India has for long been striving to become a prominent destination and preferred choice of seat for arbitration. Although the urge to be recognised as an investor-friendly pro-arbitration nation has been present for a few years now, actual positive steps were commenced and action taken only relatively recently, with the enactment of Arbitration and Conciliation (Amendment) Act, 2015 and the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015. The former introduced various amendments to the Arbitration and Conciliation Act, 1996 (“Act”), while the latter established the designated commercial division in High Courts and District Courts for adjudicating commercial disputes. Another significant measure brought in by the latter Commercial Courts Act is the provision of mandatory pre-litigation mediation, whereby parties are directed to attempt mediating the disputes between them before they can litigate the disputes. This is an encouraging step endeavouring to reduce the ever-growing litigation burden on the Courts and also for the parties to attempt to settle the disputes among themselves, amicably. An amicable settlement of the disputes between the parties also promotes enforcement of the contracts and orders pertaining to the proceedings between the concerned parties.
The arbitration law in India over the years has developed not only through the legislative intend and enactments but the Courts have had a major role to play in the development. This is evident from the fact that the Courts on this subject-matter have interpreted the legislative intent embedded in the Act and also established relevant precedents to be followed in the times to come. It is further mention-worthy that there are larger number of cases in which awards are enforcement and the intervention of the Courts in the arbitration proceedings has drastically reduced.
Some of the key measures introduced in the Act that have bolstered the arbitral process are limited and restricted intervention of the Courts, expeditious and time bound proceedings, regulated costs, no automatic stay on the enforcement of the award, focus on institutional arbitration, no provision of an appeal against an arbitral award and limited ground of objection thereto, and greater emphasis on confidentiality and security. Another impetus favouring arbitration in India is that India is a signatory to Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the Act is based on the UNCITRAL Model Law.
Section 5 of the Arbitration and Conciliation Act, 1996 provides for less and restricted intervention of the Courts in arbitration proceedings. The section manifests the objective of minimizing the supervisory role of the courts in an arbitration process. This section bars the jurisdiction of courts to intervene or interfere in arbitration proceedings, except to the extent provided in Part I of the Act. Further, Section 2(3) of the Act craves out an exception to Section 5 of the Act, thus provides for judicial intervention in relation to disputes which may not be submitted to arbitration. It has also been clarified that once the arbitral tribunal is constituted, the Court shall not entertain an application under section 9 of the Act, unless the Court feels that the arbitral tribunal will not be able to grant the same remedy, thereby, minimizing the intervention of the Court.
The Courts do not exercise jurisdiction over a dispute in relation to which the parties have entered into an arbitration agreement, and in case an attempt made by a party to approach the Court, the Court would refer the matter to arbitration. Section 8 of the Act is peremptory in nature. It provides that a judicial authority shall, on the basis of the arbitration agreement between the parties, direct the parties to go for arbitration. It clearly stipulates that whenever a suit is filed in a civil court and the cause of action of said suit emanates from a contract in which the parties had voluntarily and willingly agreed to settle the dispute via arbitration, then, if the essentials of section 8 are met, it is the bounden duty of court to refer the parties to the arbitration. A similar approach is adopted in cases of foreign arbitrations under Section 45 of the Act. A mere reading of Section 45 would go to show that the use of the words “shall” and “refer the parties to arbitration” in the section makes it legally obligatory on the Court to refer the parties to the arbitration once it finds that the agreement in question is neither null and void nor inoperative and nor incapable of being performed. The scope of enquiry under the Section 45 of the Act is confined only to the question whether the arbitration agreement is “null and void, inoperative or incapable of being performed” but not the legality and validity of the substantive contract.
In terms of appointment of an arbitral tribunal by the Court, where the parties fail to abide by the procedure agreed upon them or fail to arrive at a consensus, Section 11 of the Act provides that there will be no intervention of Court on the merits of the disputes and examination of only the existence of arbitration agreement would be done. In view of the legislative mandate contained in Section 11 of the Act, the Court is now required only to examine the existence of the arbitration agreement. All other preliminary or threshold issues are left to be decided by the arbitrator under Section 16, which enshrines the kompetenz-kompetenz principle.
