The Arbitration & Conciliation (Amendment) Bill, 2019

October 5, 2020

The Arbitration and Conciliation (Amendment) Act, 2019 has been formally published in the Official Gazette after receiving the assent of the President of India on 9^th August, 2019. It has introduced noteworthy modifications to the Arbitration and Conciliation Act, 1996. It is largely similar to the Arbitration and Conciliation (Amendment) Bill, 2018.

Importance of an Arbitration Bill:

It is significant for the purpose of putting India on the world map in terms of arbitration proceedings, by providing facilities for the settlement of commercial disputes.
To reduce the burden on the courts by reducing the ever-increasing backlog of cases, that would further aid in the resolution of disputes outside the courts.
To provide an exhaustive list for the choice of arbitrator amongst advocates, chartered accountants, cost accountants, company secretary, any person having technical knowledge and experience, and so on.
To speed up and fasten the process of arbitration so that the time can be efficiently utilized for arbitration proceedings.

Highlights of the Arbitration & Conciliation (Amendment) Act, 2019

Arbitration Council of India:

Part 1A has introduced the concept of ACI, to be established by a notification of the Central Government, having its headquarters at Delhi.

Composition of ACI: This will include:

A Chairperson- who is either a Supreme Court Judge, or Chief Justice of the High Court, or High Court Judge, or an eminent person, having special knowledge and experience in the conduct or administration of arbitration matters, to be appointed by the Central Government in consultation with the Chief Justice of India.
Other members- will include an eminent arbitration practitioner and an eminent academician.
Ex-Officio members- will include Secretary to the Government of India in the Department of Legal Affairs, Ministry of Law & Justice and Secretary to the Government of India in the Department of Expenditure, Ministry of Finance or their respective representatives, not being below the rank of Joint Secretary.
Part-time member- One representative of a recognized body of commerce and industry.

Functions of ACI: This will include the following:

Promotion of arbitration, mediation, conciliation or other alternative dispute resolution mechanisms
Framing of policy and guidelines for the establishment, operation as well as maintenance of uniform professional standards with respect to all arbitration-related matters.
Framing of policies governing the grading of arbitral institutions as well as arbitrators, as also recognition of professional institutes providing accreditation to arbitrators.

Appointment of arbitrators under Section 11:

As per the Amendment Act, 2019; the Supreme Court and the High Courts are empowered to designate arbitral institutions for the appointment of arbitrators. These arbitral institutions shall be graded by ACI. In cases where a graded arbitral institution is not available, then the Chief Justice of that High Court may maintain a panel of arbitrators to discharge the functions of the arbitral institution.

The effect of the amendment is that arbitral institutions shall not be performing any judicial functions while appointing the arbitrators. This opens up avenues for challenging the decision on the appointment of arbitrators by way of proceedings other than filing Special Leave Petitions before the Apex Court.

Timelines under the Amendment Act, 2019:

The statement of claims and defense must be completed within 6 months from the date on which the arbitrator(s) receive written notice of their appointment.
The award shall be made by the arbitral tribunal within 12 months from the date of completion of pleadings.
In cases of international commercial arbitration, the award may be made as expeditiously as possible; but an endeavor has to be made to dispose of the matter within 12 months from the date of completion of pleadings.
Where an application for extension of time is pending, the mandate of the said arbitrator shall continue till the said application is disposed of.

Confidentiality of Arbitral proceedings:

All the details of the arbitration proceedings shall be kept confidential except for details of the award. Disclosure of the arbitral award shall be allowed only in those cases where it is necessary for implementing or enforcement of the award.

Amendment to Section 34:

The words “furnishes proof that” have been replaced with “establishes on the basis of the record of the arbitral tribunal that”; in order to clarify that it is imperative for the parties to rely on the record before the arbitral tribunal alone at the time of challenging the award.

Amendment of Section 45:

The words “unless it finds” have been replaced with the words “unless it is prima facie finds”, in the context of the power of the courts to refer the matter to arbitration unless it finds that the arbitration agreement is null & void, inoperative as well as incapable of being performed.

