NPAC’s Arbitration Review: The 2019 Arbitration Amendment Act and the changes it ushers in – A Primer

NPAC’s Arbitration Review: The 2019 Arbitration Amendment Act and the changes it ushers in – A Primer

Dr. Amit George

Having received presidential assent on August 9, 2019, the Arbitration and Conciliation (Amendment) Act, 2019 (‘2019 Amendment’) has formally been published in the Official Gazette. It goes without saying that the 2019 Amendment introduces noteworthy original modifications of its own to the Arbitration and Conciliation Act, 1996 (‘1996 Act’) while significantly tweaking some of the formulations introduced by dint of the Arbitration and Conciliation (Amendment) Act, 2015 (‘2015 Amendment’).

With the wide variety of changes brought about by the 2019 Amendment, it is not within the remit of the present article to put forth a detailed analysis or critique of the individual amendments brought about. Several of the amendments have already been the target of trenchant criticism when the same were revealed as part of the proposed Bill. What is attempted herein is only a primer on the important changes brought about by the 2019 Amendment, and the practical implications they entail.

Retrospective no more

The retrospective nature of the far-ranging 2015 Amendment inasmuch as it related to Court proceedings has been conclusively determined by the Supreme Court in the judgment in Board of Control for Cricket in India v. Kochi Cricket (P.) Ltd. [(2018) 6 SCC 287] in the context of Section 36 of the 1996 Act, and in Ssangyong Engineering and Construction Co. Ltd. v. National Highways Authority of India [2019 (3) Arb. LR 152 (SC)] in the context of Section 34 of the 1996 Act.

In Kochi Cricket (supra), the Supreme Court had gone so far as to express its displeasure with the then pending proposal to render the 2015 Amendment prospective in nature. The Supreme Court had urged a re-think in this regard. However, Parliament has specifically disregarded the advice of the Supreme Court, and through the 2019 Amendment expressly made the 2015 Amendment prospective in nature i.e. the provisions of the 2015 Amendment would only apply to cases where the arbitration was invoked post October 23, 2015. The all-encompassing language makes the applicability of the 2019 Amendment prospective not only to arbitration proceedings themselves but also related court proceedings.

The immediate fallout of this, inter-alia, would that be a large number of execution petitions which, inspired by the decision in Kochi Cricket (supra), had come to be filed in relation to awards which arose from arbitrations which were invoked prior to October 23, 2015 and in which Section 34 award-challenge petitions are pending, would now, unless the same have already been disposed of, be rendered non-maintainable inasmuch as Section 36 of the un-amended 1996 Act provides for automatic stay of awards upon the filing of a Section 34 award-challenge petition.

However, the 2019 Amendment does not itself contain an express provision about the retrospectivity or otherwise of the changes it introduces to the 1996 Act. Whereas such an omission arguably veers to a presumption of prospectivity, this issue is nonetheless likely to lead to future litigation on this aspect in the absence of an express provision.

Modified timeline for completion of proceedings

The 2019 Amendment relaxes the stringent time-period for completion of arbitration proceedings as prescribed by the 2015 Amendment to a certain extent.

The 2019 Amendment frees international commercial arbitrations from a pre-determined time-period, albeit retaining a ‘pious-hope’ provision for completion thereof within a period of 12 months from the date of completion of pleadings. In the case of a domestic arbitration, the time-period of 12 months (extendable of course by another 6 months subject to consent by the parties, and thereafter by the Court) for the conclusion of the proceedings is now to be reckoned from the date of completion of pleadings instead of from the date of constitution of the arbitral tribunal.

In order to ensure that this phase of completion of pleadings does not become a runaway-horse, there is a period of six months which has been prescribed for the filing of the Statement of Claim and Defence. It is, however, unclear as to what are the consequences of a breach of the six-month period by the parties.

