The Supreme Court On The 2015 Amendments And The Cabinet On The 2018 Arbitration Amendments – Good For India?

 

26 March, 2018

 

 

The Union Cabinet recently issued a press release for the Arbitration and Conciliation (Amendment) Bill, 2018 (“2018 Bill”). The amendments which, when passed will apply to the Arbitration and Conciliation Act, 1996 (“Act”) are pursuant to the Srikrishna Committee Report[1] released in July, 2017 (“Report”), recommending further amendments on the back of the 2015 amendments, primarily to improve on or clarify various provisions.

 

Key amendments approved include the following:

 

Arbitration Council of India 

 

The Report recommended the creation of an independent body to accredit arbitral institutions and arbitrators as a number of stakeholders interviewed were disenchanted with the existing arbitral facilities in India. The recommendation has been accepted and an independent body will be set up, namely, the Arbitration Council of India to enable formal evaluation and accreditation. This Council will frame norms for alternate dispute resolution and evolve professional guidelines. This is a positive step to ensure the quality of arbitral institutions. Though India has several arbitral institutions, few apart from the Mumbai Centre for International Arbitration are recognized as having the expertise to administer multi-party international arbitrations.

 

The Council will also maintain an electronic depository of arbitral awards that can be used to analyse how the jurisprudence has evolved. This is a welcome move. Many international institutions release yearbooks that publish excerpts of awards and this repository will help develop the jurisprudence in India.

 

The chairperson of the Council will be a retired Supreme or High Court judge or “any eminent person”, and include academics, Government nominees etc. The Report had, however, advised that the Council should be autonomous of any Governmental involvement. This is pertinent since in arbitrations involving the Government as a party, accreditation of arbitrators by Government nominees would bring in conflict of interest issues. It would be good for the 2018 Bill to consider this. Pursuant to the Report, the New Delhi International Arbitration Centre Bill, 2018 was introduced in Lok Sabha in January, 2018 for establishing an arbitration institution, a chamber of arbitration for empaneling arbitrators, a training academy for arbitration and a research centre.

 

Appointment of Arbitrators

 

Section 11 will be amended so that instead of having to go through court for appointment of an arbitrator, the Supreme / High Court may designate specific arbitral institutions that will make the relevant appointments. This obviates the need to file a formal application for appointment in court, thus speeding up the process by taking away some part of the burden from the court.

 

The Report had recommended that such appointments should be made without the requirement of the Supreme Court or High Courts determining the existence of an arbitration agreement. This is in line with the kompetence-kompetence principle of an arbitral tribunal itself determining its own jurisdiction.

 

On a related note, the present Section 11 (6A) of the 2015 Act mandates that the Court in a Section 11 proceeding should confine its examination to the existence of the arbitration agreement. Prior to its amendment, the power under Section 11 was held to be wider in scope and included an examination of whether claims could be referred to arbitration etc.[2] The Cabinet’s press release does not deal with this aspect in its recommendation.

 

Length of the Arbitral Proceeding

 

In attempting to redress the criticism of ad hoc Indian arbitration and its lengthy delays, Section 29A, introduced in the 2015 amendments provides that an award must be made within 12 months from the Tribunal entering upon reference, extendable to a period of 18 months by party consent, failing which the mandate would terminate. Any extension over 18 months can only be obtained with the Court’s permission. The newly inserted provision though well-intentioned has been criticized..

 

In practice, 18 months is an ambitious target for most complex, commercial disputes. The proposed amendments on the basis of the Report suggest that the timeline provided in Section 29A should exclude international arbitrations. The Report noted that international arbitral institutions have criticized the timelines of Section 29A on the basis that the conduct of the proceeding is best left to the institutions. However, while promoting, institutional arbitration, applying a different set of timelines to international arbitrations suggests discrimination against a purely domestic arbitration.

 

The 2018 Bill sensibly suggests that the 12 month period should be calculated after completion of pleadings.

