Arbitration is that the method of dispute resolution wherein a neutral third party, called the arbitrator renders a choice after giving each side an equal opportunity to be heard. The practice of arbitration in India are often traced back to as far as ancient and medieval times when subjects approached their kings to settle disputes amicably. Before the enactment of the 1996 Act, arbitration in India was governed by three different acts namely, the Arbitration Act of 1940 for domestic arbitration, the Arbitration Act of 1937 concerning Protocol and Convention, and therefore the Foreign Awards Act of 1961. The three preceding arbitration laws proved extremely inefficient in resolving disputes which led to the enactment of the Arbitration and Conciliation Act of 1996 to manage the system of other Dispute Resolution (ADR) in India. The act was supported the lines of the United Nations Commission on International Trade Law (UNCITRAL) Model Law, 1985 and applies to domestic disputes, international commercial disputes, ad-hoc and institutional arbitration.
In 2015 the Indian Government made far-reaching changes to the Arbitration and Conciliation Act, 1996 (the “1996 Act”). After a number of years of discussions about appropriate changes, and following a report by the Law Commission of India in 2014 (the “Law Commission Report”), the arbitration law in India was initially changed by an ordinance issued in October 2015. The ordinance was only temporary: it had effect only until subsequent session of the Indian Parliament. At the top of 2015, the Indian Parliament approved a bill which made the changes permanent, and on 31 December 2015 the Arbitration and Conciliation (Amendment)
Act, 2015 (the “Amendment Act”) became law. The Amendment Act demonstrates India’s commitment to drastically reduce timelines for resolving commercial disputes in India and make India a more attractive place to try to business.
The amendments deal with restrictions on Indian court’s jurisdiction over foreign seated arbitrations(1) and various other recommendations made in the Law Commission Report. The changes have also brought the Indian arbitration regime closer to the international standards and to the UNCITRAL Model Law on International Commercial Arbitration.
In this paper, we consider countless court decisions which cover topics such as the limitation period for enforcement of foreign awards, the arbitrability of fraud, ‘patent illegality’ as a ground to set aside awards, and granting of interim directions against non-signatories to an arbitration agreement. We also consider India-related bilateral investment treaty news such as the tribunal’s decision in the Vodafone tax dispute and Nissan’s settlement of its claim against India. We also trace on other developments such as updates issued to the Indian Arbitration and Conciliation Act 1996.
The 2019 Amendment
The 2019 amendment to the Arbitration and Conciliation Act, 1996 was the results of the report issued by the High Commission Committee in 2017 headed by BN Srikrishna. Prominent changes introduced by the amendment include:
(I) the establishment of the Arbitration Council of India (ACI) through the introduction of Section 11(3A) whereby the Supreme Court and therefore the High Courts of India, supported the gradings provided by ACI will designate ‘arbitral institutions’. The Council is primarily entrusted with grading the arbitral institutions (in line with Section 43-I, introduced by the 2019 Amendment) and to also maintain professional standards to further the standard of institutional arbitration in India. Besides, the Council is additionally entrusted with the reviewing the grading given by arbitrators consistent with Section 43(D)(2)(c). this is often seen as a step towards the institutionalization of arbitration in India.
(II) so as to avert the delays in arbitral proceedings, the amendment empowers the Supreme Court and therefore the High Courts to assign accredited arbitral institutions for the appointment of arbitrators just in case of disagreement between parties to appoint one.
(III) As per the newly introduced Section 42(A), the arbitrator has an obligation to take care of the confidentiality of the arbitral proceedings. However, this doesn't apply to cases where the disclosure is imperative for the execution of the award.
(IV) While the 1996 Act stipulated 12 months for all arbitration proceedings within which tribunals must make their awards, the amendment reiterated this ultimatum for international commercial arbitration and emphasized that it's going to be discharged as expeditiously as possible. Besides, the amendment imposes new limits through Section 23(4) concerning statements of claim and defence for domestic proceedings which shall now be completed by 6 months.
(V) The amendment also highlights that to line aside a gift , the courts must rely only on proof furnished before the relevant arbitral tribunal, thereby largely reducing the scope of interference by courts.
(VI) consistent with the 2019 amendment, no suit can lie against an arbitrator for things wiped out straightness .
This amendment therefore, clearly tries to forge an effort to level the notorious ‘unfriendly’ tag that's wont to describe India’s arbitral mechanisms especially within the context of international commercial arbitration. With this amendment in situ , India now looks to draw in more foreign parties for trade and thereby to facilitate simple doing business.