The Code of Civil Procedure, 1908 and the Evidence Act, 1872 do not apply to arbitration proceedings and the parties are free to agree on a procedure to appoint an arbitrator, conduct of arbitral proceedings, procedure to challenge an arbitrator, language, choose applicability of foreign institutional arbitration etc. Parties can even provide for qualification of an arbitrator which courts will regard while appointing arbitrator. The parties by agreement or arbitrator may seek evidence of expert witnesses. The arbitral tribunal shall take into account the terms of the contract and the trade usages applicable to the transaction.
A major concern of delays has been tackled by insertion of Section 29A which provides for timebound adjudication of the arbitration proceedings. By virtue of the 2015 Amendment a timeframe of 12 months, extendable by 6 months with consent of the parties, was fixed. This timeframe was revised vide the 2019 amendment brought about in the Act, whereby a period of 12 months, extendable, was fixed post completion of pleadings, for which a period of 6 months has been prescribed. Section 29A of the Act was intended to sensitize the parties as also the Arbitral Tribunal to aim for culmination of the arbitration proceedings expeditiously. Owing to the complexities involved in ‘international commercial arbitrations’, the 2019 amendment excludes ‘international commercial arbitration’ from this time-limit to complete arbitration proceedings. As per the amended Section 9 of the Act, if the Court passes an interim order before the commencement of arbitral proceedings, the arbitral proceedings must commence within 90 days from the making of such an order, or within a time specified by the Court. The 2015 amendment also introduced a fast track procedure subject to agreement of parties.
Costs of the proceedings of the arbitral proceedings have been regulated by the introduction of Section 31A and Schedule IV of the Act. Section 31A Act has been a welcome step towards costs recoverability as it is based on rational and realistic criteria. The fee to be charged by the arbitrators has been regulated by providing in Schedule IV to the Act, the fee that an arbitrator may charge from the parties depending in the amount claim.
The amendment brought about to the Act in 2019, introduces express provisions on confidentiality of arbitration proceedings and immunity of arbitrators. Section 42A of the Act (yet to be notified) imposes data confidentiality obligations upon the arbitrator, the parties to the arbitration, and the arbitral institution. Section 43K of the Act enables the Arbitration Council of India (“ACI”) to be the repository of arbitral records. However, the contours and exceptions to data confidentiality under section 42A remain unanalysed, and the governing regulations of the data security protocols for the ACI are yet to be notified. Although confidentiality and data privacy concerns have been addressed and the situation is better than before, confidentiality is restricted to arbitral proceedings and the awards are mandatorily to be published. There is no provision of an opt-out mechanism as is provided under various rules by international institutions, such as the International Chamber of Commerce.
Section 34 of the 1996 empowers the Courts to interfere in the arbitration process for the purpose of setting aside an arbitral award given by an arbitral tribunal. This section deals with the procedure for the application and also the grounds for setting aside the arbitral award. Moreover, a limitation period has also been set within which the application has to be filed before the Court. The grounds for setting aside an award Section 34 of Act are in consonance with Article 34 of the UNCITRAL Model Law. The much debated and controversial term of “public policy” found no definition in the Act and hence the term remained vague. The expression is taken to imply larger public interest or public good. However, this gives an abstract explanation of the term without giving a precise meaning to it. Due to this lack of definition of the term “public policy”, the term had a wide meaning thereby giving the Courts the liberty to interpret it. Hence the explanation appended to the term by way of the 2015 amendment, it has defined the scope and meaning of the expression. An arbitral award shall be contemplated to be against public policy if the award was persuaded by fraud or corruption or in violation of the fundamental policy of India Law or the basic notions of the policy morality and justice.
