Arbitration Ordinance - Lost Opportunity, Interpretative Ease or Just Another Attempt? – Part I

Overview: The Arbitration & Conciliation Act, 1996 (1996 Act) was a legislation which consolidated the Arbitration law in India. The inadequacies and defects in the Arbitration Act, 1940, the Foreign Awards (Recognition & Enforcement) Act, 1961 and the Arbitration (Protocol and Convention) Act, 1937 were sought to be cured by the 1996 Act. Despite such an effort to consolidate the law and iron out the creases of the previous legislations for achieving effective alternate dispute resolution, the 1996 Act paved way for unprecedented litigation concerning Arbitrations. The Arbitral process suffered substantial delay. In this background, to remedy the defects the 1996 Act, the President on 23^rd October, 2015 has promulgated the Arbitration and Conciliation (Amendment) Ordinance, 2015. The object that the amendment seeks to achieve is twofold. First, to expedite arbitration process and secondly to lay down guidelines and provisions for the judiciary to abide by while disposing applications before it. 

Opportunity Lost: Indian lawyers and justice delivery system is under severe criticism for its slow pace not only due to the system (itself) but due slower ( or virtually lack of) reforms. Indian lawyers, at times have been ridiculed by their foreign counterparts as very ingenious in using or abusing the justice delivery system to delay and thus defeat the very purpose of justice delivery system. Justice Delayed Is Justice Denied. Alternate Dispute Resolution primarily using Arbitration, Conciliation & Mediation has been a popular way as effective alternate to traditional justice delivery system. However, in India it is considered to be “smart” to avoid being subjected to fast track, effective alternative way in the nature of International Commercial Arbitration (ICA). Defeating the ICA is considered as a favourite past time of Indian lawyers. In this backdrop, the changes effected by the Ordinance may be considered as an opportunity lost.  Today more than any time in the history of international trade, we are experiencing unprecedented transactions across the borders, jurisdictions and countries. With the explosion of Internet, IoT, 3D Plazma Printing and other technology advances, International Commercial Arbitrations needed far greater emphasis. The amendments ought to have considered setting up quarantined International Arbitration Centre so that ICAs can be more meaningful and India can be an example in line with London (LCIA), Singapore (SIAC) and Dubai (DIAC). Further, the International Commercial Arbitrations are grappling with the issues concerning the law applicable to the contract and the law applicable to arbitration agreements and the place and seat of arbitrations. The Supreme Court in various cases sought to address this question, though till date no clarity exists. The Ordinance ought to have addressed this issue by specific incorporation of provisions. 

Increased Court Intervention: The Arbitration Act of 1940 had a provision (Section 28) where the Courts only could enlarge the time for making awards, unless the arbitration agreement provided for it by mutual consent of both parties. Invariably in every major arbitration with high stakes that was under the old law, either of the Party, was before the Court seeking time extension.  At times, the Parties took turns in approaching the Courts for time extension. This invariably happened at the last hour when the time for making the award was about to expire. This resulted in uncertainties, delay and additional costs. The Ordinance now under Section 29A mandates that the Court alone can extend the time. The Courts have been further empowered to stipulate certain additional directions while extending the time including substitution of arbitrator/s without annulling previous proceedings. This is an area that would allow Courts’ interference in arbitral proceedings. Amendments to Sections 34, 48 and 57 may prove to be draconian provision creating hurdles in enforcement of awards domestic or foreign. The amendment has provided additional grounds to set aside awards which will delay the process of enforcement.  

The changes brought by the Ordinance are as follows. 

1. JUDICIARY & ARBITRATION 

a. Section 2(e) – Court 

The amendment has differentiated the definition of court on the basis of the type of Arbitration. In case of domestic arbitrations, the term court shall mean and include the principal Civil Court having Original Jurisdiction including the High Court, but the term court does not include any Civil Court inferior to such principal Civil Court or court of Small causes. However in case of International Commercial Arbitrations, the term court shall mean the High Court having jurisdiction.