 

Confidentiality 

 

Statutory recognition of confidentiality in arbitration has been suggested (the Act mandates confidentiality only for conciliation proceedings). In line with the Report’s recommendation, the press release suggests the introduction of a new section 42A, requiring arbitrators and arbitral institution to keep proceedings confidential (except the award). This provision will have to be carefully drafted to exclude any order or award that may be challenged in a court including Section 17 orders.

 

Arbitrator Immunity

 

Amendments suggest provisions for arbitrator immunity, to protect an arbitrator from any legal proceedings for acts and omissions during the course of the proceedings. This is to ensure that the arbitrator is able to exercise her function without any fear of proceedings ensuing therefrom. Arbitrator immunity provisions are present in many foreign statutes and international institutional rules, and MCIA Rules.

 

Application of the 2015 Amendments 

 

The Cabinet’s amendments proposed a new section 87 to clarify that unless otherwise agreed by parties, the 2015 Amendments, would not apply to (a) Arbitral proceedings that have commenced before the Amendment Act, 2015 (b) Court proceedings arising out of or in relation to such arbitral proceedings and shall apply only to Arbitral proceedings commenced on or after the commencement of the Amendment Act, 2015 and to court proceedings arising out of or in relation to such Arbitral proceedings.

 

One of the most contentious issues in recent times has been the correct interpretation of Section 26 of the Amendment Act and whether to the amendments apply to court proceedings: (i) filed after the amendments came into force in 2015, but in respect of arbitrations commenced before the amendments; and (ii) court proceedings which were pending at the time the amendments came into effect but were decided thereafter. In this context there were conflicting decisions of various courts.[3]

 

The Supreme Court recently passed a judgment, [4] ruling that the 2015 amendments would apply to all court proceedings filed after the amendments came into effect (October 23, 2015), regardless of when the arbitration was commenced. Crucially, it was also held that the 2015 amendments would apply to pending proceedings that may have been filed prior to the amendments but were pending at the time amendments came into force.

 

The 2018 amendments however provide that the 2015 amendments will apply only to proceedings actually filed after October 23, 2015. Being so, the Supreme Court has directed that its aforesaid judgment be transmitted to the Law Ministry and the Attorney General to take note of its interpretation.

 

The judgment itself raises questions. Assuming a petition were filed to challenge an award prior to the 2015 amendments but was pending on the date of the amendments, by virtue of the judgment, an automatic stay that was earlier effective would no longer apply. It would then be open to the award-creditor to apply for enforcement and the award-debtor would have to file a separate application for a stay (in which case a deposit of the award amount would be probable), thus taking away a benefit that a party had prior to the 2015 amendments.

 

It remains to be seen whether the Government takes note of the Supreme Court’s interpretation and effects amendments in consonance.

 

The amendments are a welcome development in the field of arbitration and when implemented will assist further in India being seen as an arbitration friendly jurisdiction.

 

* The author was assisted by Shalaka Patil, Principal Associate Designate

 

[1] Justice Srikrishna Committee Report to Review the Institutionalization of Arbitration in India released in July, 2017, available at http://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf

[2] See SBP and Co. v. Patel Engineering Ltd., (2005) 8 SCC 618; and National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd., (2009) 1 SCC 267. The position of narrow scope of Section 11 (6A) has also been confirmed by the Supreme Court in the case of Duro Felgueria SA v Gangavaram Port Ltd. Arbitration Petition No 30 of 2016 with Arbitration Petition No 31 of 2016 & TC (C)Nos 25/2017, 26/2017 and 28/2017

[3] See Rendezvous Sports World v. Board of Control for Cricket in India 2017 (2) BomCR 113, Ardee Infrastructure Pvt. Ltd. v. Ms. Anuradha Bhatia 2017 (2) ArbLR 163 (Delhi), in Electrosteel Casting v. Reacon Engineers AIR 2016 (NOC 764) 349, New Tirpur Area Devp Corp v. Hindustan Construction O.S.A. Nos.21 & 22 of 2016 (30.08.2017 – Madras High Court), Enercon v. Yogesh Mehra, 2017 SCC OnLine Bom 1744

[4] BCCI v. Kochi Cricket Pvt. Ltd. And Etc. Civil Appeal No. 2879-2880 of 2018: Supreme Court.