The 2018 Proposed Amendments and Their Missing Provisions

The Arbitration and Conciliation (Amendment) Bill, 2018 recently received Cabinet approval. The proposed amendments are based on the recommendations of the High Level Committee set up by the Government under the Chairmanship of Justice B.N. Srikrishna, former judge of the Supreme Court of India. The amendments are certainly well thought out, and are geared towards promoting arbitration in India, making India into an arbitral destination and promoting institutional arbitration.

That said, there are however some distinct lapses in the proposed 2018 amendments. It is imperative that the amendments are comprehensive so as to avoid repeated attempts at amending the Arbitration and Conciliation Act, 1996 (“Act”).

Section 2(1)(d)

The issue of emergency arbitration has been debated ad nauseam in India, and the fact is that for India to be a serious player in the arbitration arena, the law must provide for emergency arbitrators. It is therefore pertinent to amend s.2(1)(d) as recommended by the 246th Law Commission Report (“LCR”)1[i], and the same should read: “’arbitral tribunal’ means a sole arbitrator or a panel of arbitrators and in case of an arbitration conducted under the rules of an institution providing for appointment of an emergency arbitrator, includes such emergency arbitrator.”

Section 2(1)(e) & Section 42

It is important to amend s.2(1)(e)(ii) by replacing the words “international commercial arbitration” with “institutional arbitration”. Such an amendment would have the effect of giving jurisdiction to High Courts for court proceedings in relation to institutional arbitrations, encouraging parties to opt for institutional arbitration.

A proviso to s.2(1)(e) needs to be added, which states: “Notwithstanding anything herein contained, once ‘seat’ is designated it shall have the effect of conferring exclusive supervisory jurisdiction on the court of the seat and ss. 16-21 of the Code of Civil Procedure, 1908 shall have no application to proceedings in relation to arbitrations once ‘seat’ has been designated. It is clarified that enforcement proceedings may be filed anywhere in India where the Award is executable.”

The aforesaid proviso would be required to bring the Act in line with judgments of Indus Mobile Distribution Pvt. Ltd. v. Datawind Innovations Pvt. Ltd. and Sundaram Finance Ltd[ii]. v. Abdul Samad[iii]. Such an amendment would legislatively overrule Swastik Gases Pvt. Ltd. v. Indian Corporation[iv] to the limited extent it holds that ss.16-21 of the Code of Civil Procedure, 1908 applies to arbitrations.

When ‘seat’ is designated, s.42, in the wake of Indus Mobile and Sundaram Finance, would be redundant. The decisions, when read together, hold that supervisory jurisdiction will follow ‘seat’, and enforcement can be filed anywhere where the award is executable. The manner of determination of the ‘seat’, when ‘seat’ has not been specifically designated, has been referred for consideration before a larger bench in the matter of Union of India vs. Hardy Exploration & Production (India) Inc[v]. It appears that once the mode of designation has been clarified, the redundancy of s.42 would be complete.

Section 2(1)(h)

It is imperative to amend the definition of ‘party‘ in s.2(1)(h) to read: “’party’ means a party to an arbitration agreement or any person claiming through or under such party”.

The above amended definition had been proposed by the 246th LCR[vi] in order to reinforce the decision of Chloro Controls

v. Severn Trent Water Purification[vii], where the phrase ‘or any person claiming through or under’ appearing in s.45 was given a meaning to include non-signatories, in the appropriate context, in arbitration. The three-judge bench in Chloro Controls gave this meaning to the phrase by drawing a linkage with the words “in respect of a defined legal relationship, whether contractual or not” appearing in s.44. The benefit of these words, albeit present in s.7, cannot be linked to s.8 and hence brought to bear in domestic arbitration and Indian seated international commercial arbitration, without amending s.2(1)(h).

Although the Supreme Court in the recently decided matter of Ameet Lalchand Shah v. Rishabh Enterprises[viii] relegated non-signatories to arbitration (relying on Chloro Controls), it is important to consider that not amending the definition of ‘party‘ in s.2(1)(h) could leave non-signatories remediless since the aforesaid phrase does not appear in ss.7, 9, 11 &

34. The position would now be more stark, since awards can be enforced even against non-signatories, as has been held in Cheran Properties Limited v. Kasturi and Sons Limited [ix] in view of the presence of the expression ‘parties and persons claiming under them‘ in s.35.

Section 2(1)(hh) & Section 20

An additional s.2(1)(hh) to define ‘seat of arbitration‘ should be added to s.2. This was recommended by the 246th LCR[x] in order to provide clarity ‘that seat of arbitration‘ is different from the ‘venue of arbitration‘. Consequently, the expression ‘place‘ appearing in s.2(2) and s.20(1) and s.20(2) should be replaced with ‘seat‘ and ‘place‘ appearing in s.20(3) with ‘venue‘. This was the meaning first assigned to these expressions in the matter of BALCO v. Kaiser Bharat Aluminium Company[xi] by the Constitution Bench, thereafter recommended by the LCR and recently re-affirmed in Indus Mobile.

Section 16

The amendment of s.16 by adding sub-clause (7) is long over-due. The amendment recommended by the LCR was: “(7) The arbitral tribunal shall have the power to make an award or give a ruling notwithstanding that the dispute before it involves a serious question of law, complicated questions of fact or allegations of fraud, corruption etc”.

The amendment was proposed by the 246th LCR[xii] with a view to legislatively overrule the Supreme Court’s decision in

N. Radhakrishnan v. Maestro Engineers[xiii], “which appear to denude an arbitral tribunal of the power to decide on issues of fraud”. Post the 2015 amendments, the Supreme Court in the matter of Ayyasamy v. Paramasivam[xiv] has inter alia held serious fraud, constituting a virtual case of criminal offence, to be non-arbitrable. The inclusion would have the effect of legislatively over-ruling Ayyasamy.