b. Section 2(2) – Applicability of Part I

The newly incorporated Section 2(2) clarifies that Part I shall apply to arbitration only when the place of Arbitration is in India. The amendment has added a provision stating that “unless it is otherwise agreed by the parties”, the provision of Part I namely Section 9 (Interim measures), 27 (Court assistance in taking evidence) and sub – section (1) and (3) of Section 37 (Appealable Orders) shall be applicable to International Commercial Arbitration even when the place of arbitration is outside India. The ramifications of such amendment are that even if the proceedings of the Arbitration are being conducted outside, the parties may seek interim reliefs under Section 9 in India and any refusal to grant such reliefs are appealable under Section 37. The amendment has now ensured that irrespective of the place of the arbitration and unless contrary agreements by the parties, the aforesaid provisions of Part I of the 1996 Act are applicable. 

c. Section 8 – Reference of parties to Arbitration

The amended Section 8 empowers not only the party to the arbitration agreement but also any person claiming through or under a party/signatory to the arbitration agreement to refer the parties to arbitration. The only substantial amendment made to section 8 is concerning the parties seeking reference by inclusion of the term “party to the arbitration or any person claiming through or under him”. Such adoption is based on the Section 45 of the 1996 Act and the same is widely interpreted in the judgment passed by the Supreme Court in the case of Chloro Control (I) P. Ltd. v. Severn Trent Water Purification Inc & Ors[1]. But the said amendment is made in Part I of the 1996 Act and as such needed to amend the definition of parties under Section 2 of the 1996 Act. The aforesaid intention was also made clear vide the Law Commission Report, but the said intention does not form a part of the legislation and the amendment to that effect is redundant and can be a cause for unprecedented litigation.

d. Section 9 – Interim Reliefs

      i.          Earlier Section 9 provided the right to parties to approach the court for seeking interim measures of protection. The section now mandates that where an interim relief is provided under Section 9 (1), the arbitration has to commence within ninety days of such order[2]. However, there is no clarification provided for the ramifications of failure to comply with the aforesaid provision.

    ii.          Sub section (3) has been added to Section 9 which contemplates that upon commencement of the Arbitration proceedings, the courts shall not entertain any application for interim reliefs unless it is proved that the remedy under Section 17 cannot be rendered efficaciously. Thus, in view of the amendment to Section 9 read with Section 17, a party can approach the Court during the Arbitration proceedings provided that the party can justify that circumstance exists which may not render the remedy provided under Section 17 efficacious.  

e. Section 11 – Appointment of Arbitrators

i.      Section 11 of the 1996 Act has been substantially amended. As opposed to the previous provisions contained in Sections Section 11(4) (5) & (6) which provided “the Chief Justice or any person or institution designated by him” to appoint the Arbitrator(s), the aforesaid words have now been substituted to read as “the Supreme Court or as the case may be, the High Court or any person or institution designated by such Court”. Thus by this amendment, the power of appointment which was earlier vested in the “Chief Justice” to the “High Court” and the “Supreme Court”

ii.     Further, the newly incorporated Section (6A) provides that while entertaining such application the scope of enquiry of the Supreme Court or as the case may be, the High Court, is restricted only to examine the existence of the arbitration agreement and no further[3].

iii.     However, the newly inserted Section (6B) provides that the designation of any person or institution by the Supreme Court or as the case maybe the High Court for the purpose of this section[4] shall not be regarded as a delegation of judicial power by the Supreme Court or the High Court. Thus, since the newly incorporated Section (6B) provides that such designation of any person or institution shall not be regarded as a delegation of judicial power by the Supreme Court or the High Court, it is unclear as to whether such person or institution designated by such Court, while examining the existence of arbitration agreement, exercises judicial power or administrative power. While the intention of the Commission[5] was clearly to incorporate the principles laid down in the judgment passed by the Supreme Court in the case of SBP & Co v. Patel Engineering Ltd and Anr[6], the same does not seem to be achieved by the amendment.

iv.     The amended Section 11 now provides that the order passed under such section shall be final and that no appeal including letter patent appeal shall lie against such orders.[7] 

v.      Under amended Section 11 (8) it is now mandatory for the Court to seek disclosures from the prospective Arbitrator regarding any circumstances giving rise to any impartiality by reason of any relation direct or indirect with the parties and also any circumstances that may preclude him from completing the arbitration in twelve months[8].

vi.     The fees of the Arbitrators have been fixed as has already been discussed hereinabove[9].

vii.    The amendment has restricted the time for disposing any application under Section 11 to sixty days from the date of notice to the other party/parties.[10]