Arbitration in India – A connecting Comet!

by Ms. Harshitha Ram[1] (Managing Partner, Lex Apotheke, India)

 

Some people consider the Indian judiciary eerie, due to its complex court procedures and inordinate delays.   The optimistic news reports promote the idea of developing arbitration in India but, in reality, there needs to be an acceptable and appropriate degree of thorough improvement with the basic structuring of the Indian legal system. The Law Commission of India has prepared a report on proposed amendments to the Indian Arbitration and Conciliation Act, 1996 (“Act”). This ordinance of the 246th report by the Law Commission of India has been pending approval by the Indian Parliament since last December after the winter session of the Parliament. According to latest news reports, the Cabinet is focusing on the correction of two key provisions of Section 10A and Section 29A of the proposed amendments. Section 10A deals with arbitrator’s fees and Section 29A concerns the time limit of nine months for rendering an arbitral award and debarring the arbitrators for three years if found to have delayed adjudication.

This post discusses some pertinent points that deserve a closer look to perceive the significance of the proposed amendments in consonance with the international arbitration scenario with which India is expected to compete.

The Indian Arbitration & Conciliation Act, 1996:

The Act is based on the UNCITRAL Model Law on International Commercial Arbitration, 1985. The Act repealed three earlier laws of 1937, 1940, and 1967 and applies to domestic arbitrations, enforcement of foreign awards, and conciliation. The chief principles of the Act are to:

  • curtail delays in the arbitral process,
  • promote international commercial arbitration, and
  • minimize the supervisory role of courts in the process of arbitration.

 

Unfortunately, these principles have not been accomplished as yet. A mere act without a fulfilling formulae results in the lack of success. There is a dire need for a workable practice model to attain justice in its true sense.

 

A stable business environment:

Foreign businesses have always expressed their dissatisfaction with the cumbersomeness of arbitrating in India. This has certainly become an impediment and, thus, many prefer not having to go through such experience. The government is striving to make key changes in the draft bill, so as to encourage and manage foreign investments efficiently. The (1) lack of dedicated arbitration benches in High Courts, (2) delaying and/or contesting the process of appointment of arbitrators under Section 11 of the Act, and (3) that the power of appointment of arbitrators being vested with the Chief Justice of High Courts are among the setbacks that the proposed amendments attempt to cure. Pursuant to the proposed Section 11 (7) of the Act, the decision of a High Court is final where an arbitrator has been appointed and as such is non-appealable. Section 11 (13) of the Act will require the court to make an endeavor to appoint an arbitrator within 60 days from the service of notice on the opposite party.

 

 

Institutional Arbitration:

Institutional arbitration is an important aspect of international arbitration.  The proposed amendment encourages the culture of institutional arbitration. The intent is to set up arbitral institutions to support both the legal and business fraternity. The trade and commerce bodies will be encouraged to promote their own arbitration centers with binding institutional rules. This indeed would solve some of the imminent issues, like delayed process of ad hoc methods that hinder the arbitration per se. Further, the proposed amendment to Section 11 (6A) of the Act encourages parties to opt for institutional arbitration and broadens the scope of international arbitral institutions viz., ICC and SIAC which have the provision of “Emergency Arbitrator.”

 

A model fee schedule has been proposed to eliminate the disproportionate fee structure and create uniformity in institutional arbitration, encouraging foreign nationals and companies to consider Indian arbitration institutions. According to a latest news report, the draft bill originally passed by the Cabinet was silent with respect to “composite fee” for arbitrators, while the government is likely to consider the Law Commission’s recommendation of providing a fee based on the number of hearings/sittings for each case, in conjunction with international best practices [Section 10A].

 

Clarity on “Seat” & “Venue”:

Judicial intervention in foreign-seated arbitration or international arbitration has always been an area of conflict.  Section 2 (2) of the Act states that the Act applies where the place of Arbitration is India. Article 1 (2) UNCITRAL Model Law, however, states that it applies only if the place of arbitration is in the territory of this state. Section 2 and 20 of the Act have been proposed with appropriate modification on the use of the terms “venue” and “seat” instead of “place.” This is a very careful speculation in as much as witnessing the pace at which the international arbitration is burgeoning and clarifies the difference between “seat” and “venue” in arbitration.

 

Immense attention is given to a few other critical facets of the Act viz., (1) standards in public policy for setting aside the award, (2) appeal under Section 8 where High Court refuses to appoint an arbitrator, (3) Schedule 4 – setting out justifiable doubts on the impartiality of arbitrators, and (4) Schedule 5 – setting out the arbitrator’s relationship with the parties or counsel. In this context, the substance of IBA’s red and orange lists of the IBA Guidelines on Conflicts of Interest in International Arbitration have been taken into consideration to ensure that Schedule 4 is comprehensive in content.

 

There has been an elaborate contemplation on costs and interest on sums awarded, which stimulates the arbitral tribunal and courts on a practical hand in reaching the solution. The suggested amendment to Section 31 of the Act empowers the arbitral tribunal to award compound interest and to deviate from the existing rate of 18 per cent to a reasonable market determination. The suggested amendment to Section 36 of the Act concerns the enforceability of the award. An award will not become unenforceable merely on making an application to set aside the award under Section 34 of the Act. This is a much awaited proposal as Arbitration in India is broadly considered as one with a high degree of state intervention. The magnitude of judicial intervention in foreign awards is abridged to place emphasis on setting aside awards, not merely on erroneous application, but rather a serious approach.

 

Arbitration Process:

The Law Commission promoted the idea of conducting arbitral proceedings expeditiously, to restrain parties from obtaining frivolous adjournments [Section 24(1)] and exhibiting irrelevant evidence. An intense view is bespoken as to the use of technology and to offer continuous sittings for the purpose of recording evidence and arguments. Proposals have been made to amend Section 9 and 17 of the Act. Pursuant to Section 9, the court can intervene and pass interim orders during the arbitration proceedings. Section 17 empowers the arbitral tribunal to pass interim measures during the arbitral proceedings.  These are a little contradictory. While the court has a widespread reach in certain matters where interim awards are issued, it would be an earnest attempt towards improvement, if the tribunal itself were empowered with such powers. With a consistent approach to the UNCITRAL Model Law, Section 17 may have to be amended to provide the similar powers to the arbitral tribunal.

 

The proposed Section 29A provides for termination of the arbitration if it is not completed within nine months. At present, the government may opt out of such provision in order to make arbitral process more user friendly, since setting time frames might involve court interference. The proposed changes will effectively reduce the burden of courts to grant interim measures once the tribunal is constituted.

 

Conclusion:

Change is good – it means that what was before was not perfect. The proposed bill has produced numerous hopeful deliberations about what the amendment has to offer. The perception of keeping the Indian Law of Arbitration simple and pragmatic has always been a myth rather than a reality. On the one hand, there is a very high potential that awaits those who explore the Indian business market. On the other hand, strict scrutiny of the basic legal manifesto is certainly a necessity to withstand growth and development, in an optimistic sense. Hopefully, the proposed amendments, when passed as law, will solve unanswered questions in the Indian arbitration arena, serving as an elliptical object of clarity and, thus, a connecting comet.

 

 

[1] B.A., B.L(Hons), LL.M., FCIArb, Advocate & International Arbitrator.

The author may be reached at: harshitha@lexapotheke.com

 

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