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13 September 2018
Following the enforcement of the Arbitration and Conciliation (Amendment) Act 2015 (2015 amendment), the Arbitration and Conciliation (Amendment) Bill 2018 (2018 bill) proposes to further amend the Arbitration and Conciliation Act 1996 (1996 act). The bill is another step by policymakers towards making India "a robust centre for international and domestic arbitration".
The 2018 bill was introduced in Lok Sabha on 18 July 2018. The proposed amendments are based on the recommendations of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India (the so-called 'Srikrishna Committee'), which is chaired by Justice B N Srikrishna, a former Supreme Court judge. The recommendations aim to facilitate:
It was in this context that the 2018 bill was created. It is an attempt to become one of the pillars of ease of doing business in India by making India an investor-friendly jurisdiction and a preferred seat of arbitration for dispute resolution.
This article aims to critically examine and elucidate three of the proposed amendments to Sections 17, 26 and 29A of the 1996 act.
Varied constructions and interpretations have led to a divergence of opinion among various high courts as to the applicability of the 2015 amendment to arbitrations and related proceedings that commenced before and after 23 October 2015 (ie, the date on which the 2015 amendment came into force by way of the 2015 ordinance). As per Section 26 of the 2015 amendment, this amendment does not apply to arbitral proceedings commenced before 23 October 2015 (in accordance with Section 21 of the 1996 act), unless the parties otherwise agree. However, the amendment does apply in relation to arbitral proceedings commenced on or after 23 October 2015. In light of these varied interpretations by different high courts, the Supreme Court considered the issue in Board of Control for Cricket in India v Kochi Cricket Private Limited(1) and disposed of various high court appeals by issuing a common judgment and order clarifying the application of Section 26.
While addressing said section, the primary issue before the Supreme Court was whether the substituted Section 36, as introduced by the 2015 amendment, would apply in its original or amended form. Before the amendment, Section 36 provided that an automatic stay would be imposed on the execution of an award if an application to set aside the award had been filed under Section 34 of the 1996 act. Under the amended Section 36, filing an application under Section 34 would no longer advent an automatic stay on execution proceedings. The aggrieved applicant was required to make a separate stay application, further conditional on furnishing security if the award related to a monetary award under the new regime.
The bench (comprised of Justices Rohinton F Nariman and Navin Sinha) referred to the 24th Report of the Law Commission of India, wherein it was noted that automatic stays not only led to unnecessary delays, rendering arbitration proceedings ineffective, but also obstructed decree holders from exercising their rights. With this background, the court interpreted Section 26 first literally, then purposively and pragmatically, finally concluding that Section 26 consisted of two distinct and separate parts separated by the word "but":
In view of this segregation, the court held that the substituted Section 36 applied to court proceedings and Section 34 applications that were initiated after 23 October 2015, even if the arbitral proceedings were initiated prior to such date. The court went a step further and held that the amended Section 36 also applied to Section 34 applications that were pending on the said date. It was emphasised that an arbitral award is deemed to be a decree of the court and enforceable under the Code of Civil Procedure 1908. Corollary to this, the execution of a decree pertains solely to the realm of procedure and judgment debtors have no substantive vested right to resist execution.
Interestingly, Section 87 of the 2018 bill renders the Supreme Court's stance on the application of the 2015 amendment ineffective. The bill clarifies that the 2015 act does not apply to arbitral proceedings or related court proceedings that commenced before 23 October 2015, irrespective of whether the court proceedings commenced prior to or after the 2015 amendment. The bill further proposes the deletion of Section 26 of the 2015 amendment. According to the Srikrishna Committee, permitting the 2015 amendment to apply to pending court proceedings that commenced prior to or after 23 October 2015 would result in procedural fallacies, inconsistencies, uncertainty and prejudice to the parties.
While discussing the applicability of the 2015 amendment, the Supreme Court in BCCI (supra) noted Section 87 of the 2018 bill. The court insisted that a copy of the judgment be sent to the government for consideration before enforcing Section 87. The court emphasised that the proposed Section 87 was contrary to the object of the 1996 act and appealed to Parliament to consider the rationale applied by the court before approving the bill.
