to mean the jurisdictional High Court for international commercial arbitrations. The proceedings for enforcement of foreign arbitral awards will now lie before the High Court and if the subject matter of the dispute pertaining to the foreign award is more than the specified value as mentioned under the Commercial Courts Act, such matters shall be heard and decided by the Commercial Appellate Division of the High Court.

The intent of the legislature is very clear and vivid which signals the message to the investors and creditors that the legal hurdles which are presently a cause of concern shall not be a deterrence to the investment, business and credit market within India. A reference in this regard may also be drawn to the present insolvency regime wherein Court intervention in resolving the dispute has been kept at the minimal level and the Courts have been given the role of a procedural referee/supervisor  to which they have gradually adapted  and which has produced positive results.

The Amendment Act, 2019 certainly brings a positive impetus towards making arbitration in India consistent with current international practices. However, it remains to be seen whether India will become an attractive destination for international arbitration in view of the limitation that foreign lawyers and academicians are not qualified to be appointed as arbitrators under the present arbitration regime in India.