STANDING UP TO THE INTERNATIONAL DESIRABILITY: EVOLUTION OF ARBITRATION IN INDIA
“Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often the real loser — in fees, and expenses, and waste of time. As a peacemaker the lawyer has a superior opportunity of being a good man. There will still be business enough.” – Abraham Lincoln
The increase in global trade, investment and cross border transactions, have made the ‘Arbitration’ synonymous to dispute resolution in the international commercial world. The word ‘Arbitration’ refers to an alternative method of dispute resolution in which parties’ consent to submit their disputes to one or more than one arbitrator instead of going to the court. The decision of arbitrators binds the parties.
Since its inception the Arbitration regime in India went through several changes. Arbitration as a mechanism of dispute resolution not only saves time and money but also provides for party autonomy and flexibility of the proceeding, therefore it holds great importance in the commercial world. Nowadays Every investor before investing in a country looks at its Arbitration mechanism and if the legal system and government of that country is environment friendly or not.
The present article discusses the evolution of arbitration in India and discusses the ways in which India can become a robust hub of arbitration.
The concept of arbitration is not new to India, in ancient times there were various machineries in India for dispute resolution between the parties, like Kulani (village council), Sreni (corporation) and Puga (assembly). Mahajans and Chambers were the bodies to resolve commercial matters. Further there were panchayats for arbitration that worked under the courts of law.
The advent of modern arbitration law in India was with the introduction of Arbitration Act 1899, which was based on English Arbitration Act, 1899. This was the very first time that arbitration was recognized by law as a form of dispute resolution in India. Although this act was only applicable to the three presidency towns of India i.e., Calcutta, Madras and Bombay. After that the Code of Civil Procedure, 1908 was enacted in India. Section 89 and Schedule II of this code contained provisions related to arbitration, with wider applicability to the other parts of British India.
As the Arbitration act, 1899 and the provisions of code of civil procedure, 1908 were realized to be very technical and impractical, The Arbitration Act 1940 was enacted to replace the existing framework. The Act of 1940 was based upon English Arbitration act 1934. This was a detailed and comprehensive code as far as domestic arbitration was concerned but it contained no provisions relating to the execution of foreign arbitral awards. Three new acts (English Arbitration Act, 1950, Arbitration Act 1975, and Arbitration Act 1979) were subsequently enacted repealing the previous ones after English Arbitration Act 1934, but Indian Arbitration law has been unchanged during this duration.
Working under the Act of 1940 was nowhere near satisfactory, and it could not achieve its desired aim. In the words of Justice D.A. Desai, speaking on behalf of Supreme court in the case of Guru Nanak Foundation v. Rattan Singh and Sons (1981):
“The way in which the proceedings under the Act are conducted and without an exception challenged in Courts, has made lawyers laugh and legal philosophers weep. Experience shows and law reports bear ample testimony that the proceedings under the Act have become highly technical accompanied by unending prolixity, at every stage providing a legal trap to the unwary. Informal forum chosen by the parties for expeditious disposal of their disputes has by the decisions of the Courts been clothed with ‘legalese’ of unforeseeable complexity.”
While India was facing troubles in establishing an effective arbitration regime, the international arbitration law was also going through transitions. In 1923 Geneva Protocol on Arbitration Clauses, 1923, popularly known as “the 1923 Protocol ” was introduced by the initiative of the International Chamber of Commerce. This convention aimed to ensure that the Arbitrational awards given in one country are enforceable in other countries too. As the 1923 protocol proved to be insufficient the Geneva Convention on the execution of Foreign Arbitral Awards, 1927 popularly referred as the “Geneva Convention of 1927” was introduced to supplement the same. India was signatory to both and the Arbitration (Protocol and Convention) Act, 1937 was enacted by India to give effect to both. These two conventions instead of solving the problems made the process of international arbitration much more complicated.
