Impact of the Recent Reforms on Indian Arbitration Law
The 1996 Arbitration & Conciliation Act (hereinafter "the 1996 Act") was first
promulgated by way of issuing an Ordinance as a step in urgent economic reforms
necessitated by new economic policy. 20 years later another ordinance was
introduced, i.e., the 2015 Arbitration & Conciliation (Amendment) Ordinance,
which amended the 1996 Act in order to bring it in line with international
standards. For the last few years, arbitration has become an optimal choice for
resolution of commercial disputes.
However, over the last two decades the
process of arbitration in particular in ad hoc domestic disputes becomes more
alike the adversarial proceedings in India. Accompanied by high costs due to
insufficient amount of trained and qualified arbitrators this dispute resolution
process caused a growing sense of annoyance among its users.
Due to these and
other problems in application of the 1996 Act, the amendments were discussed by
public authorities which are necessary in order to fill in its gaps and minimize
the opportunities for its misinterpretation. Reports and suggestions where given
by many bodies aimed at amending the 1996 Act. However, those suggestions could
not sustain the pressing needs of modern practice. Two attempts were made to
amend the 1996 Act in 2001 and in 2010, both unsuccessful and having not led to
the Act being amended.
Applying Provisions of Part I for a Foreign Seated Arbitration
After the case of Bharat Aluminium Co. v. Kaiser Aluminium Technical Services
Inc.2 (BALCO Judgement) which puts a complete bar on Indian courts to exercise
jurisdiction over foreign seated arbitrations. According to this judgment, on
the basis of Sec. 2(2) of the 1996 Act, all the provisions under the Part I of
the Act would apply when the arbitration is seated in India, and Indian courts
cannot invoke any provisions under Part I of the Act with respect of foreign
seated arbitration. Due to this practical difficulties were arising, especially
with regard to granting interim injunction in a foreign seated arbitration by
To overcome this situation, a provision was included in Sec. 2(2) which grants
to Indian courts jurisdiction in the context of seeking interim injunction in a
foreign seated Arbitration, as well as assistance in collecting evidence in a
foreign seated arbitration or making appeal for court orders.3 However, this
provision applies only if the parties express an agreement to use it. Noteworthy
is the fact that the expression "only" has not been included in the mentioned
Sec. 2(2) of the 1996 Act.
The lack of the word "only" in the text of the Act
was the primary cause for disagreements between the parties in the case of
Bhatia International v. Bulk Trading SA.4 That case led to the BALCO Judgement5
where the Supreme Court of India held that the expression "only" in Art. 1(2) of
the UNICITRAL Model Law had been used in view of the exceptions impressed upon
in the said Article through the proviso.
Since the said provision was lacking in
the Act, the word "only" was not required in such a situation. Yet since the
provision had been added it appears unjustified that the word "only" remains
omitted and leading to unnecessary complications.
It is not unusual for a party after obtaining an interim measures prior to
commencement of the arbitration to simply sleep over the matter. This issue has
been raised in many cases before the Supreme Court first in the case of Sundaram
Finance Ltd. v. Nepc India Ltd.7 providing that "before passing the interim
order the court must be satisfied about existence of arbitration agreement and
the applicant's 'manifest intention' to take the matter to arbitration. Court
must pass a conditional order to ensure the effective steps are taken by the
applicant for commencing the arbitration proceedings.
Later in Firm Ashok
Traders v. Gurmukh Das Saluja 8 the Supreme Court held that "under Section 9 of
the Arbitration Act, the court should make sure that arbitral proceedings are
actually contemplated or manifestly intended and positively going to commence
within a reasonable time. The time gap between the filing of the Section 9
application and the commencement of arbitral proceedings should not be such as
to destroy the proximity of relationship between the two events.
cannot sleep over its rights under Section 9 and not commence arbitral
proceedings." The rules given effect through the Supreme Court judgements are
nowadays codified under the 2015 Amendment Act also specifying details regarding
the time limit in which arbitration proceedings shall commence by inserting
subclause 2 to Sec. 9 through the Amendment Act.9.
Appointment of Arbitrators
Appointment of arbitrator(s) is the prerogative of the parties which they
appoint on mutual consensus. Another contentious issue in the principal 1996 Act
was the provision regarding appointment of arbitrator or arbitrators in case of
a deadlock between the parties. In such cases, a party under Sec. 11 of that Act
was entitled to approach the Chief Justice of the High Court of India as for
domestic arbitration; Chief Justice of the Supreme Court as for international
commercial arbitration; or any person or institution designate by the Chief
However this appointment by the Chief Justice of the High Court/Supreme
Court had become complicated as shown in two judgements of the Supreme Court of
India. In the first judgment, i.e., Konkan Railway Corpn. Ltd. & Anr. v. Rani
Construction Pvt. Ltd.12 the Supreme Court held that the Chief Justice's or his
designator's order under Sec. 11 nominating an arbitrator is not an adjudicatory
order and the Chief Justice or his designate is not a tribunal.13
decision of the Supreme Court was overruled in the case of S.B.P & Co. v. Patel
Engineering Ltd.14, where the Court held that the power exercised by the Chief
Justice of the High Court or the Chief Justice of India under Sec. 11(6) of the
1996 Arbitration & Conciliation Act is not of an administrative nature but it is
a judicial power.
