Preface:

Arbitration has increasingly become a preferred option to settle commercial disputes globally as well as in India. Provisions relating to settlement of dispute by way of arbitration in India are contained in the Arbitration and Conciliation Act, 1996 (“Act”). It was high time that urgent steps be taken to facilitate quick enforcement of contracts, easy recovery of monetary claims, reduce the pendency of cases in courts and hasten the process of dispute resolution through arbitration, so as to encourage foreign investment by projecting India as an investor friendly country having a sound legal framework and ease doing business in India.

Considering these factors and the need of time, the current Government promulgated the Arbitration and Conciliation (Amendment) Ordinance, 2015 to amend certain provisions of the Arbitration and Conciliation Act 1996 which received assent from the President on 23^rd October, 2015. The Arbitration and Conciliation (Amendment) Bill, 2015 (Amendment Bill) was introduced in both houses of Parliament in its recent session to replace the Arbitration and Conciliation (Amendment) Ordinance, 2015 and was subsequently passed by the Lok Sabha and Rajya Sabha on 17^th December, 2015 and on 23^rd December, 2015 respectively. This Amendment Bill has now become an Act after having received the President’s assent on 31.12.2015 and shall be deemed to have come into force on the 23rd October, 2015.

KEY AMENDMENTS:

The Amendment Act has introduced some major changes in the principal Act. We have prepared a brief summary of the following key amendments for your quick reference:

• Amendment to definition of the term ‘Court’ in Section 2(e): Definition of the term ‘Court’ is amended to provide that certain provisions of Part I of the Act such as interim relief (section 9), court assistance in taking evidence (section 27) and appeal to interim relief order under section 9 (section 37) shall also apply to International Commercial Arbitration, even if the place of arbitration is outside India, subject to an agreement to the contrary between the parties to the dispute. In case of International Commercial Arbitration, the High Court shall be the ‘court’ for reliefs under the Act.  

• Amendment to Section 7: An Arbitration agreement contained in the form of communication through electronic means shall also be treated as an arbitration agreement in writing

• Amendment to Section 8: Unless the judicial authority finds that prima facie no valid arbitration agreement exists, said judicial authority shall refer to the parties to the Arbitration on the action brought by party to arbitration agreement or person claiming through or under him. If the party applying for reference to arbitration has not having original or certified copy of arbitration agreement between them but the said copy is retained by other party then such party can make application to the Court to call upon other party to produce original or certified true of the arbitration agreement before that court.

• Amendment to Section 9: Where the Court passes an order for any interim measure under sub-section (1) of Section 9 before the commencement of arbitral proceedings, the arbitral proceedings shall be commenced within a period of ninety days from the date of such order. It further provides that once the arbitral tribunal is constituted, the Court shall not entertain an application for interim measure unless it finds circumstances that may render the remedy provided under section 17 inefficacious

• Amendment to Section 11: Appointment of arbitrator shall now be made by the Supreme Court or the High Court, as the case may be, instead of the Chief Justice of India or the Chief Justice of the High Court. An application for appointment of arbitrator(s) shall be disposed of as expeditiously as possible and an endeavor shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party. The High Court is empowered to frame rules for the purpose of determination of fees of the arbitral tribunal and the manner of such payment. The High Court while framing rules shall take into account the rates of fee specified in the Fourth Schedule to the Act.

• Amendment to Section 12: Ensuring neutrality of arbitrators, when a person is approached in connection with the possible appointment as arbitrator, he is required to disclose in the writing the existence of any relationship or interest of any kind which is likely to give rise to justifiable doubts as to his neutrality. He is also required to disclose any circumstances which are likely to affect his ability to devote sufficient time to the arbitration and complete the arbitration within the specified period. A person having relationships as specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator; For example: The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party to the dispute; or the arbitrator is a manager, director or part of the management, or has a similar controlling influence over the parties to the dispute.

• Amendment to Section 14: On termination of mandate of an arbitrator, he is to be substituted by another arbitrator.