Qualifications and experience of arbitrators:

The qualifications and norms for the accreditation of arbitrators are specified in the Eighth Schedule. Some general norms, in addition to the qualifications, that are applicable to arbitrators, mentioned in the Eighth Schedule include:

Impartiality and neutrality
Avoid entering into any financial business or any other relationship likely to affect impartiality
Must be conversant with the Constitution of India, commercial and labour laws, the law of torts, enforcement of arbitral awards, principles of natural justice, equity, common as well as customary laws, legal system on arbitration (domestic as well as international), international best practices
Must be capable of writing and enforcing a reasoned arbitral award in any dispute that comes before him for the purpose of adjudication.

Immunity for arbitrators:

The Amendment Act, 2019 puts in place a safety net for arbitrators and clarifies that no suit or any other legal proceedings shall lie against an arbitrator for any act that has been done in good faith or intended to be done under the A&C Act.

Applicability of the Arbitration & Conciliation Act, 2015:

Unless the parties to the arbitration agree otherwise, the Act, 2015 shall only be applicable to arbitral proceedings which commenced on or after 23^rd October, 2015. Hence, this overrules the position laid down by the Apex Court in BCCI v. Kochi Cricket Private Limited [(2018) 6 SCC 287], wherein this issue was settled after the significant debate.

Critical Analysis of the Amendment Act, 2019

The establishment of the Arbitration Council of India limits the autonomy of the parties in international arbitration through the interference by the government as well as the courts. The choice of the courts in designating an arbitral institution will be limited by the options that are presented to it by the ACI.
Another problem that is inherently associated with the control of the government over the process of institutionalization is the possible nepotism, red-tapism, lack of transparency in the grading process, etc. A foreign party often prefers to stay away from an arbitration regime wherein there is a significant degree of interference of the government.
The ability of an arbitrator is expressly a factor of his qualification and experience. A foreign scholar, or a foreign registered lawyer or a retired foreign officer is not qualified to be an arbitrator under the amendment.
As regards to the confidentiality amendment, at the outset, India is in line with globally established practice with respect to publishing the arbitral award. However, it is left unclear as to who will decide that the disclosure of the award is necessary for its implementation or not.
The Amendment Act, 2019 relaxes the stringent time period for arbitration proceedings as provided by the Act, 2015 to a certain extent. The amendment has freed the international commercial arbitrations from a pre-determined period of time, although still retaining a pious hope provision for its completion within 12 months. This can be extended by a period of another 6 months subject to consent by the parties to the arbitration. A period of 6 months has been prescribed for the filing of the Statement of Claims and Defence. However, it is still unclear as to what would be the consequences in case this 6 month period is breached by the parties.

While it is certainly a welcome step with the right intention, it might lead to conflicts with the rules of an arbitral institution due to overlooking the procedural aspects that are inherent to a complex international arbitration.

The 2019 Amendment has expressly made the 2015 Amendment prospective in nature, and this is applicable not only to arbitration proceedings but also to court proceedings. The immediate impact of this would be a large number of execution petitions, as per the decision of the Apex Court in the case of Kochi Cricket, in which Section 34 award challenge petitions are pending, would now be rendered non-maintainable.

However, the 2019 Amendment Act does not contain any express provision regarding retrospectivity. This is most likely to lead to a number of future litigations on this aspect, in the absence of an express provision.

Conclusion

The Amendment Act, 2019 is clearly an attempt at removal of some difficulties being faced during the conduct of arbitration proceedings as well as the court proceedings under the Act, 2015. The positive changes that have been brought about by the Amendment Act, 2019 should give confidence to the international community towards an arbitration-friendly India.

With a separate time frame for completion of pleadings, the arbitral tribunal shall have a complete year for conducting the trial and henceforth passing the arbitral award. With an increase in the role of arbitral institutions, institutional arbitrations are likely to get an impetus. Clarification with respect to the applicability of the 2015 Act with prospective effect will go a long way in the elimination of ambiguity.

“The views of the authors are personal“

Frequently Asked Questions

Why was the introduction of an Arbitration Bill important?