The Act through Section 37 enumerates the instances under which an appeal maybe preferred before the concerned Court. It has been provided in the Act that appeals maybe preferred against orders passed by a Court under Sections 8 (under specific circumstances), 9 and 34 of the Act and by an arbitral tribunal under Section 16 (under specific circumstances) and section 17 of the Act. While entertaining appeals under Section 37 of the Act, the Court does not essentially sit as a court of appeal over the award of the arbitral tribunal and would not re-appreciate or re-assess the evidence. The reason behind such limited interference by the Court is well established. An arbitrator is considered the ultimate master of quantity and quality of evidence to be relied upon when he delivers the award and once it is found that the arbitrator’s approach is not arbitrary or capricious, the arbitrator is the last word on facts. If the Courts, sitting in appellate jurisdiction, were to interfere with the merits of the awards as a matter of procedure, it would defeat the very purpose of having an alternative dispute resolution mechanism.
There is no automatic stay on the enforcement of the award, except as provided for by the 2021 amendment to the Act that has been in force by way of an ordinance since 4 November 2020. Section 36 of the Act provides that a domestic arbitral award shall be enforced in the same manner as if it were a decree passed by the Court, once the time prescribed for making an application to set aside the award under Section 34 of the Arbitration Act had expired or an application made for this purpose had been refused. Prior to its amendment in 2015, the Act did not specifically address the issue of whether the operation of a domestic arbitral award would be stayed while a challenge to the award under Section 34 of the Arbitration Act was pending.
A party holding a foreign award can apply for enforcement, but the Court before taking further effective steps for the execution of the award has to proceed in accordance with Section 47 to 49 of the Act (same as Articles IV to VI of the Convention). Once the Court decides that the foreign award is enforceable, it can proceed to take further effective steps for execution of the same. Section 49 of the Act confers the status of decree on foreign arbitral award as a result of which it becomes executable by its own force. This deeming provision has been incorporated in this section with a view to ensuring smooth and speedy execution of recognized and unobjectionable foreign awards. In terms of objections to the enforcement of a foreign award, the same has been dealt with by Section 48 of the Act. Grounds for refusal of enforcement as provided for under Section 48 of the Act are virtually the same as the New York Convention.
A substantial reform brought to the Act is the insertion of Part IA (Section 43A to 43M). The Arbitration Amendment Act 2019 seeks to establish the ACI, which would exercise powers such as grading arbitral institutions, recognising professional institutes that provide accreditation to arbitrators, issuing recommendations and guidelines for arbitral institutions, and taking steps to make India a centre of domestic and international arbitrations.
Inspite of the numerous measures implemented for the improvement of the arbitration environment in India, there are still certain challenges that are faced.
Although India is moving towards modernisation, it is yet a developing country. Which means, most people are ignorant towards arbitration and still trust Courts more than alternate dispute resolution. This is not necessarily a bad thing, putting faith in one’s judicial system, but when the citizens of a country are ignorant and are unwilling towards change, this kind of orthodox thinking can really harm rather than helping anyone.
India will not have a robust domestic arbitration environment unless institutional arbitration becomes mandatory. This can only be done if arbitration agreements mention the specific institution that will conduct arbitral proceedings. Once domestic arbitration becomes popular through institutional arbitration, it eventually will lead to international commercial arbitrations being conducted in India. The training of arbitrators, especially for those not having any judicial background, is needed so that the awards passed by them can withstand judicial scrutiny.
Only nine categories of persons (such as an Indian advocate or cost accountant or company secretary with certain level of experience or a government officer in certain cases) are qualified to be an arbitrator (Schedule VIII). A foreign scholar or foreign-registered lawyer or a retired foreign officer is outrightly disqualified to be an arbitrator under the Act. The 2021 amendment bill removes Schedule VIII for arbitrators and states that the qualifications, experience, and norms for accreditation of arbitrations will be specified under the regulations.
The effect of the measures implemented by the Legislature and the approach adopted by the Judiciary, can be witnessed from the fact that as per the World Bank ranking for ease of doing business, India ranked at 131 of 189 countries in the year 2016, which significantly improved to rank 63 of 190 countries in the year 2019. Evidently, India has moved up the ladder in terms of its ranking, however, on account of the challenges that are still at large, there is still ground to be covered for being at par with the other internationally proclaimed arbitration destinations.