• Amendment to Section 17: The arbitral tribunal shall have power to grant all kinds of interim measures which the Court is empowered to grant under section 9 of the Act. Such interim measures can be granted by the arbitral tribunal during the arbitral proceedings or at any time after making the arbitral award, but before it is enforced under section 36 of the Act. Any order issued by the arbitral tribunal for grant of interim measures shall be deemed to be an order of the Court for all purposes and shall be enforceable under the Code of Civil Procedure, 1908 in the same manner as if it were an order of the Court.

• Amendment to Section 23: The respondent, in support of his case, may also submit a counterclaim or a set-off, if such counterclaim or set-off falls within the scope of the arbitration agreement.

• Amendment to Section 24: The Arbitral tribunal shall hold oral hearing for the presentation of evidence or oral arguments on the day-to-day basis and shall not grant any adjournments without any sufficient cause.

• Amendment to Section 25: The right of the respondent to file the statement of defence has been forfeited, if the respondent fails to communicate such statement in accordance with the time line agreed by the parties or Arbitral Tribunal (section 23(1) of the Act) without reasonable cause.

• Amendment to Section 28: The Arbitral tribunal while deciding and making an award, shall take into account the terms of the contract and trade usages applicable to the transaction.

• Insertion of a new provision- Section 29A: The Tribunal shall ensure speedy completion of Arbitration proceedings and pass the award within a period of twelve months from the date when the arbitral tribunal enters upon the reference. However, the parties may extend such period for a further period not exceeding six months. If the award is made within a period of six months, the arbitral tribunal shall be entitled to receive additional fees as the parties agree. If the award is not made within specified period or extended period, the mandate of the arbitrator shall terminate unless the time is extended by the court.

• Insertion of a new provision- Section 29B: This Section provides for a fast track procedure for conducting arbitral proceedings, in cases where the parties mutually agree for such procedure. In such cases, the arbitral tribunal consisting of a sole arbitrator shall decide the dispute on the basis of written pleadings, documents and written submission and shall not hold oral hearing. The award is to be made within a period of six months from the date the arbitral tribunal enters upon the reference.

• Amendments to Section 31: A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of two per cent higher than the current rate of interest prevalent on the date of award, and shall be payable from the date of award to the date of payment.

• Explanation 1 to the term ‘public policy of India’ substituted in Section 34(2)(b): Arbitral award shall be treated as an award in conflict with the public policy of India only where making of the award was induced or affected by fraud or corruption or was in violation of provisions of confidentiality (section 75) or admissibility of evidence of conciliation proceedings in other proceedings (section 81); or is in contravention with the fundamental policy of Indian law; or it is in conflict with the most basic notions of morality or justice.

• Explanation 2 inserted in Section 34(2)(b): The test as to whether the award is in contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.

• Insertion of new sub section (2A) in Section 34: This provision gives an additional ground of patent illegality to challenge an arbitral award arising out of arbitrations other than international commercial arbitrations.

• Insertion of new sub section (5) in Section 34: An application for setting aside of award under this section is to be filed after issuing prior notice to the other party.

• Insertion of new sub section (6) in Section 34: A period of one year has been prescribed for disposal of an application for setting aside an arbitral award.

• Amendments to Section 36: Mere filing of application for setting aside an arbitral award would not render that award unenforceable unless the court grants an order of stay on the operation of the said award on a separate application made for that purpose.

Epilogue:

The Amendment Bill has introduced certain welcome amendments to the Act that have brought clarity on many aspects that which were previously part of judicial interpretation. These amendments to the Act will help conclude the arbitration process expediently and in transparent manner.

by Dhanesh Rale (Partner) and Sanjana Sinharoy (Associate) of Abhay Nevagi and Associates, Pune

 Disclaimer:

This document provides general information and guidance as on date of preparation and does not express views or expert opinions of the authors. Contents of this document should neither be regarded as comprehensive nor sufficient for making any decisions. No one should act on the basis of information provided in this document without obtaining proper expert professional advice. The authors disclaim any responsibility and hereby accept no liability for consequences of any person acting or omitting or refraining to act on the basis of any information contained herein.