India Proposes to Amend the Arbitration and Conciliation Act, 1996

Exordium:

The Department of Legal Affairs of the Government of India issued the Draft Arbitration and Conciliation (Amendment) Bill, 2024 inviting comments/feedback as a part of the public consultation exercise on the draft amendments. The amendment seeks to improve the business environment in India by positioning the country as a strong and dependable arbitration hub with strict adherence to timelines for efficient resolution of disputes. The draft Bill aims to encourage the domestic and international parties to resolve disputes within India’s legal framework. It reflects the suggestions of the expert committee chaired by former Law Secretary and former Lok Sabha Secretary General T.K. Vishwanathan, which highlighted the necessity of reforms to make arbitration more efficient and independent of judicial involvement. By introducing emergency arbitration and promoting institutional arbitration, the Bill aims to make arbitration more efficient and reliable method of dispute resolution in India.

Omission of the Conciliation provisions: 

The draft Bill also proposes omitting the conciliation provisions from the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the A&C Act, 1996), as these have already been incorporated into the Mediation Act, 2023 which became operative in September, 2023. Consequently, the amended act will be renamed as the Arbitration Act, 1996. This proposed change makes the A&C Act, 1996 more indicative of the specific segment of law dealt therein and also seeks to promote mediation as a separate, distinct form of alternative dispute resolution in India having a specific legislation for its mechanism and functioning.

Newer Definitions proposed:

(i) ‘Court’ has been defined in detail under Section 2A(e) of the proposed amendments. For Domestic Arbitration where seat is determined, ‘Court’ means the court with jurisdiction over the arbitration seat and where seat is not determined, ‘Court’ means the Court with jurisdiction over the dispute (as in a suit). For International Commercial Arbitration if seat is determined ‘Court’ means the High Court with territorial jurisdiction over the seat and otherwise ‘Court’ would mean the High Court with territorial jurisdiction over the dispute. This insertion brings much needed coherence to A&C Act, 1996 by specifying the meaning of Courts in Domestic as well as International Commercial Arbitration.

(ii) The definition of Arbitral Institution, by way of the proposed amendments under Section 2(ca), has been revised to include organizations/bodies conducting arbitral proceedings as per its own rules of procedure or as otherwise agreed by the parties.

(iii)             The Draft Bill homogenizes the definition and execution of Arbitration, in letter and in spirit, by including arbitrations conducted wholly or partly, by use of audio-video electronic means. While proposed Section 2 (aa) defines ‘audio-video electronic means to provide clarity and avoid confusion Section 19 allows conducting arbitrations virtually.

These developments are especially welcomed to ease and aide the process of Dispute Resolution in our country. 

Emergency Arbitration under proposed Section 9A: 

One of the most notable provisions in the draft Bill is the introduction of emergency arbitration. The proposed amendment calls for insertion of Section 9A which says that the arbitral institutions may, for the purpose of grant of interim measures, provide for appointment of ‘emergency arbitrator’ prior to the constitution of an Arbitral Tribunal. The emergency arbitrator appointed will conduct proceedings in the manner as may be specified by the Arbitration Council of India, empowered under Section 43 of A&C Act, 1996.

The introduction of statutory provisions recognizing the availability and powers of emergency arbitration in A&C Act, 1996 is a welcome addition. Such a practice, if adopted, is expected to provide swift relief to the aggrieved party in urgent, grave situations, aligning Indian arbitration practices with international standards. This addition seeks to clarify the validity and enforceability of orders issued by emergency arbitrators. Ensuring consistent and uniform application of these provisions will help build confidence among parties in opting arbitral institutions for interim relief requests.

Introduction of the Appellate Arbitral Tribunal:

An Appellate Arbitral Tribunal is a dispute resolution mechanism that allows parties to appeal an arbitration award without going to court. Under Section 34 (A) of the A&C Act, 1996, recourse to file an application for setting aside an arbitral award is provided for. By way of the proposed amendments, the original remedy of going to the Courts is retained and an option to file an appeal before an Appellate Arbitral tribunal has been provided for.

To avoid multiplicity of proceedings, appeals before an Appellate Arbitral Tribunal can only be considered provided no application for setting aside the arbitral award is filed and/or pending before the appropriate Court. This alternative recourse is only available for arbitrations being conducted under the aegis of an Arbitral Institution and the procedure to be followed by the Appellate Arbitral Tribunal shall be specified by the Arbitration Council of India (hereinafter referred to as ACI/Council). Introduction of this alternative appellate layer shall result in reduction of the quantum of such procedural cases pending before the courts and preserving the finality of awards. However, it is imperative to question if such a provision can be misused as dilatory tactics by parties and further complicating the dispute resolution process.