With the enforcement of the 2015 amendment, the scope of Section 17 of the 1996 act has been extended to allow parties to an arbitration to apply to the arbitral tribunal for grant of interim measures under Section 17(1) of the 1996 act. The amendment to Section 17 sought to diminish the courts' role and transform the role of toothless tribunals. Under the 2015 amendment regime, an arbitrator was on par with the courts in terms of granting interim relief. The expanded scope of Section 17 failed to account for the fact that except for the limited purpose of correcting errors referred to in Section 33(1)(a) of the 1996 act, an arbitrator appointed under the 1996 act becomes functus officio once an award has been delivered. This means that having accomplished the purpose for which they were appointed, an arbitrator has no further force or authority once an award is delivered. Additionally, since an arbitral award is a deemed decree, the limitation period for enforcing an arbitral award is 12 years. This in turn implies one of two things:
The Srikrishna Committee has adopted a more logical and legally sound view, wherein it has suggested restricting the scope of an arbitrator's power to hear an application for interim relief to during an ongoing arbitral proceeding, not after a final award has been delivered. In other words, after an award has been delivered, and until it is executed under Section 36 of the 1996 act, a party seeking interim relief must approach the appropriate court under Section 9 of the 1996 act.
The 2015 amendment introduced Section 29A into the 1996 act, which imposes a 12-month time limit for completion of arbitral proceedings. This period can be extended to 18 months with the parties' consent. However, if arbitral proceedings are not completed within 18 months, the arbitral tribunal's mandate will be terminated unless the parties can show sufficient cause for the court to extend the time limit.
Section 6 of the 2018 bill proposes to eliminate the time limit for international commercial arbitration. The Srikrishna Committee's reasons for doing so include:
As regards the final reason, the Srikrishna Committee noted that established arbitration jurisdictions such as the United Kingdom, Hong Kong and Singapore do not contain provisions akin or pari materia to Section 29A. In fact, timelines for arbitral proceedings are usually agreed between the parties themselves or in consultation with the arbitral tribunal and the arbitral institution administering such arbitration.
While the factors considered by the committee are appealing on a theoretical level, the realities of implementing a new system that does not accord with the existing one may lead to perplexities in the current substantive and procedural framework. The committee ultimately failed to account for the fact that arbitrations in India are conducted in a predominantly ad hoc manner and the same cannot be changed instantly. As efficiency is one of the key features of an attractive international commercial arbitration hub, the introduction of this proposed amendment seems contrary to the object with which the bill is said to have been proposed – that is, to make India an attractive destination for international commercial arbitration.
The law relating to arbitration has evolved significantly in the past two decades. Since the advent of the 1996 act, there have been numerous judicial pronouncements interpreting the paradigm shift in the arbitration regime in India following the repeal of the obsolete Arbitration Act 1940. The judiciary has, in fact, played a proactive role in streamlining alternative dispute resolution (ADR) in India in order to reduce the dependency on the multi-tier dispute resolution process of India's overburdened judicial system, particularly for commercial disputes. The 2015 amendment to the 1996 act has helped to promote party autonomy with regard to delineating judicial interference. The approach has been to empower arbitral tribunals and strengthen the ADR machinery by incorporating stringent parameters of independence and impartiality. The judiciary once again stepped in to interpret various provisions of the 2015 amendment through several landmark judgments which have clarified the ambiguities and upheld the legislative intent.
The 2018 bill appears to be an attempt to rectify and modify the 2015 amendment based on the lessons learned during its implementation in order to make the amendment more effective and achieve its overarching objective. However, considering that unlike other countries (eg, the United Kingdom, the United States, Singapore and Hong Kong), India has not yet made its mark in international commercial arbitration, it is imperative that the pillars of effective arbitration are incorporated through codification. The failure of the International Centre for Alternative Dispute Resolution to promote India as a preferred seat for dispute resolution is evident from the proposed Arbitration Council of India in the 2018 bill. Prompt adjudication, clear end procedures which have strict timelines and flexibility (as necessary) are paramount, even for international commercial arbitration. The proposed amendment to Section 29A of the 1996 act appears to be step backward. It will be interesting to note the final outcome of the deliberations before the Houses of the Parliament and the final draft bill presented for presidential assent, which will hopefully help to revolutionise India's ADR machinery.
For further information on this topic please contact Jeevan Ballav Panda, Shalini Sati Prasad or Meher Tandon at Khaitan & Co by telephone (+91 22 6636 5000) or email (email@example.com, firstname.lastname@example.org or email@example.com). The Khaitan & Co website can be accessed at www.khaitanco.com.
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