This blog explores the draft Arbitration and Conciliation (Amendment) Bill, 2024, for which the Government of India has invited public comments. We have compiled insights and analyses from several well-researched blogs on the subject.
Let us begin by exploring the rationale behind the amendments. Why is the Arbitration and Conciliation Act, 1996, being amended yet again, following significant revisions in 2015 and 2019? The stated objectives of the amendment bill are:
- To provide a further boost to institutional arbitration
- Reduce court intervention in arbitrations and
- Ensuring the timely conclusion of arbitration proceedings.
Let us now examine the key amendments proposed in the draft bill to evaluate whether they meet the intended purpose.
1. Expanded role of the Arbitration Council of India (Council)
Provisions for establishing the Council, which were introduced in 2019, were never notified. The draft bill expands the role of the Council significantly. Currently, the Council’s primary role is to grade arbitral institutions. The draft bill proposes empowering the Council to grant recognition to arbitral institutions and issue regulations on various matters, including:
- Recognition of arbitral institutions,
- Model codes of conduct for arbitrators,
- Model arbitration agreements and procedural rules,
- Emergency arbitrators,· Fees for arbitral tribunals,
- Appellate arbitral tribunals, and
- Depositories of arbitral awards.
These developments indicate that the Council will function as a comprehensive regulatory body for arbitration in India.
2. Promotion of Institutional Arbitration
The draft bill proposes to amend the definition of ‘arbitral institution.’ Currently, an arbitral institution is defined as an arbitral institution designated by the Supreme Court or a High Court. Under the proposed definition, it will be a body or organization that provides for the conduct of arbitration proceedings under its aegis, by an arbitral tribunal as per its own rules of procedure …
This change eliminates the role of courts in designating arbitral institutions. Instead, arbitral institutions will only need to meet the recognition criteria set by the Council. The draft bill also grants arbitral institutions powers previously exercised by courts (section 29A), such as:
· Extending the time limit for issuing an award,
· Reducing arbitrators’ fees in case of delays caused by the arbitral tribunal, and
· Substituting arbitrators under Section 29A.
3. Introduction of time limits to expedite proceedings
The draft bill introduces various time limits to expedite the arbitration proceedings:
- 60-day time limit for disposing of applications for referral to arbitration where there is an arbitration agreement under section 8.
- 90-day time limit for constituting arbitral tribunal from the date of the application for interim relief under section 9.
- 60-day limitation period for making applications for appointment of arbitrator under section 11, from the date of failure or refusal of appointment of arbitrator(s).
- 30-day limit for an arbitral tribunal to dispose of jurisdictional objections as preliminary issue under Section 16.
- 60-day time limit for appeals against appealable order under section 37(1).
4. Partial setting aside of arbitral awards
The draft bill reorganizes grounds for setting aside arbitral awards available under section 32(2a), 34(2b) and 34(2A). It consolidates them into Sections 34(2) and 34(2A).
While an arbitral award can be set aside in whole under the grounds listed in 34(2), under the grounds listed in 34 (2A) it can be set aside in whole or in part. Under Section 34(2A), an arbitral award can now be set aside either wholly or partially if:
- It deals with matters beyond the scope of the submission to arbitration,
- It is in conflict with the public policy of India
- It is vitiated by patent illegality appearing on the face of the award.
Significantly, the ground of “patent illegality” will now apply to international commercial arbitration as well. Currently, it is available only in domestic arbitration.
The draft bill also proposes introducing Section 34(7), which requires the arbitral tribunal to resolve issues related to the set-aside award within a fixed timeline. The tribunal must adhere to the parts of the award that were not set aside and base its decision on the original records unless otherwise directed.
Some commentators believe there should be no categorical prohibition against partial enforcement on the grounds listed under section 34(2). They feel that instead, it should be addressed on a case-by-case basis, applying severability wherever possible. In support, they have referred to the judgments of the Bombay High Court in R S Jiwani v Ircon International Limited and the Delhi High Court in National Highways Authority of India v Trichy Thanjavur Expressway Limited. Both judgments affirm that if an arbitral award comprises independent components, each standing on its own, the doctrine of severability can be applied to allow partial setting aside of the award.