Mandate of the Arbitrator(s) to continue pending an application for extension of time

The 2019 Amendment specifies that when the parties have approached the Court concerned with an application under Section 29A for extension of time for completion of the arbitration proceedings, then the mandate of the arbitrator(s) shall continue till the disposal of the said application.

This ensures the continuation of the arbitration proceedings for the period when the said application is pending before the Court, which period prior to this amendment could not be put to any beneficial use inasmuch as an arbitrator(s) with a lapsed mandate could revive the proceedings only once the Court would allow an application filed under Section 29A.

Yet further, it has also been provided in the 2019 Amendment that if a Court deems it fit to effect a reduction in the fees of the arbitrator(s) while considering such an application, it shall do so only after giving the arbitrator(s) concerned an opportunity of being heard in the matter. 

Confidentiality of Arbitration Proceedings

The 2019 Amendment explicitly incorporates a requirement for the arbitrator(s), the arbitral institution concerned and the parties themselves to maintain the confidentiality of all arbitration proceedings, except where disclosure of the award is necessary for the purpose of its implementation and enforcement.

Manner of demonstrating circumstance(s) that would justify interference with an award in a petition under Section 34

An interesting modification brought about by the 2019 Amendment is in relation to the manner of ‘proving’ the pre-requisites for interference with an award under Section 34. Whereas the provision in the 1996 Act required a party to ‘furnish proof’ of the existence of  circumstances that would justify interference with an award, the 2019 Amendment clarifies that the said circumstances have to be established on the basis of the record of the arbitral tribunal. This not only removes the otherwise ambiguous phrase ‘furnish proof’, yet further, it seems to expressly clarify that the demonstration has to be made by the party concerned on the basis of the record of the arbitral tribunal alone, thereby expressly barring reference to material which was not placed before the arbitral tribunal.

Excision of Power of Arbitrators to make orders under Section 17 in the Post-Award stage

The 2015 Amendment had permitted the parties to obtain interim measures from an arbitral tribunal under Section 17 of the 1996 Act during the pendency of the arbitration proceedings or at any time after the making of the award, but before it was enforced in accordance with Section 36.

This period for which the arbitral tribunal can order interim relief has now been reduced in the 2019 Amendment, by the removal of the said power after the making of the arbitral award. This, therefore, means that after the making of an award and before its enforcement, it is the concerned Court only which can be approached for interim measures under Section 9 of the 1996 Act. This ties in with the general prescription that the arbitral tribunal is by and large functus-officio after the passing of the award except for certain limited functions such as those mentioned in Section 33 of the 1996 Act.

Protection for Arbitrators

The 2019 Amendment also puts in place an express safety-net for arbitrators and clarifies that no suit or other legal proceedings shall lie against an arbitrator(s) for anything done in good faith or intended to be done under the 1996 Act. 

Prima Facie finding enough for refusal to refer parties to Arbitration under Section 45

The 2019 Amendment has sought to bring about textual equivalence between Section 45 and Section 8 of the 1996 Act as regards the nature of the determination required to be made by a Court. Section 45 which required the Court to come to a definitive finding that a matter was not capable of settlement through arbitration, has now been amended to reflect, pari-materia with Section 8(1), that a Court may refuse a reference to arbitration under Section 45 upon arriving at a prima-facie finding that the arbitration agreement was null and void, inoperative or incapable of being performed. 

Formal recognition of Arbitral Institutions and delegation of crucial functions

The 2019 Amendment brings to practical fruition the normative push initiated by the 2015 Amendment towards setting up and establishing arbitral institutions in the country. To this end, the 2019 Amendment specifically empowers the Supreme Court and the High Courts to designate arbitral institutions for performing crucial functions, including appointment of arbitrators.

This is a significant step inasmuch as appointment of arbitrators under Section 11 has consistently been regarded as a judicial function in terms of the judgment of the Supreme Court in SBP & Co. v. Patel Engineering Ltd. [(2005) 8 SCC 618], though there was a dilution of this principle in the 2015 Amendment inasmuch as it provided, under Section 11(6)(B), that delegation of the powers of appointment of an arbitrator by the Court concerned to an arbitral institution shall not amount to a delegation of judicial power.