To resolve the difficulties created by the 1923 Protocol and Geneva Convention of 1927, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards was adopted at New York in 1958 (popularly known as “the New York Convention”). It came into effect on 7th June 1959 and India became its signatory on 13 July 1960. Further India enacted The Foreign Awards (Recognition and Enforcement) Act, 1961 to give effect to the New York Convention. Therefore, India then had three legislations in the field of Arbitration law: – Protocol and Convention Act, 1937, the Arbitration Act, 1940 and the Foreign Awards (Recognition and Enforcement) Act, 1961.
Due to the various complications in the existing legal framework of Arbitration and the occurrence of economic liberalization in 1991, the need for an updated legal framework of dispute resolution was felt to attract foreign investment and provide a comfortable business environment. With this aim Arbitration and Conciliation Act, 1996 came into effect in India repealing all the Arbitration Act 1940. The Arbitration and Conciliation Act, 1996 was based on UNCITRAL Model Law on International Commercial Arbitration, 1985.It consolidated and amended the law related to domestic arbitration, international commercial arbitration, enforcement of foreign arbitral awards and also defined the law relating to the conciliation. The main purpose of The Arbitration and Conciliation Act, 1996 was to impart a speedy and cost-effective dispute resolution mechanism which will have the same effect as the decree of the court and minimise the intervention and supervision of the judiciary.
THE ARBITRATION AND CONCILIATION (AMENDMENT) ACT, 2015
The Arbitration and Conciliation Act, 1996 was introduced with the objective of making India a powerful hub for arbitration but sadly it suffered the same infirmities it aimed to cure. Working under it was very expensive, prolonged as there was no time limit to complete the arbitration procedure in the 1996 act and there was extreme intervention of the courts at every stage. Also, if an Arbitral award was challenged in the court under Section 34 of the act, there would be an automatic stay on its execution making it inexecutable and further prolonging the process.
Further the judgement of Supreme Court in Bhatia International v. Bulk Trading S.A. and Another (2002) gave rise to a controversy as it held that the “Part I” of the act unless expressly or impliedly excluded will be applicable to the arbitrations with a seat outside India. This judgement was overruled in the landmark case of Bharat Aluminium Co v. Kaiser Aluminium Technical Services Inc. (BALCO),(2012) that put rest to ongoing debate and it was held by the court that In case of International Commercial Arbitration (ICA) seated outside Indian courts do not have jurisdiction to grant interim relief and only when parties seek to enforce such judgement in India and it has been passed in line with part II of the Act of 1966, the jurisdiction of Indian courts will apply to the awards granted in ICA.
For resolving the above-mentioned concerns eminent lawyers, jurists and legal experts of the country were asked to send their recommendations with respect to the functioning of the act by the Ministry of Law and Justice. Thereafter a committee was formed under the chairmanship of Hon’ble Justice (Retd.) A.P. Shah to suggest amendments in the Act of 1996. After the committee gave its suggestion, The Arbitration and Conciliation (Amendment) Act, 2015 was passed by the Parliament to amend the 1996 act for the first time. The Arbitration and Conciliation (Amendment) Act, 2015 made some significant changes to the act which were as follows.
- 1. Appointment of Arbitrators-
- The parties can request SC or HC to appoint the arbitrator and the appointment of such arbitrator should be completed within 60 days from the date of application.
- Fifth and Seventh Schedule were added on the ineligibility of arbitrators keeping in mind the IBA Guidelines on Conflict of Interest.
- Interim Reliefs
- Section 9, Court assistance in taking evidence (Section 27) and Appeals (specifically, clause (a) of sub-section (1) and sub-section (3) of section 37) was made applicable to the International commercial arbitrations, whether seated in India or outside India.
- The interim relief granted by Arbitral tribunals seated in India was given the same status as the order of the court under the new Section 17 and parties with foreign seated arbitration were given liberty to ask for aid from Indian courts.
- Once an interim relief is granted the Arbitration proceedings must begin within 90 days or within such further time as granted by the court.
- Time Bound Procedures
- A strict timeline of 12 months was imposed to complete the arbitration proceedings seated in India. Additional 6 months can be provided for the disposal of the case with the permission of the court. If the arbitration proceeding has been completed within 6 months the tribunal will be eligible for extra fees and in case of delay beyond specified period of time the fees of the tribunal will be reduced by up to 5% with each month.
