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Impact of Recent Reforms In Arbitration and Conciliation Act

Arbitration can be traced back to the pre-establishment of courts where people used to solve their issues in the presence of a third party in the form of Panchayats¯. Eventually, India saw the establishment of various courts entrusted with the dispute resolution mechanism. But as we moved forward in time, lots of cases piled up in the courts awaiting their adjudication.

This sudden rise in the number of cases was in consonance with the rapid increase in globalization, liberalization, and industrialization which resulted in unresolved commercial disputes.
The need of the hour was to opt for techniques that enabled the parties to the case to settle their dispute matters outside the courts. This came to be known as Alternative Dispute Resolution.

Alternative Dispute Resolution has various techniques including:
  • Arbitration
  • Mediation
  • Mediation-Arbitration
  • Conciliation
  • Mini- trials, etc.
Most of these techniques have significantly emerged, one of which is Arbitration¯.

Arbitration and its brief history
Arbitration can be defined as (a) any arbitration whether or not administered by permanent Arbitral Institution (Unless the context otherwise requires)¯[2]. Arbitration can be termed as a by-product of the weighty upsurge in the cosmopolitan economic trade of nations.

The Arbitration and Conciliation Act, 1996 (popularly known as the 1996 Act) commands over the Arbitration in India. The Act is assembled with its center aligned with the UNCITRAL Model Law on International Commercial Arbitration, 1985 and the UNCITRAL Arbitration Rules, 1976. The UNCITRAL Model Law of 1985 aimed to aid contracting states in streamlining and enhancing their arbitration laws to stand in terms with goals of International Commercial Arbitration.

Its two major sections consist of:
  • Carrying arbitration mechanism in India and the enforcement of the awards,
  • Enforcement of the foreign awards applying the provisions of the New York Convention and Geneva Convention.
The Indian Legislature ratified the Arbitration and Conciliation Act in 1996 with the object to establish an effective and efficient dispute resolution mechanism.

This act contains consolidated provisions relating to the domestic and international commercial arbitration and defines the law areas covering matters connected to conciliation proceedings and for any other matters therewith or incidental thereto.

Major drawbacks of the Arbitration and Conciliation Act, 1996
The act was greatly criticized and deficiencies were found in the following areas:
  • There were interceptive loopholes in the Act which allowed judicial intervention in the proceedings of arbitration.
  • The judicial intervention led to the expected expeditious mechanism¯ turn into a near as time-consuming process as the court proceeding.
  • Arbitration though became a choice for the people but the process was started to be seen as an adversarial proceeding.
  • Arbitration proceedings were accompanied by huge costs and a shortage of well-qualified arbitrators.
All of these shortcomings led to various discussions on gap-filling amendments and suggestions by different bodies. Amidst this Law Commission, 246th Report[3] made various recommendations which led to the enactment of the Arbitration and Conciliation (Amendment) Ordinance, 2015.

Since then, the Act was amended various times resulting in a more filtered applicability of the 1996 Act which has every time impacted the Act to produce a better-improved resultant of the Act. In this research paper, a brief analysis of few recent amendments and their impact has been discussed.

The Arbitration and Conciliation (Amendment) Act, 2015.
This the Arbitration and Conciliation (Amendment) Bill, 2015 was assented by the President on 31st December 2015, whereafter it came to be known as the Arbitration and Conciliation (Amendment) Act, 2015.

Some parent changes made by the Act are as follows:
  1. Applying provisions of Part 1 for a Foreign seated Arbitration
    BALCO judgment
    In the case, Bharat Aluminium Company v. Kaiser Aluminium Technical Services[4], the 5- judge bench ruled out new dawn in the area of Arbitration in India while overruling the Supreme Court's judgment in Bhatia International v. Bulk Trading SA[5]. It was held that where the international commercial arbitration is concerned and the seat of arbitration is outside of India, Part 1 of the Act will not apply which was the opposite scenario as ruled out in Bhatia International v. Bulk Trading.

    After this Section 2(2) was inserted which made Part 1 extend to the foreign seated arbitrated until and unless its exclusion is stated in the agreement.
     
  2. Widening the meaning of Arbitration agreement:
    Section 7 stated arbitration agreement in the electronic form to be deemed to be an agreement in writing. Section 8 was amended to provide the court with the option of denying a reference of arbitration in case no valid arbitration agreement exists.
     
  3. Interim orders: Power extends to:
    • If the order is passed before the arbitration proceeding started if not the court under Section 9 should not pass an order.
    • Only to be done if under Section 17 any efficacious remedy is not available.
       