Two provisos are proposed to be introduced in section 34(1). Section 34(1-A) requires the disclosure of all pending and decided applications for challenge of arbitral awards between the parties. Section 34(1-B), requires formulation of specific grounds in an application challenging an award.
5. Introduction of Appellate Arbitral Tribunal
The proposed section 34A permits arbitral institutions to establish an appellate arbitral tribunal (AAT) to adjudicate applications for setting aside the award under section 34. The option to challenge an arbitral award before AAT will not be available in case of ad-hoc arbitration (not conducted under the aegis of an arbitral institution).
Having AAT essentially involves a newly constituted arbitral tribunal to sit in appeal over the award of the arbitral tribunal. Such provisions which are found in many institutional rules, have been upheld by the Apex Court.
However, the grant of powers of setting aside awards to the AAT, which are in the exclusive domain of the court is a significant shift. Most commentators have expressed concern about this provision, as it is a novel provision with no parallels in other countries.
6. Much needed clarity on Seat
The draft bill proposes to replace the term “place” with “seat” under section 20, thereby clarifying that the seat of arbitration is the legal jurisdiction where arbitration proceedings are anchored as against “place” which is more indicative of a geographical location. Two options have been given for the seat of arbitration:
- Option 1 allows the parties to agree on a seat of arbitration. In case of no agreement between the parties, it allows the Tribunal to determine the seat.
- Option 2 provides that for domestic arbitration, the seat will be the place where the contract/arbitration agreement is executed or where the cause of action has arisen.
In case option 1 finally makes it to the final bill, the draft bill proposes to amend the definition of Court as well.
Section 2-A provides a detailed definition of the Court based on the seat of arbitration:
i. Section 2-A(1) clarifies that in domestic arbitration, jurisdiction will be determined based on the seat of arbitration as agreed by the parties or determined by the Tribunal.In case none of the above are possible, the Court having pecuniary and territorial jurisdiction to decide the disputes if the same were part of a suit, will have jurisdiction. This is similar to the provisions of the Civil Procedure Code, 1908.
ii Section 2-A(2) provides that in international commercial arbitration, the High Court having territorial and pecuniary jurisdiction over the seat of arbitration will have jurisdiction.
7. Introduction of provision for emergency arbitrator
Section 9A (Emergency arbitrators) of the draft bill proposes to introduce provisions for emergency arbitrators.
It codifies the law as laid down by the Apex court in the case of Amazon.com NV Investment Holdings LLC v. Future Retail Ltd. & Ors. It allows arbitral institutions to appoint emergency arbitrators, prior to the constitution of an arbitral tribunal, for the purpose of grant of interim measures (section 9).
The amendment provides that the emergency arbitrator shall conduct proceedings in the manner specified by the Council and any order passed by an emergency arbitrator shall be enforced as an order of an arbitral tribunal for interim measures (section 17). The orders of the emergency arbitrator may be confirmed, modified, or vacated, in whole or in part, by the arbitral tribunal.
8. Omission of fourth schedule and empowering the Council to specify Fee
The fourth schedule, which provided a model fee structure for arbitrators, has been omitted. The proposed amendment provides that the arbitral tribunal’s fee shall be as specified by the Council, except in the following cases:
- There is an agreement among the parties regarding fees, or
- It is an institutional arbitration, with the arbitral institution having rules for determining the fees payable to the arbitral tribunal.
This provision entails that in ad-hoc arbitration, if the parties cannot agree on the fee, which is often the case, then the Council-specified fee will be applicable.
9. Model rules of procedure to be followed in ad-hoc arbitration
Presently section 19 (Determination of rules of procedure) allows the parties to agree on the procedure to be followed by the arbitral tribunal. If the parties cannot agree, the arbitral tribunal is empowered to decide the procedure.
The proposed amendment provides that in the case of ad-hoc arbitration, the arbitral tribunal shall duly consider the model rules of procedures or guidelines issued by the Council.
10. Limiting court intervention for interim measures
In section 9(1), the draft bill proposes to limit applications for interim measures to the Court, to either before the commencement of arbitral proceedings or after the making of the arbitral award but before it is enforced. Presently parties can approach court even during the arbitral proceedings.
11. Uniform rate of interest
The draft bill proposes to amend 31(7)(b) of the Act to provide for payment of interest at 3% higher than the prevailing repo rate of the RBI. Presently the Act provides for interest @ 2% higher than the current rate of interest based on the Interest Act, 1978.