The scope of appeal preferred for setting-aside of an arbitral award in whole, under the Draft Bill is limited to: (i) Party incapacity; (ii) Invalid arbitration agreement; (iii) Lack of proper notice; (iv) Irregular tribunal composition/procedure and (v) Disputes not arbitrable under current law.

Proposed Section 34 (2A) enumerates grounds for setting aside an arbitral award in whole or in part, as: (i) award exceeding scope of the submission arbitration; (ii) conflict with India’s public policy and (iii) patent illegality on the face of the award. The proviso to this section categorically mentions that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.

Arbitral Award set-aside in part:

In an effort to encourage independence of Arbitral Tribunals the Court or Appellate Arbitral Tribunal, as per the proposed Section 34(7), may direct Arbitral Tribunals to decide issues on which the award has been set-aside in a time-bound fashion, as per the timeline fixed.

Appointment of Arbitrators:

Section 11, under the proposed amendment gives a colorful twist to the language used in Section 11(3A), highlighting the power to designate arbitral institutions vested with the Supreme Court and High Courts, which shall now be available for all arbitral institutions recognized by the ACI under Section 43K. The Draft Bill also proposes insertion of Section 11(6A) which prescribes the timeline for applications u/S 11(4), 11(5) and 11(6) as 60 days from the failure or refusal of appointment of arbitrator(s).

Pursuant to increasing the involvement of the ACI in arbitral mechanism, the proposed Section 11(3A) provides that the ACI shall be responsible for fixing the rate of arbitrators' fees. In tandem with the spirit of promoting participation of ACI and limiting legislative intervention/ power of legislative, the Draft Bill proposes the omission of Section 11A, Power of Central Government to amend Fourth Schedule. In its stead it proposes the insertion of ‘Fess of arbitral tribunal’. This insertion specifies that the fees of the arbitral tribunal shall be determined by the ACI unless parties agree otherwise or in cases of arbitration proceedings being conducted by an arbitrator institution having rules for determining the fees payable to the arbitral tribunal.

Strengthening the Arbitration Council of India:

The Arbitration Council of India, as notified to amend Section 10 under Arbitration & Conciliation (Amendment) Act, 2019, has been operative vide notification of the Department of Legal Affairs dated 12th October, 2023. The composition of the Council is carefully designed under the Amendment Act, 2019 to ensure a diverse range of skills and experiences.

The Council plays a pivotal role in promoting alternative dispute resolution (ADR) methods like arbitration and mediation. It develops policies, sets professional standards, grades institutions, and maintains a depository of arbitral awards to enhance ADR quality and efficiency in India. The Council also advises the Central Government on improving commercial dispute resolution and defines accreditation standards for arbitrators, as specified in the Eighth Schedule.

The Amendment Bill, 2024 aims to strengthen institutional arbitration in India by expanding the scope of powers and responsibilities of the ACI. A plethora of key amendments have been proposed in the Bill, 2024 which augment the powers and duties enshrined with the Council. The Bill proposes the amendment of Section 7 by way of introducing a sub-section providing that the Council shall frame model arbitration agreements, which the parties may consider, while agreeing to submit disputes to arbitration. It also provides for insertion of new section 9A for Emergency arbitration, wherein the emergency arbitrator appointed shall conduct proceedings in the manner as may be specified by the Council. Furthermore, it also calls for amendment of section 11A which provides for the fees of the arbitral tribunal, providing that unless otherwise agreed by the parties or where the arbitration is to be conducted under the aegis of an arbitral institution having rules for determining the fees payable to the arbitral tribunal, the fees of the arbitral tribunal shall be such as may be specified by the Council. Another significant proposal noted is the amendment of section 19 wherein a sub-section 5 shall be added, providing that the proceedings may be conducted through use of audio-video electronic means in the manner specified by the Council. However, in general arbitral proceedings, we observe delay on account of defective pleadings, lengthy cross-examination and improper submissions made to the Tribunal, etc. It is imperative, in my opinion, to note that the rules for procedure must be drafted out separately in a Schedule to A&C Act, 1996 in order to bring about uniformity and lessen the complexities and delay in the proceedings. By the same token, the insertion of New Section 34A introducing Appellate Arbitral Tribunal to entertain applications made under Section 34, for setting aside an arbitral award, the procedure for which shall also be specified by the Council.

Comprehensive additions and amendments under Section 43 have been made including provisions for establishment of offices of the Chief Executive Officer and Secretariat of the Arbitration Council of India and provisions for grants funding, audits and consequent regulatory and rule making powers of the Central Government to regulate the composition and functioning of the ACI have also been extensively dealt with under the Bill. Such proposed amendment calling for changes in the composition of the Arbitral Tribunal is a valuable addition in order to make the Council more inclusive, unremitting and diligent. Furthermore, the insertion of Section 84(1A) proposes that the rules relating to salaries, allowances and other terms and conditions of the Chairperson and Members of the Council along with the qualifications, appointment and other terms and conditions of the service and other related matters may be prescribed to be made by rules of the Central Government.