  4. Appointment of arbitrators:
    It is to be made by the Supreme Court and High Courts and the period to dispose of the application is 60 days.
     
  5. Time limit and Fastrack arbitration award: Arbitration award to be given within 12 months and extension period for a maximum of 6 months as per Section 29A[6]. With Section 29B, fast track arbitration procedure was introduced.
     
  6. Cost imposition:
    The international application was brought by Section 31A which stated that cost also includes travel, witness expenses apart from only legal expenses.
     
  7. Limiting the meaning if Public Policy:
    Section 34 was amended to limit the gamut of the public policy to the contravention with the provisions of Indian law, award through fraud and misrepresentation, patent legality, and against the notions of morality and justice

Grey areas of the Act were:
It was not expressly stated in between the introduction of the Ordinance and the Enactment that if the amendments will be retrospective or prospective in application. However, Section 26 was introduced in the amendment stating that nothing in the Act will apply to the already commenced arbitral proceedings before the enactment of the Act. Even with this clarification, the courts in India have applied the Act differently in different cases.

Also, the Act stated for the patent illegality and notions of morality and justice under the gamut of public policy. The interpretation of these terms could attract litigation.

The positive impact of the Act:
This Act proved to be a positive stride towards the reduction of time wastage and making the arbitration process less costly affair. It also restricts the arbitrators to not go beyond their capacities. It would lead to more disciplines and controlled actions of the arbitrators.

The Arbitration and Conciliation (Amendment) Act, 2019
The Arbitration and Conciliation (Amendment) Act, 2019 was enacted with the view to make India a destination for institutional arbitration for both domestic and international arbitration. It was done to not be left behind the international practices on arbitration.

After amendments were sought to the Arbitration and Conciliation (Amendment) Bill, 2018, it was introduced in Lok Sabha and was subsequently passed on 10th August 2018 but it remained pending in Rajya Sabha until the 16th Lok Sabha was dissolved and the bill lapsed.

It was introduced as the Arbitration and Conciliation (Amendment) Bill, 2019 in the Rajya Sabha with minor changes and was passed on 18th July 2019 by the Rajya Sabha.

Salient features of the Act

It postulates some changes in the 1996 Act and also modifies some of the proposed amendments in the Arbitration and Conciliation (Amendment) Act, 2015. Its main aim was to harden the institutional arbitration in India and to curb the need to approach courts for the arbitrator's appointment.

Some key provisions include:
  1. Omission of Section 26 of the 2015 amendment Act:
    With effect from 23rd October, Section 26 was deleted.
     
  2. Retrospective nature of the 2015 amendment:
    The 2015 amendment was made prospective and also the related court proceedings in that respect.
    BCCI v. Kochi Cricket Pvt. Ltd., Etc[7]

    In this case, it was held that the 2015 amendment would apply only to the proceeding that was filed after October 23, 2015, that it on and after the 2015 amendment came into effect. Also, it would apply to those pending proceedings which were filed before the commencement of the 2015 amendment.

    The conflict is with the 2018 amendments applying the amendments which were filed after the commencement of the 2015 amendments. This will lead to an automatic stay to abolish in case a petition was filed prior to the 2015 amendment and was pending when the amendment was enforced.
     
  3. Arbitration Council of India:
    A new part, Part 1A was inserted through the 2019 amendment. Herein, the establishment of the Arbitration Council of India by the Central Government was provided for.
     
  4. Timeline:
    The timeline as proposed by the 2015 amendment was relaxed by the 2019 amendment as it expelled the pre-determined time in case of international commercial arbitration. In the case of domestic arbitration, the 12 months, the period will be taken into account from the date when the pleading will be completed.
     
  5. Section 11 Amendment:
    the act amended the appointment of the arbitrators by the arbitral institutions instead of the Supreme Court and High court.
     
  6. Precondition of the Arbitrator:
    as per the amendment the arbitration proceedings will be kept confidential and only when the disclosure of award is necessary.
     
  7. Better opportunities of justice:
    Section 34 emphasizes the reliance of the record before arbitral tribunal when challenging an award and Section 45 has been amended to replace the words unless it finds¯ with unless it prima facie finds¯.
     
  8. Security of arbitrators:
    2019 amendment gives protection to arbitrators against any legal proceedings for anything done in good faith.

Grey areas of the Act
The Act however was brought in to have speedy disposal of the arbitral proceedings, but the fact that nothing has been done qua enforcement of arbitral awards greatly frustrate the object of the amendment. This is because even if the arbitral proceedings may be concluded speedily, the enforcement of an arbitral award can take years.

