Resolving disputes the ‘Ordinance’ way
By Barnik Ghosh
The Arbitration and Conciliation Act of 1996 (‘the 1996 Act’) was an improvement on the Arbitration Act 1940 but did not manage to put an end to the long & dreary litigation tunnels for the disputing parties with a little help from the highest court of our land. India has gone through major changes in business and investment environment over the last 10 years. In the past fifteen years, there have been major and disruptive changes in the manner of doing business and overseas investments in India have increased multi fold. The legislative intent behind the recently introduced the Arbitration and Conciliation (Amendment) Ordinance, 2015 (the Ordinance) is to make the business environment simpler and easier to navigate by allowing a quick and transparent dispute resolution mechanism. This article discusses certain highlights of this Ordinance.
The first aspect which the Ordinance addresses is the applicability of the 1996 Act. Section 2 of the Ordinance amends Section 2 (2) of the 1996 Act by extending the applicability of Sections 9, 27 and (37) (1) (a) & (3) contained in Part 1 of the 1996 Act to international commercial arbitrations. The Ordinance, thus removes the dilemma caused by the judgment of the Supreme Court in Balco v Kaiser Aluminium, (2012) 9 SCC 552. After the Balco judgment, parties were free to choose between either offshore arbitration without interim measures in India or Indian arbitration without the neutrality of a foreign seat. However, with the 2015 Ordinance, the parties can now choose a foreign seat of arbitration and still have the liberty to apply for interim protection in India.
This amendment sets the ground for attracting business houses into India and also allowing companies to settle for more flexible arbitration clauses in the agreements. The Ordinance also states that an interim measure issued by an arbitral tribunal seated in India is enforceable in the same manner as a court order.
Commencement of proceedings
Section 5 of the Ordinance provides that if an Indian court grants interim measures before an arbitration has commenced, the arbitration must start within 90 days (or such further time as the court orders). This is an amendment to Section 9 of the 1996 Act and is a method to ensure that the arbitrator proceedings commence at the earliest. Moreover, the Act has been amended to restrain the Courts from entertaining any application for interim relief once arbitration has commenced. The Court is empowered to entertain such an application only if it is convinced that the arbitration tribunal will be unable to provide effective relief. This amendment is a very stringent one and it is highly unlikely that any Court shall pass any order of interim relief once arbitration has commenced. Thus, this amendment may be seen in negative light by some Indian business houses who have until now effectively used the interim relief mechanism to delay arbitration proceedings.
Appointment of Arbitrator
The Ordinance provides that the Courts should complete the appointment of an arbitrator expeditiously, preferably within a period of sixty (60) days. Moreover, the scope of the Courts power under Section 11 of the 1996 Act has been duly restricted to examine the validity of the arbitration clause alone. This is made more stringent by making this irrespective of any decision of the Supreme Court or any other court. The very act of restricting the scope of the Courts is a bold step and will discourage litigants from arguing beyond the validity of the arbitration clause of an agreement.
The Ordinance has also addressed the neutrality aspect of the arbitrator by spelling out extremely rigorous grounds. This reminds us of the Companies Act 2013 which had set the benchmarks for an independent director. The Ordinance sets very high standards of neutrality for the arbitrators and the list of disclosures to be provided by the arbitrators have been set out in Section 8 of the Ordinance. In order to understand the far reaching impact of the neutrality drive of the Ordinance, it shall be pertinent to note that the arbitrators are to disclose in writing the existence of any past or present relationship or interest in any of the parties or the subject matter of the dispute either direct or indirect. This very section shall sound as a death knell for many potential arbitrators who have been appointed despite their close relationship with one of the disputing parties. In public sector companies, it is an officer of a department is appointed as arbitrator and this section will put an end to such appointments. The neutrality guidelines so set out in the Ordinance is radical and shall deter any company from entering into any such agreement. It perhaps may be better if a panel of independent arbitrators are notified such that appointment of arbitrators become easier. Further, the relationship of the abitrator with the counsel has also been put under scanner in the new Ordinance. This will definitely be opposed in several quarters and may need to be relaxed accordingly. A similarity can be drawn between the Ordinance and the Companies Act 2013 in regard to the provisions of neutrality.
Section 29A has been inserted in the 1996 Act to address the issue of delay. As per this section, the Arbitrators must issue an award within 12 months of their appointment. Further, the parties may agree to extend the period of passing of award by 6 months. However, sub-section (4) of section 29A needs to be perused in detail in this regard. The proviso to the said sub-section empowers the Court to reduce the mandate of the Arbitrator in the event Court finds that the proceedings have been delayed due to reasons attributable to the Arbitral Tribunal. This may have embarrassing consequences as the Arbitrators may be retired Supreme Court and High Court Judges who may not be comfortable with such provisions being enforced.
Section 29B has also been inserted to the 1996 Act vide Section 15 of the Ordinance. Section 29B provides for a fast track mode of arbitration procedure. As per Section 29B, parties may mutually decide to adopt the fast track mode of arbitration in which the Arbitrator has to decide and pass an award within six months of the date of reference. It shall be pertinent to note that only a Sole Arbitrator can be appointed in this case. Thus, if the parties intend to resort to the fast track method, the arbitration clause in the agreement has to be modified accordingly by specifically providing for a sole arbitrator to decide the dispute. The fast track arbitration proceedings shall be concluded and decided only on the basis of written pleadings and supporting documents. No oral hearing will be conducted unless requested by both parties. This may not be conducive as it is a long standing practice that oral arguments are necessary to determine a particular matter. The oratory skills of an advocate is being totally negated in this amendment and this may attract negative opinion from several sources.
“Public policy” is no more a wide ground to resist enforcement in India of an international commercial arbitration award or a foreign award. The scope of public policy has been limited to include fraud or corruption or cases of conflict with the fundamental policy of Indian law or basic notions of morality or justice. This amendment will nullify judgments such as ONGC v Saw Pipes (2003) 5 SCC 705 and DDA v R.S. Sharma (2008) 3 SCC 80, which had expanded the scope of Indian public policy under the 1996 Act. Similar amendments have also been introduced in Sections 48 and 57 making the test of public policy a uniform one for domestic and international awards.
Conclusion and Way Forward
Though the Ordinance has ushered a positive change, some gaps remain and in others the provisions are not far reaching in their scope as was initially recommended by the Law Commission. Moreover, in order to bring arbitration in India as the preferred mode of settling commercial disputes between companies, it is recommended that the process of mediation and arbitration be merged. For disputes having lower quantum of money involved, a timeline of 90 days may be provided to resolve the disputes and a lesser amount may be assigned as the costs to be incurred as expenses for conducting the arbitration. The necessity of having an Arbitration Agreement also needs to be dispensed with. This will ensure that even in the absence of an arbitration agreement, the parties can approach the Arbitral Tribunal. The Ordinance also needs to pass the litmus test of practical implementation. It has an effect for a limited time period and it remains to be seen whether the Ordinance will go through as an Act of the Parliament in the days to come.
[The author is a Senior Associate, Corporate Practice, Lakshmikumaran & Sridharan, Kolkata]