Amendment in the Arbitration and Conciliation Act

The Road to the Amendment in the Arbitration and Conciliation Act

After discussing the birth, growth, importance and the pros and cons of ADR, it is now important to track the changes in its implementation and operation since the enactment of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”).

The Law Commission had earlier recommended various amendments to the Act under its 176th Report on the ‘Arbitration and Conciliation (Amendment) Bill, 2001’. After considering the recommendations of the Report, the Government decided to accept almost all such recommendations and accordingly, introduced the ‘Arbitration and Conciliation (Amendment) Bill, 2003’ in the Rajya Sabha on 22nd December, 2003. Subsequently, a committee called the Justice Saraf Committee in the Bill was referred to the Department Related Standing Committee on Personnel, Public Grievances, Law and Justice for a further analysis and did thereafter come up with a report pertaining to the same.[1]

The Departmental Related Standing Committee was eventually of the view that many provisions in the Bill were insufficient and contentious and, therefore the Bill was withdrawn and it was decided that it be reintroduced after considering the recommendations made by theDepartmental Related Standing Committee. Accordingly, the Bill was withdrawn from the RajyaSabha.

In order to re-look into the provisions of the Act, the Ministry of Law and Justice issued a consultation paper in 2010 inviting suggestions from eminent lawyers, judges, industry members, institutions and various other stakeholders. After receiving various responses to the Paper, the Ministry held several National Conferences across the country in July and August, 2010 inviting suggestions from lawyers, judges, industry, arbitration institutions and public at large. [2]

On the basis of suchcomments and suggestions received at the National Conferences, the Ministry prepared draft proposals and a Draft Note was prepared for the Cabinet. Thereafter, the Ministry asked the Commission to undertake a study of the amendments proposed to the Act in the ‘Draft Note for the Cabinet’. Accordingly, the Commission set up an expert Committee comprising of several eminent persons from the field of law to study the proposed amendments and make suggestions accordingly. In accordance to the above, the 20th Law Commission presented an expert 246th Report on the Amendment to the Arbitration and Conciliation Act of 1996.

Based on the 246th report by the Law Commission in 2014, in an attempt to make arbitration a preferred mode of settlement of commercial disputes and making India a hub of international commercial arbitration, that the President of India promulgate an Ordinance in October 2015 (“Arbitration and Conciliation (Amendment) Ordinance, 2015) an act that went ahead to amending and modernizing the Arbitration and Conciliation Act of 1996[3].          

And thus The Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter referred to as the “Amendment”), was notified on January 1, 2016.

Litigating in courts in India in case of a dispute has many setbacks. It is a time-consuming and expensive exercise, and justice usually eludes both parties to an action what with the delay and the expenses incurred. The injustice is particularly egregious in commercial and civil disputes, where cases remain pending for years due to the overburdened judiciary system of India. It is in this context that one must examine “arbitration” and “conciliation” as methods of dispute resolution that aim to provide an effective and efficient alternative to traditional dispute resolution through Court.

In India, as in most developed legal systems, commercial contracts, whether with private persons or with the State, usually contain an arbitration clause where parties agree to settle any prospective dispute through arbitration instead of going to court. Arbitration has thus emerged as a commercially significant method of dispute resolution; and its importance has only grown since liberalisation in 1991.

The Act was based on the UNCITRAL Model Law on International Commercial Arbitration, 1985 and the UNCITRAL Conciliation Rules, 1980. The Act has now been in force for more than two decades, and in this period of time, although arbitration has fast emerged as a frequently chosen alternative to litigation, it has come to be afflicted with various problems including those of high costs and delays, making it no better than either the earlier regime which it was intended to replace; or to litigation, to which it intends to provide an alternative. As mentioned, as there is no strict timeline to be followed, delays are inherent in the arbitration process, and costs of arbitration can be tremendous because everything is privately managed. Even though courts play a pivotal role in giving finality to certain issues which arise before, after and even during an arbitration, there exists a serious threat of arbitration related litigation getting caught up in the huge list of pending cases before the courts. After the award, the provision allowing a challenge under Section 34 of the Act[4]makes the award inexecutable and such petitions remain pending for several years. The object of quick alternative disputes resolution frequently stands frustrated.

The 2015 Amendment, addresses the increased number and complexity of commercial disputes which rose over the last five years. Since 2010, India has seen a growth of approximately 200 percent in the number of disputes referred to arbitration, but until recently, most companies’ preferred ad hoc arbitration over the institutional variety. This is in part because of the challenges inherent in the Indian judicial system with regards to enforcing arbitral awards which include delay in justice and overburdened justice system as touched upon earlier.

Another one of the problems addressed by the Amendment with the arbitration system inordinate delays in settlement of awards. Under the old law, if one party had an interest in delaying arbitration proceedings, that party was able, through employing various tactics, to derail the entire process. Arbitration could drag on for years. By imposing a time limit of twelve (12) months within which the proceedings will be completed, the government expects to make the process of alternate dispute resolution for businesses simpler and quicker.

The new Amendment also seeks to ensure that the arbitration process is more transparent. The previous rules were ambiguous on the qualifications, independence and remuneration of arbitrators all key pieces of the arbitration puzzle. The Amendment gives the High Court the ability to cap the arbitrator’s fees. Further, the arbitrator must disclose any conflicts of interest with the proposed case. These changes bring Indian arbitration law in line with international standards of first world countries like the United States of America and the United Kingdom.Finally, another significant change in the Amendment is that the law as signed includes international commercial arbitration across borders or between global companieswithin the definition of “courts” under Section 2(e) of the Act[5].

This means that Indian courts can approve a place of arbitration outside India, and, by extension, that parties no longer have to choose either offshore arbitration (which eliminates the possibility of interim measures in India), or Indian arbitration (which lacks the neutrality of a foreign arbiter).
Additionally, international commercial arbitration will be handled exclusively by Indian High Courts, instead of lower courts, where the judges may lack experience with arbitration or the technical elements of the case.


References:

[1]http://lawcommissionofindia.nic.in/reports/Report246.pdf visited on 26/06/2017 at 2:45 p.m.

[2]Ibid

[3]http://www.mondaq.com/india/x/448666/Arbitration+Dispute+Resolution/Highlights+Of+Amendment+To+The+Arbitration+And+Conciliation+Act+1996+Via+Arbitration+Ordinance+2015

[4]Section 34 of the Arbitration and Conciliation Act, 1996: Application for setting aside arbitral award.

[5]Section 2(e) of the Arbitration and Conciliation Act, 1996:  “Court” means the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having, jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any civil court of a grade inferior to such principal Civil Court, or any Court of Small Causes;

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