Glimpses Of Certain Recent Judgments
A closer look into recent judgments shows that India’s hopes of becoming a ‘friendly’ jurisdiction in terms of arbitration especially to attract foreign parties and become a global arbitral hub has increased exponentially.
Quippo Construction Equipment Limited v. Janardan Nirman Private Limited [Civil Appeal No. 2378 of 2020]
The Supreme Court, in this case, held that ought to a party plan to not participate within the arbitral proceedings, he's deemed to possess waived his right to boost any objections concerning the jurisdictions of the tribunal at a later stage in the other forum. The parties to the case had initially entered into four separate agreements, each with an article . While one among the agreements stipulated Kolkata because the venue for arbitration, the opposite three stipulated Delhi because the venue. When disputes arose and therefore the appellant invoked the article , the respondent denied the existence of an agreement and refused to require part within the arbitration proceedings held in New Delhi . Subsequently, a gift in favour of the appellant was gone by the New Delhi Tribunal. The respondent objected to the jurisdiction of the Tribunal within the Supreme Court. The court after considering the relevant provisions of Section 4 (Waiver of Party’s right to object) and Section 16 (Competence of the Arbitral Tribunal to rule on its jurisdiction) and Section 20 (Place of arbitration), relied on the case of Narayan Prasad Lohia v. Nikunj Kumar Lohia and others and articulated that a waived right can't be reclaimed at a later stage which the place of arbitration has no relevance within the context of domestic arbitration. This judgment is reflective of India’s plan to reduce the interference of courts and increase the autonomy of arbitral institutions.
Gammon India Ltd. and Anr. v. National Highways Authority of India [Judgment dated June 23, 2020 in OMP 680/2011] [New No. O.M.P (COMM.) 392/2020) & I.A 11671/2018]
In this case, the dispute was mentioned three different arbitral tribunals which passed three different awards, contradicting one another . The court noted that, although the Act allows for multiple arbitral proceedings arising from an equivalent contract, it's certainly against public policy and therefore the spirit of the Act to allow claims to be mentioned multiple arbitral tribunals. The court also acknowledged that it not only defeats the aim of arbitration which may be a speedy resolution but is additionally counter-productive especially when the disputes have overlapping issues. The court further emphasized on the importance of discipline in arbitral proceeding to be cost-effective and efficient and stated that the parties must not be allowed to misuse and abuse the relief of arbitration during this fashion.
Glencore International AG v Indian Potash Limited [Ex. P. 99/2015 dated 9 August 2019]
The Arbitration Agreement within the present case stipulated that the disputes between the parties are to be mentioned the non-existent “Singapore International Arbitration of the Chambers of Commerce in Singapore”. However, the intent as inferred by the Tribunal was to refer the disputes to a Singapore International Arbitration Centre. Thus the arbitral proceeding was conducted supported the SIAC (Singapore International Arbitration Centre) Rules, 2010. The respondent, Indian Potash Limited challenged the applicability of the SIAC Rules and argued that since the applicable law was Singaporean law, the relevant arbitrator should are appointed in line with the International Arbitration Act (IAA) and not in accordance with the 2010 Rules. The court, however, opined that when the registrar rightly assumed jurisdiction consistent with the SIAC Rules, it had the proper to act because the appointing authority. Further, since the administration of the arbitration by SIAC wasn't of the character to change the award itself, the court noted that the edge for refusing enforcement wasn’t met. The respondents (Indian Potash Limited) further contended that the award should be put aside on the bottom that it had been against public policy because the Tribunal didn't choose the jurisdiction as a preliminary matter thereby depriving their ability to challenge that call under the Singaporean International Arbitration Act. The court however, rejected this claim and noted that the Tribunal was actually vested with the discretion to make a decision whether to treat jurisdiction as a preliminary matter or not which no public policy in India mandated that the arbitral authority must affect jurisdiction as a preliminary issue.
The court also observed that consistent with Rule 17.5 of the SIAC Rules, the Tribunal is permitted to permit either party (unless considered inappropriate due to delay or prejudice to the opposite party) and thus the choice to permit the petitioner for alteration of its pleadings was intra-vires the facility of the Arbitral Tribunal. Thus the court highlighted that this doesn't amount to a breach of natural justice. This judgment therefore proves that the courts of our country rely with utmost trust on the tribunals and institutions while respecting their judgements in matters over which they need discretion.
