Introduction

Changes to the Arbitration & Conciliation Act, 1996 ("Act") by the Arbitration & Conciliation Amendment Bill 2019, (Bill) was passed by the Rajya Sabha, (the Upper House of Parliament) on 18th July, 2019.The Bill though well intentioned is half-baked and has more misses than hits.

Amendments

Starting first with the positives, the proposed changes statutorily confer confidentiality on the arbitral process. This is, in principle, a welcome move. However, the exceptions to confidentiality have not been spelt out, which will inevitably entail unnecessary litigation.

Next, the philosophy of limited judicial interference with the arbitral process and awards is buttressed by amendments to Section 34 and Section 45 of the Act. In short, a party seeking annulment of a domestic award can no longer seek" to prove", its challenge by extrinsic evidence. The phraseology now employed is that the challenge must be 'established on the basis of the record of the arbitral tribunal.'

Similarly, a party seeking a stay of legal proceedings instituted in India in breach of a foreign arbitration agreement, cannot be thwarted on the ground that Indian legal proceedings continue until a final determination by the Indian courts on whether the arbitral agreement is null and void. This had been achieved by providing that the judicial determination of whether the agreement is null and void, must be on a prima facie basis. The amendment is intended to counter the mischief caused by the Supreme Court's judgment in Shin Etsu v/s Aksh Optifibre1. In this case, the Supreme Court ruled that Indian legal proceedings could only be stayed after a final determination by the Indian courts of the validity of the arbitral agreement. The ruling encouraged recalcitrant parties to initiate legal proceedings in India and use the delays in the Indian judicial system to frustrate foreign arbitration.

The objective of quick and expeditious arbitration is strengthened by providing that pleadings be complete within 6 months of the date of appointment of the arbitrator. And that the tribunal endeavor to publish its award as quickly as possible and preferably within a period of 12 months from the date of completion of pleadings.

These positive changes are unfortunately overshadowed by the hugely negative proposal of creating an Arbitration Council of India, staffed by civil servants tasked with grading of arbitral institutions and arbitrators. This proposal has no parallel in any jurisdiction and erodes the concept of party autonomy, so fundamental to arbitration.

To compound matters, a proposed Eighth Schedule to the Act prescribes qualifications for arbitrators. The arbitrator qualifications are worded such that the vast majority of foreign nationals would be ineligible to act as arbitrators in India. It is unclear whether the restriction on foreigners acting as arbitrators in India is by default or design. The effect however is chilling and wholly at odds with India's ambition to emerge as an international arbitral hub.

Another incongruity is found in the requirement that the Arbitration Council of India maintain a depository of all arbitral awards published in India. This is entirely inconsistent with the confidentiality provisions proposed in the earlier part of the Bill, given that one of the main attractions of arbitration is that it is private justice.

Another unnecessary complication created by the Bill are provisions regulating the applicability of the 2015 Arbitration Amendment Act to pending arbitrations and legal proceedings arising out of the arbitral process or challenges to awards. The Bill now provides that the amended Act will only apply to those arbitrations or legal proceedings challenging awards or seeking judicial intervention on or after 23 October 2015. This amendment reverses the decision of the Supreme Court in BCCI Vs. Kochi Cricket Pvt Ltd2 holding the amended Act applicable to all legal proceedings challenging awards even in cases where the arbitration or award was commenced or rendered before 23rd October 2015.

Conclusion

The statement of objects and reasons to the Bill, ironically, proclaims that the amendments are intended to promote institutional arbitration in India. Sadly, the proposed changes far from promoting India as a credible arbitration center, will if enacted, seriously hamper arbitration as an alternate dispute resolution mechanism in India. These changes set back India's attempts at arresting the export of its arbitration to offshore centers such as Singapore or London.

No foreign counter-part will agree to an Indian seated arbitration on being informed that it can only appoint an arbitrator who is an Indian national or who has the requisite Indian qualifications prescribed by the proposed Eighth Schedule of the Bill. It is an unanswerable negotiating point to provide for Indian seated arbitration in a contract, if the counter-part cannot appoint an arbitrator of its choice in the event of a dispute.

It is hoped that the Bill is not passed by the Lok Sabha (Lower House of Parliament) or that better sense prevails and is withdrawn.

Footnotes

1 (2005) 7 SCC 234

2 (2018) 6 SCC 287

Originally published July 23, 2019.

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