- Also, a provision for fast-track disposal had been inserted by the amendment to complete the proceedings within 6 months.
- The application challenging the arbitrational award must be disposed of within 1 year.
- 4. Reduced Cost
- “Cost follow the event” regime had been introduced by inserting Section 31A. Under this regime the court or Arbitration tribunal were empowered to decide the costs needed to be paid and when to be paid by the losing party including fees and expenses of the arbitrators, courts and witnesses, legal fees and expenses, administrative costs of the institution and any other costs incurred in relation to the arbitral or court proceedings and the arbitral award.
- Challenge Against The Arbitral Awards
- The definition of “court” under Section 2 was amended to include only HC in case of International Commercial Arbitration.
- There shall not be an automatic stay on the execution of the arbitral award once a challenge has been filed under Section 34.
- The grounds for challenging an ICA in case it is seated in India had been reduced by the 2015 amendment.
- Section 36 had been replaced with the new Section 36 in which if the time to challenge an arbitral award has been already elapsed in such case the arbitral award will be enforced as per the provisions of Code of Civil Procedure 1908, in the same manner as the decree of the court.
The Arbitration and Conciliation (Amendment) Act 2015 gave rise to a new issue, that is whether Section 36(2) is applicable to the pending proceedings under Section 32 on the date of enforcement of The Arbitration and Conciliation (Amendment) Act 2015. The court in the case of Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd.2018 the court held that the Section 36 (2) is applicable to the pending proceedings under Section 32 on the date of enforcement of The Arbitration and Conciliation (Amendment) Act 2015, as it is procedural in nature.
Further the Law Commission Report recommended the use of words “seat” and “venue” instead of “place” of arbitration to keep it line with the international usage but it was not incorporated in the 2015 amendment. In case of BGS SGS Soma JV v. NHPC Ltd (2019) the Supreme court held that the place of arbitration whether it is called seat or venue is the place, courts of which have the exclusive jurisdiction over the matter unless otherwise is indicated.
THE ARBITRATION AND CONCILIATION (AMENDMENT) ACT, 2019
Though the amendment of 2015 brought several improvements in the arbitration mechanism of India, it failed to address the issue of lack of institutional arbitration in India. Therefore, on 13th January, 2017 a High level committee was formed under the leadership of Justice B.N. Sri Krishna, Retired Judge, Supreme Court of India to promote Institutional arbitration in India and suggest ways in which India can become a robust hub of domestic and international arbitration.
To inculcate the changes suggested by Justice B.N. Sri Krishna committee The Arbitration and Conciliation (Amendment) Act, 2019 came into force and introduced the following changes:
- It introduced the Arbitration Council of India, which would have the powers like grading arbitral institutions, recognizing professional institutes that provide accreditation to arbitrators, issuing recommendations and guidelines for arbitral institutions, and taking steps to make India a hub of domestic and international arbitrations. (This provision has not been notified yet)
- It empowered the SC and HC to grant the power of appointing arbitrators to the arbitral institutions which have been accredited by the Arbitration Council of India. (This provision has not been notified yet)
- The 2015 Amendment Act imposed a strict timeline of 12 months, to complete the proceedings on arbitrations seated in India, to be started from the date of inception of proceedings before an arbitral tribunal. The 2019 amendment sought to change the start date of this time limit to start once the pleading has ended. The time limit of 12 months can further be extended by 6 months with the consent of the parties. However, the pleadings must be completed within 6 months.
- The 2019 amendment act did not impose any time limit on International Commercial Arbitration for the completion of arbitration proceedings.
- Further it contained express provision on confidentiality of arbitration proceedings and immunity of arbitrators.
- The 2019 amendment act introduced minimum qualifications for an arbitrator under Eight Schedule.
- Also, Section 87 of the 2019 Amendment Act stated that the 2015 Amendment Act, that came into force on 23 October 2015 will only be applicable to those arbitration proceedings that have begun either on or after 23 October 2015. This section was in contravention to the decision given by the Supreme Court in the case of Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd.2018 BI and against the objective of the Amendment Act, 2015.