Section 34

In keeping with the recommendation proposed by the Supreme Court in the matter of Indian Farmers Fertilizers Co- operative Limited v. Bhadra Products[xv] the Parliament must consider adding a new provision to s.34 whereby interim awards can be consolidated with the final award in order to avoid challenges piecemeal. The Court in the above mentioned matter had observed, “we are of the view that Parliament may consider amending Section 34 of the Act so as to consolidate all interim awards together with the final arbitral award, so that one challenge under Section 34” can be made after delivery of the final arbitral award. According to the Court, piecemeal challenges to awards lead to “unnecessary delay and additional expenses”. Sub-section (7) can be added to s.34 which could read- “It is clarified that all interim/partial Awards shall merge into the final Award and shall be challenged only with the final Award”.

However, there could be the exceptional circumstances where the partial/interim award is imperative to challenge. Therefore, a proviso must be added whereby the tribunal is vested with the requisite power to stay the interim/partial award and/or direct the same to take effect along with the final award.

In s.34(2A), the words ‘international commercial arbitration‘ are to be replaced with the words ‘institutional arbitration‘. This will remove the current disparity between domestic arbitrations on the one hand and Indian seated international commercial arbitrations and foreign-seated arbitrations on the other hand, with regard to the test of ‘patent illegality’. The classification would only be with regard to domestic ad-hoc arbitration and institutional arbitration. This would have the effect of giving an impetus to institutional arbitration and also retaining our domestic arbitration within the country – thus killing two birds with one stone.

Conclusion

The other amendments proposed by the 2018 Amendments are progressive and need to be implemented except s.13 of the proposed Amendment Bill, which intends to incorporate s.87 to the Act. The said amendment, if brought in, will have the effect of putting the ‘Amendment Act on a back-burner‘ and ‘result in the increased interference of courts in arbitration matters‘, as has been pointed out by the Supreme Court in Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd.[xvi] (“BCCI”). The current s.13[xvii] of the proposed Amendment Bill ought to be replaced with the ratio in the BCCI Matter.

By way of a background, when the 2015 amendments came into effect, they contained a ‘repeal and savings’ provision. This seemingly innocuous provision became the cause of much dispute.

The language of this provision did not clarify whether the court proceedings that had been filed after the amended Act came into effect on October 23, 2015, in relation to arbitrations that had commenced prior to the amendments taking effect would continue to be governed by the un-amended Act or by the amended Act. Litigations were filed in various High Courts around the country, which took contrary views on the controversial provision. Parties felt that rights had vested in them for instance, scope of the interference of the court in setting aside an award, or in its enforcement, etc., under the un-amended regime, and that the amendments had the impact of taking away those vested rights.

The Supreme Court, in the BCCI matter, putting an end to these disputes, held that any court proceedings filed after the effective date of the amendment, even in relation to arbitrations commenced prior to the said effective date, would be governed by the amended Act.

Interestingly, during the course of the hearing of the afore-mentioned case, the proposed 2018 Amendments were brought to the attention of the Court, which had inter alia incorporated a ‘repeal and savings’ provision. According to the proposed 2018 Amendments, any Court proceedings arising out of or in relation to arbitral proceedings filed prior to 23rd October, 2015, irrespective of whether such court proceedings are commenced prior to or after the said date, would be governed by the un-amended Act. It was in this context that the Supreme Court advised the Government to reconsider the language of the proposed amendment, and to bring the same in line with the judgement passed by the Court in the aforesaid matter. It is hoped that the Government will pay heed to this cautionary note of the Supreme Court.

Lastly, the Parliament must consider legalizing third party funding, by way of a separate and comprehensive enactment, to bring India at par with other jurisdictions such as Singapore and Hong Kong. It would additionally require the laws regarding champerty and maintenance to be legalized as well. It might not also be out of place to mention that the time has come to allow Indian lawyers to charge contingency fees/ undertake value billing. This will also lay the foundations for creating a level playing field for Indian lawyers as and when we are ready to open our doors to foreign lawyers.


[i] Page 37, 246th LCR

[ii] (2017) 7 SCC 678

[iii] (2018) 3 SCC 622

[iv] (2013) 9 SCC 32

[v] 2018 SCC OnLine SC 474

[vi] Para 61 to 64 of 246th LCR and at note (iv) at page 38.

[vii] (2013) 1SCC 641

[viii] (2018) SCC Online SC 487

[ix] (2018) SCC Online SC 431

[x] Page 39, 246th LCR

[xi] (2012) 9 SCC 552

[xii] Page 50, 246th LCR

[xiii] (2010) 1 SCC 72

[xiv] (2016) 10 SCC 2016

[xv] (2018) 2 SCC 534

[xvi] 2018 SCC OnLine SC 232

[xvii] After section 86 of the principal Act, the following section shall be inserted and shall be deemed to have been inserted with effect from the 23rd October, 2015, namely: “87. Unless the parties otherwise agree, the amendments made to this Act by the Arbitration and Conciliation (Amendment) Act, 2015 shall (a) not apply to (i) arbitral proceedings commenced before the commencement of the Arbitration and Conciliation (Amendment) Act, 2015; (ii) court proceedings arising out of or in relation to such arbitral proceedings irrespective of whether such court proceedings are commenced prior to or after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015; (b) apply only to arbitral proceedings commenced on or after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015 and to court proceedings arising out of or in relation to such arbitral proceedings”.

This article first appeared in the NPAC Newsletter in June, 2018. The original article can be viewed by following the link:

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