Three Supreme Court decisions on the right of a party to unilaterally select arbitrators:
In two recent decisions, the Supreme Court of India has considered the validity of an agreed procedure to appoint arbitrators where one party has the unilateral right to appoint the arbitrators or to pick the pool of arbitrators from which the tribunal must be constituted. Such procedures aren't unusual in contracts with Indian public sector undertakings (“PSUs”), often allowing government and ex-government employees to be appointed. we've previously covered the issue of appointment of state and ex-government employees as arbitrators on our blog here. S12(5) of the Act (inserted by the 2015 amendments), makes employees of one of the parties (generally interpreted as employees of the actual PSU involved within the dispute) ineligible to be appointed as arbitrators.
In Perkins Eastman Architects v HSCC (India) (Arbitration Application No. 32 of 2019), the court held that a procedure where an employee (here, the chairman and managing director) of one party has the right to appoint a sole arbitrator was invalid. This was in contrast to a “completely different situation” during which both parties have the right to appoint arbitrators where the advantage derived from nominating an arbitrator of one party’s choice would get counterbalanced by the opposite party’s choice. In reaching its conclusion, the court relied on its 2017 decision in TRF Limited v Energo Engineering ((2017) 8 SCC 377) (previously discussed on the blog here) where it had held that an individual who was himself disqualified from being appointed as an arbitrator (in that case, the director of 1 party) couldn't nominate the other person to act because the sole arbitrator.
Subsequently, in Central Organisation for Railway Electrification (“CORE”) v ECI-SPIC-SMO-MCML (“Contractor”) (Civil Appeal Nos. 9486-9487 of 2019), the court upheld an agreement that the tribunal was to comprise three serving and / or retired ‘Railway Officers’ (civil servants working as a part of the Indian Railways), where one arbitrator would be chosen by Contractor from a panel of Railway Officers prepared by CORE’s head who also had the proper to appoint the opposite two arbitrators, including the presiding arbitrator. The Contractor argued (among other things) that applying the choices in TRF Limited and Perkins, CORE’s head couldn't select / appoint the arbitrators as he was himself ineligible to function an arbitrator (pursuant to S 12(5) of the Act). However, the Supreme Court distinguished these two decisions on the idea that the proper / role of CORE’s head in appointing the tribunal was counterbalanced by the contractor’s right to pick its nominee from the panel of retired Railway Officers prepared by CORE’s head .
Finally, in Proddatur Cable TV Digi Services v Siti Cable Network (OMP(T)(Comm) 109/2019 and IA 17896/2019), the Delhi supreme court applied Perkins and located that a procedure where one party (here, Siti Cable) has the right to appoint a sole arbitrator was also invalid. For the court, it didn't make a difference that the appointing authority was the party itself and not an employee of that party (e.g. the Chairman and director in Perkins): Siti Cable and/or the board of directors through which Siti Cable would act are parties curious about the result of the dispute during a manner that creates them ineligible to appoint the only arbitrator.
The decisions in Perkins and Proddatur v Siti Cable provide some clarity regarding the validity of appointment procedures, and invalidates a procedure where one party or an employee of one party has the unilateral right to appoint the only arbitrator. The Supreme Court’s decision in Perkins is that the latest during a line of decisions which concentrate on the requirement and desirable of impartial and independent arbitrators.
The decision in CORE, however, appears to be an outlier and is difficult to reconcile with the observations in Perkins and previous cases.
India is notorious for being cost-ineffective and in-efficient when it comes to disposing of arbitral proceedings. However, the 2019 Amendment and the recent judgements are standing proof that India is on the road to recovery, especially now with the reduction in interference of courts and institutionalization of arbitration. With cost effective mechanisms and speedy disposal of cases India hopes to instil faith in its arbitral institutions sooner than later.
The 1996 Act – designed to cover both international and domestic arbitration – had long been considered ineffective because judicial interpretation led to varied ambiguities which had implications on the timing and price of arbitrations and therefore the enforcement of arbitral awards(3). The Amendment Act not only brings in clarity to the initial law but is additionally a positive step towards making arbitration a good , efficient and cost-effective remedy and fits within the government’s aim – repeatedly highlighted by Prime Minister Narendra Modi – to attract maximum foreign investment by improving the “ease of doing business” in India.
– SHIVANI MODI