It further held that while appointing arbitrators the Chief
Justice is also empowered to decide on "his own jurisdiction to entertain the
request, the existence of a valid arbitration agreement, the existence or
otherwise of a live claim, the existence of the condition for the exercise of
his power and on the qualifications of the arbitrator or arbitrators" and such a
decision is final.
This judgement was fundamentally flawed as it not only took
away the power of arbitral tribunal to decide the validity of the arbitration
agreement under Sec. 16 of the 1996 Act but also to make the order passed under
Sec. 11 of the Act a judicial order that can hence be subject to appeal - which
was beyond the legislative intent of the Act. The 2015 Amendment Act attempted
to nullify also the effect which was created by this case by the Supreme Court.
The Act introduced a limitation in sub-sec. (6A) providing that the Supreme
Court or the High Court shall limit its examination only with the existence of
an arbitration agreement, and not with other issues such as, e.g., live claim,
qualifications, conditions for exercise of power, etc.
Time Limit for Arbitral Award
An entirely new Sec. 29A was introduced in the 2015 Amendment Act which
stipulates a time limit for rendering an award in every arbitration process in
India. The default time limit for making such and award should be provided
within a period of 12 months starting from the date when the arbitral tribunal
enters upon the reference.
Here enter upon the reference means that from the day
when the arbitrator(s) receive their letter of appointment in writing.18 Parties
may extend this period by consent for another period not exceeding 6 months.19
If the award is not made within the prescribed time period of 12 months or
within the mutually acceptable period, the mandate of the arbitrator(s)
terminates unless the time period has been extended by the court on the basis of
either an application by the party or due to a sufficient cause and on such
terms and conditions which may be imposed by the court prior to or after the
expiry of the period specified.20
However, these rules are fortified by a
provision, according to which if the court while granting the extension finds
that proceeding delayed for reasons attributable to the arbitral tribunal, it
may order a reduction of fees of arbitrator(s) not exceeding 5 percent for each
month of such delay.
However, the extension of period referred to in sub-sec.
(4) may be granted upon an application of the parties and only due to sufficient
cause and on such terms and conditions that may be imposed by the court. Under
this Section the court can impose actual or exemplary costs upon any of the
parties.21 However, such a carrot and stick approach may not be conducive in
every matter and can lead to unnecessary litigation before the courts which are
already overburdened with other cases and may not be in a position to deliver
judgment within the sixty days' time frame as prescribed under this Section.
Issues Requiring Further Determination
Having removed many ambiguities, the 2015 Amendment Act still left several
areas of concern unaddressed. Some of these major issued of concern are
discussed below as the authors consider them urgent and requiring to be
In India before the constitution of Arbitral tribunal the parties in
arbitration process approach the courts under Sec. 9 of the Act for interim
injunction. Although approaching the court for urgent interim relief before
constitution of arbitral tribunal is a common practice, however approaching
court is not considered as the best practice in a dispute involving arbitration
as the primary reason to refer the dispute to arbitration is to avoid the
rigours of the court system.
Institution across the Globe introduce provisions
for appointment of emergency arbitrators. For instance, under the 2013 Hong Kong
International Arbitration Centre (HKIAC) Rules a party may seek emergency relief
prior to the constitution of the arbitral tribunal. Such an application, if
accepted by the parties, has to be decided in a time-bound manner by the HKIAC,
following their rules.
The same rule applies to cases involving other prominent
institution arbitrations including the London Court of International
Arbitration, the International Chamber of Commerce and the Singapore
International Arbitration Centre. However, the 2015 Amendment Act is less
elaborate with respect to addressing the issue of interim measures despite the
fact that it reiterates a seminal objective of "minimal intervention of the
courts in the arbitration."
Needless to mention that if the Indian arbitration
law fails to provide opportunity for utilizing emergency arbitrators the parties
have no other option than addressing their disputes to the courts of law for
immediate relief which does not meet the objective of the 2015 Act. The Law
Commission of India in its 246th Report which had acted as the precursor to this
2015 Amendment Act recommended amending this Act so that to provide statutory
recognition for the concept of emergency arbitrators.28 This amendment was
intended to be introduced in Part I of the Act defining an arbitral tribunal as
a sole arbitrator or a panel of arbitrators.
The change that the Law Commission
of India had put forward suggested broadening the definition of "arbitral
tribunal" so that it would include provisions for appointment of emergency
arbitrator or arbitrators under any institutional rules only. At the same time
such a recommendation was not extending to ad hoc arbitration by the Law
Commission of India. However, since this suggestion was not incorporated in the
2015 Amendment Act it still should be considered, at least by legal scholars.
The Ordinance Act and now the Amendment Act mark a change in legal thinking and
legal practice. Such changes are significant steps towards optimizing
arbitration procedure and arbitration jurisprudence as legal amendments gave
many lacunas of the principal 1996 Act away nullifying judicial decisions that
impeded proper application of arbitration rules in India.
However, a note of
caution is attached to these developments, i.e., the amendments require too
short time frame for application of various rules in the arbitration process
which are difficult to comply with in practice and running the risk of ending in
unavoidable judicial dispute resolution. At the same time, clear-cut provisions
encouraging institutional arbitration in India are still lacking while the said
amendments repeat the details which are otherwise practised by the parties or
Written By: Garima Chaudhary, Course- BBALLB 4th Year - University-
Law Article in India
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