It was important due to the following reasons:

a. It is significant for the purpose of putting India on the world map in terms of arbitration proceedings, by providing facilities for the settlement of commercial disputes.

b. To reduce the burden on the courts by reducing the ever-increasing backlog of cases, that would further aid in the resolution of disputes outside the courts.

c. To provide an exhaustive list for the choice of arbitrator amongst advocates, chartered accountants, cost accountants, company secretary, any person having technical knowledge and experience, and so on.

d. To speed up and fasten the process of arbitration so that the time can be efficiently utilized for arbitration proceedings.

What are the significant amendments made by the Amendment Act, 2019?

The important amendments are:

a. Establishment of Arbitration Council of India

b. Appointment of arbitrators under Section 11

c. Relaxation of timelines

d. Confidentiality of Arbitral proceedings

e. Amendment of Section 34

f. Amendment of Section 45

g. Qualifications and experience of arbitrators

h. Immunity for arbitrators

i. Applicability of the Act, 2015.

What are the provisions in the amendment regarding the Arbitration Council of India?

Part 1A has introduced the concept of ACI, to be established by a notification of the Central Government, having its headquarters at Delhi.

Composition of ACI: This will include:

e. A Chairperson- who is either a Supreme Court Judge, or Chief Justice of the High Court, or High Court Judge, or an eminent person, having special knowledge and experience in the conduct or administration of arbitration matters, to be appointed by the Central Government in consultation with the Chief Justice of India.

f. Other members- will include an eminent arbitration practitioner and an eminent academician.

g. Ex-Officio members- will include Secretary to the Government of India in the Department of Legal Affairs, Ministry of Law & Justice and Secretary to the Government of India in the Department of Expenditure, Ministry of Finance or their respective representatives, not being below the rank of Joint Secretary.

h. Part-time member- One representative of a recognized body of commerce and industry.

Functions of ACI: This will include the following:

d. Promotion of arbitration, mediation, conciliation or other alternative dispute resolution mechanisms

e. Framing of policy and guidelines for the establishment, operation as well as maintenance of uniform professional standards with respect to all arbitration-related matters.

f. Framing of policies governing the grading of arbitral institutions as well as arbitrators, as also recognition of professional institutes providing accreditation to arbitrators.

Critically analyze the various aspects of the key amendments.

Ans.

a. The establishment of the Arbitration Council of India limits the autonomy of the parties in international arbitration through the interference by the government as well as the courts. The choice of the courts in designating an arbitral institution will be limited by the options that are presented to it by the ACI.

b. Another problem that is inherently associated with the control of the government over the process of institutionalization is the possible nepotism, red-tapism, lack of transparency in the grading process, etc. A foreign party often prefers to stay away from an arbitration regime wherein there is a significant degree of interference of the government.

c. The ability of an arbitrator is expressly a factor of his qualification and experience. A foreign scholar, or a foreign registered lawyer or a retired foreign officer is not qualified to be an arbitrator under the amendment.

d. As regards to the confidentiality amendment, at the outset, India is in line with globally established practice with respect to publishing the arbitral award. However, it is left unclear as to who will decide that the disclosure of the award is necessary for its implementation or not.

e. The Amendment Act, 2019 relaxes the stringent time period for arbitration proceedings as provided by the Act, 2015 to a certain extent. The amendment has freed the international commercial arbitrations from a pre-determined period of time, although still retaining a pious hope provision for its completion within 12 months. This can be extended by a period of another 6 months subject to consent by the parties to the arbitration. A period of 6 months has been prescribed for the filing of the Statement of Claims and Defence. However, it is still unclear as to what would be the consequences in case this 6 month period is breached by the parties.

f. The 2019 Amendment has expressly made the 2015 Amendment prospective in nature, and this is applicable not only to arbitration proceedings but also to court proceedings. The immediate impact of this would be a large number of execution petitions, as per the decision of the Apex Court in the case of Kochi Cricket, in which Section 34 award challenge petitions are pending would now be rendered non-maintainable.