The Arbitration & Conciliation Act, 1996 (Act) was enacted to overhaul the then archaic Arbitration Act, of 1940. It was a well-enacted law in those days of early arbitration when court proceedings had not only become lengthy and tiresome, but also expensive for the clients.
However, with time, the loopholes were discovered and significantly exploited, making the Act at par or worse than court litigation. In short, redundancy was nearing and a major shake-up was required to achieve the ultimate objective of an alternative and speedy remedy to court proceedings.
While amendments to the Act are pending to be passed for quite some time, the Government thought it fit to bring in the changes through an Ordinance. The Arbitration and Conciliation (Amendment) Ordinance, 2015 was promulgated by the President of India to bring in the desired changes. The Ordinance has the same force and effect as an Act of Parliament but needs to be ratified by Parliament in the next session or else it expires 6 weeks thereafter and can be brought in afresh.
The major changes made effective through the Ordinance are as follows:
- Definition of ‘Court’: The definition has been expanded to include. in the case of international commercial arbitration, the High Court has jurisdiction to decide the questions forming the subject matter of the arbitration.
- Part I of the Act, which applies to domestic arbitration, has been widened by giving the parties the option to expressly agree if sections 9 (interim measures by the court), 27 (court assistance in taking evidence) & 37(1)(a) & (3) (appealable orders) in this Part will apply to international commercial arbitrations, even if the place of arbitration is outside India and the arbitral award is enforceable under Part II (applicable to international commercial arbitration)
- Commencement of Arbitration: In Part I, if a court passes any interim orders under section 9(1), then as per section 9(2), the arbitration needs to commence within 90 days of such order or as determined by the court. Further under section 9(3), once the arbitral tribunal is constituted, the court cannot entertain any interim application under section 9(1) except if it finds circumstances which may not render remedy under section 17 efficacious.
- Appointment of Arbitrator:
- Section 11(13) provides guidance on the expeditious appointment of the arbitrator(s) by the Supreme Court or High Court within 60 days from the date of service of notice to the opposite party.
- The chosen arbitrator is now required under section 12(1)(b) to disclose (as per the format given in the sixth schedule) in writing any circumstances which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within 12 months.
- Further, under section 12(5) Notwithstanding any prior agreement to the contrary, any person whose relationship falls within any category specified in the seventh schedule shall be ineligible to be appointed as an arbitrator.
- The fourth schedule has been introduced providing model fees of the arbitral tribunal based on the sum in dispute. Further, section 11(14) obligates the High Court to frame rules for fees of the arbitral tribunal after considering the rates in the fourth schedule.
- The fifth schedule provides for various grounds which give rise to justifiable doubts as to the independence or impartiality of arbitrators.
- Arbitration Proceedings:
- Section 24(1) has been inserted to restrict adjournments unless sufficient cause is made out, and exemplary costs may be imposed on the party seeking adjournment without any sufficient cause.
- Section 25(1) has been inserted to provide that if the respondent fails to communicate his statement of claim under the previous section, the arbitral tribunal shall have the discretion to treat the respondent’s right to file such defence as having been forfeited.
- A new section 29A has been added giving a firm period of 12 months to conclude an arbitration from the date the arbitral tribunal enters upon the reference. The period can be extended for another 6 months by agreement or on approaching the applicable court. There are various penalties for default by either the arbitrator (reduction of fees per month by 5%) or the parties (costs levied by the court) if the arbitration is not complete within the stipulated time. Further, there could be an incentive to the arbitral tribunal if the arbitration is completed within 6 months.
- Fast Track Procedure: A new fast track procedure for arbitration has been introduced through section 29B, wherein if agreed by the parties, the arbitration can be conducted on the basis of written pleadings, documents and submissions filed by the parties without any oral hearing. The arbitral tribunal can call for further information and take steps as may be deemed appropriate for expeditious disposal of the case. Under the fast track procedure, the arbitration needs to be completed within 6 months, otherwise penal provisions as mentioned in section 29A above shall apply.
- Meaning of Public Policy Widened: Section 34 of the Act provided that a court could set aside an arbitral award if it is in conflict with the public policy of India. The ambit of public policy has been expanded to include if the award is in contravention of the fundamental policy of Indian law (excluding a review of the merits of the dispute) or if it is in conflict with the most basic notions of morality or justice. A similar provision has been inserted in clause 48 for international commercial arbitration.