While the current rate of interest varies significantly across banks, repo rate is published by the RBI periodically. Therefore, this amendment will result in a uniform approach to the award of interest.
12. Mandatory stamping of arbitration awards
The Bill proposes to amend Section 31(1) of the Act to stipulate that the arbitral award must be duly stamped. It will ensure that awards are stamped at the time of issuance, which will help avoid delays during the enforcement stage.
13. Appeal against orders refusing to appoint arbitrators under Section 11 of the Act
The draft bill proposed to introduce a provision for appeal against an order refusing to appoint an arbitrator under section 11 as section 37 (1)(aa).
It appears to be an attempt to codify the law as laid down by the Apex court in the case of Pravin Electricals (P) Ltd. v. Galaxy Infra and Engg. (P) Ltd.
In this case, the Court highlighted the anomaly between section 8 and section 11. The Court noted that while an appeal under section 37 is allowed against orders refusing to refer parties to arbitration under section 8, no similar provision exists for orders refusing to appoint arbitrators under section 11.
14. Requirement to disclose all arbitral proceedings
It is proposed to introduce a proviso to sections 11(5), 11(6), which require that while making an application under these sections, the party shall make a disclosure of all pending and concluded arbitral proceedings between the parties.
15. Amendments necessitated by the enactment of the Mediation Act, 2023
The draft bill proposes several changes necessitated by the Mediation Act, 2023, including:·
.Changing the name of the Act to the Arbitration Act, 1996,
· Amending section 30(2) to allow settlements to be recorded as mediated settlement agreements enforceable under the Mediation Act, and
· Limiting the Council’s role to promoting arbitration, omitting references to other forms of dispute resolution.
16. Promotion of digitization
The draft bill encourages digitization through amendments, such as:
- Introduction of section 19(5) which allows the conduct of arbitral proceedings through the use of audio-video electronic means, in the manner specified by the Council.
- Expansion of the definition of arbitration in section 2(a). Now arbitration means any arbitration whether administered by an arbitral institution and includes arbitration conducted, wholly or partly, by use of audio-video electronic means.
- Amendment of section 7(4a) to cover a document signed by the parties through digital signature in the definition of an arbitration agreement.
- Amendment in section 31(5) to allow the arbitral award to be digitally signed.
- The duty of Council to establish and maintain depository of arbitral awards made in India, provided in section 43D (2)(j), has been broadened. Section 43M has been introduced, which requires the Council to maintain a depository of all arbitration cases by assigning a unique identification number to each case. Arbitral tribunal/arbitral institution, upon appointment, shall apply to the Council for this purpose.
Conclusion
It is evident that some of the proposed amendments seek to codify legal principles established by the courts, while others originate from recommendations made by the expert committee constituted for this purpose.
However, most of the proposed amendments do not fall into either of these categories. Instead, they appear to be driven by the stated objective of expediting arbitration proceedings.
Most commentators appreciate the progressive nature of these amendments, expressing hope that they will reduce court intervention and accelerate dispute resolution.
However, concerns have been raised regarding certain provisions, such as the empowerment of the AAT to decide Section 34 applications. Rather than streamlining the process, such changes could prove counterproductive by introducing an additional layer of adjudication, potentially prolonging an already protracted process.
Sources:
1. Abhisaar Bairagi, Milind Sharma and Ausaf Ayyub, Future of Arbitration in India: Decoding the Draft Arbitration and Conciliation (Amendment) Bill, 2024, SCC Online, Dec 10,2024.
2. Dipen Sabharwal KC, Aditya Singh, Poorvi Satija, Subhiksh Vasudev and Nimanniyu Sharma, Keeping up with the times: The Government of India proposes new arbitration law reforms, White & Case, Nov 18, 2024.
3. Payal Chawla, Navigating Commercial Disputes: The Draft Arbitration and Conciliation (Amendment) Bill, 2024 – An Analysis, Bar and Bench, Nov 23, 2024.
4. Ahan Gadkari, Unpacking India’s Draft Arbitration and Conciliation Amendment Bill, 2024, National Law School Business Law Review (NLSBLR), Nov 16, 2024.