The act has also not specified as to when would the time limit commence in cases when there is a change in the statement of defense and claim. And also, once the proceeding is filed in the court and forms a part of the public record then how confidentiality is maintained.

Positive impacts of the Act
The Act has taken a step ahead as it strives to achieve an effective dispute resolution mechanism for the very purpose of keeping up with the economic reforms and globalization of the Indian economy. However, for it to be called a complete and all-encompassing enactment, some highlighted issues need to be taken care of.

The Arbitration and Conciliation (Amendment) Act, 2021
This is the third and the latest amendment in the past six years in the Arbitration Act of 1996. The promulgation of the Arbitration and Conciliation (Amendment) Ordinance, 2020 was done on 4th November 2020. As the 2019 amendments were treated and received by the people as a classic case of two steps forward and two steps backward, this is yet another amendment with the aim to set its path right.

The amendments are circumscribing provisions related to both domestic and international arbitration also, it has shed light on conciliation proceedings law provisions.

Some key features of the amendment are:
  • Automatic stay on the arbitral awards:
    As specified in the 1996 amendment, the party was allowed to set aside an arbitral award by an application which was amended by the 2015 amendment to state that automatic stay of the award will not be done.

    When the 2021 amendment is concerned, it has given conditions on which the automatic stay could be processed. These are that when a court is satisfied that it is a relevant agreement or if fraud or corruption has been notified.
     
  • Scope of qualification of arbitrators stands widened:
    2019 amendment specified the qualification via Section 43J stating a minimum of 10 years' experience is necessary. Also, eight Schedule was to be applied during the appointment.
Now, the 2021 amendment has deleted the Eight schedule and substituted the Section 43J making the parties free to appoint arbitrators not taking into account their qualifications and that the norms for it will be specified by regulations.

Grey area of the Act
The 2021 amendment stated words like fraud and corruption without giving us an exhaustive list of the instances which could be treated as fraud or corruption practices. It is making it subjective in nature to the extent to which it could be misinterpreted in different cases by its different meanings. Moreover, the prima facie evidence is also debatable as to what it will constitute. As far as the amendment to Section 43J has the potential to attract foreign arbitrators, it also has the potential to stretch the matter and further delay it.

The positive impact of the Act
Through amending Section 43J, a certain amount of freedom is been given to the commission to take account of the appointment of the foreign arbitrators as per the provisions of the UNCITRAL Model Law. The act would also prevent the parties to gain benefit by receiving the award which is obtained by fraud or corrupt practices.

Analysis and Conclusion
Since the beginning, the Arbitration field in India was intended to be made as a friendly regime be acting upon its efficiency and efficacy. Arbitration has developed immensely over the years; one can see many arbitration clauses in the agreements and contracts these days. The very first Act was enforced in the year 1899 but still, India is criticized for its unfriendly- regime even after 120 years but nevertheless, the 2021 amendment was mainly focused on it and was successful to an extent to be able to attract foreign arbitrators.

The recent amendments clearly reflect on the intention of the Legislature to work upon amending the Arbitration area and to remove the notion of India as an archaic system of arbitration rules. The need is for a broader view of the issues rather than amending the same grey areas repeatedly and ignoring the wider barriers restricting India to becoming an international arbitration hub.

References:
  • https://www.researchgate.net/publication/315910804_Impact_of_the_recent_reforms_on_Indian_arbitration_law
  • https://lawcommissionofindia.nic.in/reports/report246.pdf
  • https://prsindia.org/files/bills_acts/acts_parliament/2015/the-arbitration-and-conciliation-(amendment)-act,-2015.pdf
  • https://egazette.nic.in/WriteReadData/2019/210414.pdf
  • https://egazette.nic.in/WriteReadData/2021/225832.pdf
  • http://arbitrationblog.kluwerarbitration.com/2018/11/29/has-india-truly-delivered-on-its-obligations-under-articles-i-and-v-of-the-new-york-convention-over-the-last-60-years/
  • http://arbitrationblog.kluwerarbitration.com/2019/08/25/the-2019-amendment-to-the-indian-arbitration-act-a-classic-case-of-one-step-forward-two-steps-backward/
End-Notes:
  1. AIR 2018 SC 1549
  2. Section 2 of the Arbitration and Conciliation Act, 1996
  3. Law Commission of India, Report No. 246 “ Amendments to the Arbitration and Conciliation Act, 1996, <https://lawcommissionofindia.nic.in/reports/report246.pdf>
  4. (2012) 9 SCC 552
  5. (2002) 4 SCC 105
  6. 29A. (1) The award shall be made within a period of twelve months from the date the arbitral tribunal enters upon the reference
  7. AIR 2018 SC 1549

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