Consultation paper on the proposed amendments to the Arbitration and conciliation act 1996 - A Brief Note

Introduction:

The Act is based on the Model Law adopted by the United Nations Commission on International Trade Law (UNCITRAL) in 1985. The object and basis of the said Act is to speedy disposal with least court intervention.

The objects, as mentioned in the Statement of Objects and Reasons for the Arbitration and Conciliation Bill, 1995 were (a) to comprehensively cover international commercial arbitration and conciliation as also domestic arbitration and conciliation;(b) to minimize the supervisory role of courts in the arbitral process;(c) to provide that every final arbitral award is enforced in the same manner as if it were a decree of court.

Arbitration and Conciliation (Amendment) Bill 2003

Accordingly the Arbitration and Conciliation (Amendment) Bill 2003 was introduced in Rajya Sabha on 22^nd December, 2003.

In July 2004, Government constituted a Committee under the Chairmanship of Justice Dr. B. P. Saraf to make in-depth study of the implications of the recommendations of the Law Commission made in its 176^th Report and all aspects relating to the Arbitration and Conciliation (Amendment) Bill, 2003.

The Committee (Departmental Related Standing Committee) was of the view that the provisions of the Bill gave room for excessive intervention by the Courts in the arbitration proceedings and emphasized upon the need for establishing an institution in India which would measure up to international standards and for popularizing institutionalized arbitration.  The Committee further expressed the view that since many provisions of the Bill was contentious, the Bill may be withdrawn and a fresh legislation may be brought after considering the recommendations of the Committee. The said Bill was withdrawn from the Rajya Sabha.

Main purpose of the 1996 Act is to encourage an ADR method for resolving disputes speedy and without much interference of the Courts which Section 5 of the Act provides for.

 In the (Dominant Offset Pvt. Ltd. Vs. Adamouske Strojirny AS,(1997) 68 DLT 157 the parties having developed a dispute, a petition was filed in the High Court of Delhi with a prayer for reference to arbitration in terms of the Arbitration Clause for enforcement of the agreement.  The Court held that Part I of the Act applies to International Commercial arbitration conducted outside India. Court added that courts should be extremely cautious in granting interim relief in cases where the venue of arbitration is outside India and both parties are foreigners.

Recommendation regarding the applicability of Part I

The Supreme Court observed that if the part I of the Act is not made applicable to arbitration held outside India it would have serious consequences. It made certain observations in respect of International commercial arbitration which take place in a non-convention country. The Court further observed that international commercial arbitration may be held in a non-convention country. Part II only applies to arbitrations which take place in a convention country.

An international commercial arbitration may be held in a country which is a signatory to either the New York Convention or the Geneva Convention (hereinafter called “the convention country”). An international commercial arbitration may be held in a non-convention country.

The Supreme Court also observed that Sections 44 and 53 define foreign award as being award covered by arbitrations under the New York Convention and the Geneva Convention respectively. The provision in Part I dealing with these aspects will not apply to such foreign awards.

The court concluded that the provisions of Part I would apply to all arbitrations and proceedings relating thereto. Where such arbitration is held in India the provisions of Part I would compulsorily apply. In cases of international commercial arbitrations held out of India provisions of Part I would apply unless the parties by agreement express or implied, exclude all or any of its provisions. In that case the laws or rules chosen by the parties would prevail. Any provision, in Part I, which is contrary to or excluded by that law or rules, will not apply.

The reason, which persuaded the court that a challenge to foreign award can lay in India, was the fact that an award, which is otherwise opposed to Public Policy of India and thus not enforceable even under the New York Convention, can be enforced, by a party by seeking its enforcement of such an award in another country.

The Supreme Court in Indtel Technical Services (P) Ltd. v. W.S. Atkins Rail Ltd.,(2008) 10 SCC 308, while referring Bhatia International observed – As per Bhatia International (Supra) and Satyam Computers, in cases of international commercial arbitrations held out of India provisions of Part I would apply unless the parties by agreement exclude all or any of its provisions.

The result is that all the provisions of Part I including provisions relating to appointment of arbitrator (Section11), challenge of arbitration award (Section 34) would also be applicable to International Commercial Arbitration where seat of arbitration is not in India.

However, in view of the observations made by the Supreme Court in Shreejee Traco(I) Pvt. Ltd. Vs. Paper Line International Inc (2003) 9 SCC 79, no provisions of Part I would apply to cases where the place of arbitration is not in India.

Foreign awards:

We may point out that an award to be a ‘foreign award’ has to be made in the territory of a foreign State notified by the Central Government as having made a reciprocal provision for enforcement of New York Convention or Geneva Convention.

The provisions of the aforesaid statute, foreign awards and foreign judgments based upon awards are enforceable in India on the same grounds and in the same circumstances in which they are enforceable in England under the common law on grounds of justice, equity and good conscience.

It is well established that the awards rendered in countries with which India does not have reciprocal arrangements cannot be enforced in India as if it were a decree.