Further, in the case of Hindustan Construction Company Limited v. Union of India, (2019) Supreme Court struck down Section 87 introduced by the 2019 Amendment Act as Manifestly Arbitrary.
THE ARBITRATION AND CONCILIATION (AMENDMENT) ACT, 2021
The Arbitration and Conciliation (Amendment) Ordinance, 2020 was promulgated on November 4, 2020, and replaced by The Arbitration and Conciliation (Amendment) Act, 2021.The Arbitration and Conciliation (Amendment) Act, 2021 gained Parliamentary assent on March 10, 2021incorporated the amendments in the 2020 Ordinance. This amendment brought 2 changes:
- It removed the controversial Eight Schedule and Section 43J from the act which was added by 2019 Amendment Act. The Eight Schedule stated the extensive qualifications for the accreditation of arbitrators which was against the principle of party autonomy in arbitration.
- It added a proviso to Section 36(3) which states as that “where the Court is satisfied that a prima facie case is
made out that,—
(a) the arbitration agreement or contract which is the basis of the award; or
(b) the making of the award,
was induced or affected by fraud or corruption, it shall stay the award unconditionally pending disposal of the challenge under section 34 to the award.”
This provision has been given retrospective effect and deemed to be effective from October 23, 2015, i.e., from the same date as the commencement of The Arbitration and Conciliation (Amendment) Act, 2015.
SUGGESTIONS FOR FURTHER DEVELOPMENT
- India needs full time arbitration lawyers. In India arbitration is always given second preference by the lawyers. Mostly they give their time to arbitration hearings after court hours and therefore could not give proper time or attention to these proceedings. Though we have some good arbitration centres like Delhi International Arbitration Centre (DIAC), Nani Palkhivala Arbitration Centre (NPAC), Mumbai Centre for International Arbitration (MCIA), etc. But still there is no arbitration centre in India which is comparable to Singapore International Arbitration Centre (SIAC), International Criminal Court (ICC), London Court of International Arbitration (LCIA), etc. The main reason behind it is that we do not have permanent arbitrators in India like SIAC had a world- renowned arbitration Gary born.
- India needs to minimize its judicial intervention because once an arbitration matter gets stuck in the court, it can not be determined how much time it will take to be resolved. The 2021 amendment which provides for an unconditional stay on the enforcement of the award in case prima facie observation of the court is that fraud or corruption is involved in its granting, is a setback for the Indian arbitration regime as it will give the excuse to every judgement- debtor to circumvent their obligation just by alleging fraud and corruption. This will again increase the intervention of the court in the arbitration proceedings.
- To make arbitration in India more robust we are in dire need of establishing an arbitration bar which will discuss the existing concerns related to the arbitration in India and address the troubles faced by arbitration practitioners.
- There are members from the government in New Delhi International Arbitration Centre and Arbitration Council of India. There is no such intervention of the government in the other arbitration centres of the world including ICC, SIAC, LCIA. This can hamper the process of delivering justice as to a great extent the awards will depend on the government in such cases and therefore the process of arbitration must be free from government control.
- There is an absence of awareness among the citizens of India regarding the process and benefits of arbitration. The arbitration institutes of India are required to hold campaigns and conferences like SIAC and ICC to encourage people to embrace arbitration instead of litigation. Also, law students should be trained and encouraged to pursue arbitration as a full-time career.
The recent amendments in Arbitration and Conciliation Act, 1966 has made significant changes in the ever-evolving arbitration regime of India. Certainly, these amendments can be regarded as notable positive steps towards the aim of making India a global hub of Arbitration, in the same league as countries like Singapore and UK. Indian legislature and courts have shown a pro- arbitration approach by their conduct and there is an exciting and prosperous future waiting for India in the field of Arbitration. However, India still has a long way to go before becoming a world guru in the field of arbitration but with this positive approach towards arbitration India will soon achieve its objective.
WRITTEN BY- INDIRA YADAV
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