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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 Indian courts.

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.

Interim Injunction
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.

The party 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 Justice.

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

However, this 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 officially addressed.

Emergency Arbitrators
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 institutions.

Written By: Garima Chaudhary, Course- BBALLB 4th Year - University- Uttaranchal University

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