Clause (3) of Article 1 of New York convention on the Recognition and Enforcement of Arbitral Awards permits the signing, ratifying or acceding State to declare on the basis of reciprocity that it will apply the convention made only in the territory of another contracting State.  India has made reservation and declared that convention will apply only on the basis of reciprocity.

Therefore, when an International arbitral award is made in a country or territory in respect of which there is no reciprocal arrangement between Central Government and Government of that country, it cannot be enforced under the Arbitration and Conciliation Act, 1996. For the purpose of enforcement of such an arbitral award party has to file a civil suit in India.

Provisions of Sections 9 and 27 shall also apply to international commercial arbitration where the place of arbitration is not in India if an award made in such place is enforceable and recognized under Part II of this Act.

 A proposal for amendment in Section 11

A Bench of two learned Judges (Adur Samia (P) Ltd Vs Peekay Holdings Ltd.) of the Supreme Court held that the Chief Justice or any person or institution designated by him acts in administrative capacity under section 11 of the Act and hence an order passed in exercise of such power, does not attract the provisions of the Article 136 of the Constitution. The same was reaffirmed by a three judges (Konkan Railway corp. Ltd. Vs Mehul Construction Co) bench which held that the order passed by the Chief Justice or his designate under section 11 of the Act was an administrative order not amenable to the jurisdiction of the court under Article 136.

Thereafter, a Constitution Bench consisting of five learned Judges affirmed the decision of the three Judge Bench.  Subsequently, the decision of the Constitution Bench has been reconsidered by the larger Bench consisting of seven-Judges.

The Court overruled the decision in Konkan Railway Corp. Ltd. Vs Rani Construction (P) Ltd. rendered by five learned Judges and held that the power exercised by the Chief Justice of the High Courts or the Chief Justice of India under Section 11(6) of the Act is judicial power and not an administrative power and that such power, in its entirety, could be delegated only to another Judge of that Court.

The Supreme Court held that the Chief Justice or the designated Judge will have the right to decide preliminary aspects as regards his own jurisdiction to entertain the request, existence of a valid arbitral agreement, the existence or otherwise of a live claim, the existence of the conditions for the exercise of the power and on the qualifications of the Arbitrator.

The decision of the Supreme Court has rendered the provisions contained in sub-section (4), (5), (7), (8) and (9) of Section 11 with regard to appointment of Arbitrators by any person or institution designated by the Chief Justice of India and totally ineffective. 

This is clearly contrary to the objective of the Act that is, to encourage litigants to take recourse to the alternative dispute resolution mechanism by Arbitration. The parties may stipulate in the arbitration agreement to refer an arbitral dispute between them for resolution to a particular institution.

The Chief Justice instead of choosing an arbitrator may choose an Institute and the said institute shall refer the matter to one or more arbitrator from their panel.

Various proposals to amend to the limited extent of the Section 11 of the Arbitration and Conciliation Act, 1996 have been made. Almost all the sections from 4 to 12 and 28 have been prescribed for an amendment.

The Law Commission in 176th Report

The Law Commission in 176th Report considered the question whether it was desirable to provide for an appeal under section 37 to court against decision of the arbitral tribunal rejecting the plea of bias or disqualification under section 13. After due deliberation, the Law Commission was of the view that there should not be an immediate right of appeal under section 37 against the decision of the tribunal rejecting the plea of bias or disqualification under section 13.

Section 34 does not enable the parties to question the decision of the arbitral tribunal made under Section 13 (2) rejecting a plea of bias or to question the decision of the said tribunal made under Section 16 (2) or (3) rejecting a plea of want of jurisdiction on the part of the arbitral tribunal.

Though the existence of these remedies was referred to in Sections 13 (5) and 16 (6), these remedies were not included in Section 34 and further the use of the word ‘only’ in section 34 (1) contradicted what was stated in sections 13 and 16.

Therefore, the Law Commission, recommended insertion of a clarification in section 34 by way of an explanation that an applicant, while seeking to set aside the award, can attack the interlocutory order of the arbitral tribunal rejecting a plea of want of jurisdiction, as permitted by section 16(6).

Law Commission while suggesting amendment in Section 34 also recommended that in case of domestic arbitration, new ground for challenges viz. mistake appearing on face of award may be made available. Accordingly it recommended for inserting a new Section 34A.

The Law Commission in their Report had observed that parties are filing applications to set aside the award even though there is no substance whatsoever in such applications and, to put a stop to this practice, proposed the amendment of section 36 by deleting the words which say that the award will not be enforced once an application is filed under sub-section (1) of section 34.

To give effect to the above recommendation of the Law Commission, the Amendment Bill of 2003 sought to substitute the existing section 36.That was is a very good provision. It will have a salutary effect on the expeditious execution of the awards. Standing Committee of the Parliament in its report on the Arbitration and Conciliation (Amendment) Bill, 2003 has recommended promoting institutional arbitration.