The proposed amendments empower the ACI to create model rules of procedure for arbitral proceedings and recognize arbitral institutions. Hence, the framework surrounding the ACI is strengthened to clarify further how it will oversee arbitrations and arbitral institutions, frame policies and issue guidelines when it is established. However, a prominent cause of worry is the non-constitution of the ACI till date which was created as back as in 2019 to regulate the arbitral mechanism, presenting a practical challenge.

Settlement Agreement to be enforceable under the Mediation Act, 2023:

The draft Bill proposes to designate a settlement award under Section 30 of A&C Act, 1996, to be enforceable under the provisions of the Mediation Act, 2023. It provides for the amendment of Section 30 stating that any settlement arrived at between parties to an arbitral proceeding, under Section 30(A), shall be recorded as a settlement in the form of a mediated settlement agreement enforceable in accordance with the provisions of Mediation Act, 2023.

Forms and contents of Arbitral Award u/s.31:

Another significant amendment proposed by the Draft Bill, 2024 aimed at streamlining the form and contents of an Arbitral Award making it more detail-oriented, uniform and drawing a direct concurrence with grounds for setting aside an award laid down under Section 34 of A&C Act, 1996. The amendment to Section 31 of A&C Act, 1996 puts forward that an arbitral award must be duly stamped and signed by the members of the tribunal. Furthermore, insertion of section 31(2A) brings forward the necessity of the tribunal to state requisite information that neither of the parties was under some incapacity; parties were given a proper notice of the appointment of the Arbitrator; the composition of the Arbitral Tribunal was as per the agreement between the parties; the arbitration agreement is valid under the law to which the parties have subjected it; the arbitration procedure followed during arbitration proceedings was in accordance with the agreement of the parties; the subject matter of dispute is capable of settlement by arbitration under the law for the time being in force; and that the arbitral award only deals with disputes contemplated by or falling within the terms of the submission to arbitration.

Making an Arbitral Award inclusive of the grounds and points enumerated above is an elegant solution to the problem of setting aside an arbitral award under Section 34. Such a step showcases the far sightedness of the legislation in drawing a clear demarcation of the grounds on which the award can be set aside as a whole, or in part. This proposed amendment is an easy-going way to deal with the challenges and complexities involved in the process of initiating appeals under section 34.

Extension of the mandate of the Arbitral tribunal:

A common occurrence during arbitral proceedings is to seek extension of the mandate of the Arbitral Tribunal. The A&C Act, 1996 provided for such extensions by approaching the appropriate Court. The proposed amendment under Section 29(A)(4), in an audacious attempt to limit the intervention of the Courts in arbitral proceedings and further democratize the process of dispute resolution, grants Arbitral Institutions, under whose charge the arbitration is being conducted, with the same power as Courts under this Section. This contentious inclusion is a bold attempt to strengthen the power of Arbitral Institutions. However, this amendment may aid speedy and efficient disposal of such applications seeking somewhat routine extensions.

Vacation of ad-interim measures:

The Draft Bill introduces an in-built recourse for parties, particularly those in arbitrations under arbitral institutions, regarding emergency arbitrators and their awards. To achieve this, the Bill proposes amendments to Section 17(1), aligning with the suggested changes to Sections 9 and 9A. Specifically, the insertion of Section 17(1)(da) grants parties the right to approach the Tribunal to confirm, modify, or vacate ad interim measures granted under Section 9 or orders issued by emergency arbitrators under Section 9A.

Conclusion:

The Draft Arbitration and Conciliation (Amendment) Bill, 2024 represents a significant step towards modernizing and improving the arbitration framework in India.  By introducing emergency arbitration and promoting institutional arbitration, the Legislation aims to make arbitration a more efficient and reliable method of dispute resolution. By addressing key issues and incorporating international best practices, the government aims to make arbitration a more attractive and efficient dispute resolution mechanism. Arbitration in India has long been impeded by sluggish court proceedings, particularly in arbitrator appointments and interim relief requests. The proposed legislation addresses this by establishing timelines for courts to adjudicate arbitration-related matters, thereby streamlining the process and bolstering India's credibility as a dependable arbitration hub.

The Bill is somewhat similar to a car facelift you've been anticipating—while some existing features have been improved, a few new additions feel unnecessary or overly flashy given how the product is actually used. Additionally, certain features we were hoping for are conspicuously absent. However, despite these shortcomings, the overall update is still an improvement over the previous version, making it a positive step forward. These changes seek to enhance India's position as an arbitration-friendly jurisdiction and boost investor confidence in its dispute resolution mechanisms.

(Kritika Soni and Karnade Sindhayach are arbitration lawyers based in New Delhi)