This function has now by the 2019 Amendment been expressly permitted to be delegated to an institution to be so designated by the Court concerned. The applications for appointment which were hitherto to be filed before the Supreme Court, in the case of an international commercial arbitration, and the High Court, in the case of a domestic arbitration, are now to be filed before the institution, if any, designated by the Supreme Court and the High Court respectively.

An arbitral institution when so approached is required to dispose of the application within a period of 30 days from the date of service of notice on the opposite party, though the practicality or mandatory enforceability of this provision is uncertain. Yet further, if the High Court concerned is unable to designate an arbitral institution for lack of availability, then the High Court may maintain a panel of arbitrators for discharging the functions and duties of arbitral institution and any reference to the arbitrator(s) would be deemed to be an arbitral institution. 

While there can be a lot of debate about the efficacy of delegating such a function to an arbitral institution, on an ancillary note, it is definitely another indicator of the rapidly denigrating position of the Supreme Court as a Constitutional Court, and its evolution into a predominantly appellate forum.

The present position is that orders passed by the High Courts in exercise of jurisdiction under Section 11 are, due to the lack of an appellate provision in the 1996 Act, directly assailed before the Supreme Court in exercise of jurisdiction under Article 136 of the Constitution of India. Now, with the delegation of the power of appointment of arbitrators under Section 11 being delegated to arbitral institutions, the Supreme Court of India will directly hear challenges, under Article 136, against orders passed by designated arbitral institutions. This distinction or affliction, depending on the perspective, is seemingly unique to the Indian Supreme Court amongst apex judicial forums in countries across the world. 

Applicability of the Fee Provisions enshrined in the Fourth Schedule

The 2019 Amendment postulates, through some very convoluted language, that in the absence of a designated arbitral institution, the High Court is required to maintain a panel of arbitrators and if a party were to appoint an arbitrator from such a panel then the fee as stipulated in the Fourth Schedule shall be applicable to the arbitrator so appointed.

Yet further, any reference to an arbitrator from this panel is to be deemed to be a reference to an arbitral institution. Even in the case of a designated arbitral institution, unless in the case of an international commercial arbitration or in the case where the parties have agreed for determination of fees as per the rules of an arbitral institution, then the fee as stipulated in the Fourth Schedule shall be applicable to the arbitrator so appointed by the arbitral institution concerned. 

Establishment of the Arbitration Council of India

Tied in with the introduction of arbitral institutions is the creation of the Arbitration Council of India which, in terms of the provisions of the 2019 Amendment, has been modelled as a premier arbitration regulator/overseer performing various functions for promoting, reforming and advancing the practice of arbitration in the country. In the furtherance of this goal, the Arbitration Council of India has been given powers inter-alia for grading arbitral institutions, recognizing professional institutes providing accreditation of arbitrators, maintaining a repository of arbitral awards made in India etc.

The constitution of the Arbitration Council of India as comprising of the Chairperson, a Chief Executive Officer and various members has also been laid down in perfunctory detail. For greater clarity on the exact scope of the powers and functions of the Arbitration Council of India, and its internal constitution, one would have to await the introduction of the relevant regulations in this regard which the Central Government has been empowered to frame and prescribe. 

Express Qualifications to be accredited as an Arbitrator

Unlike the 1996 Act or the 2015 Amendment, wherein there were no specific qualifications prescribed for being appointed as an arbitrator, aside from the general requirements of independence and impartiality, the 2019 Amendment has introduced the Eighth Schedule which specifically provides that only a certain specific class of persons holding certain qualifications would be eligible to be accredited as an arbitrator including advocates, chartered accountants, cost accountants and company secretaries [all with 10 years of experience] or officers of the Indian legal service, or officers with a law degree or an engineering degree [both in the government and in the private sector with 10 years of experience], officers having senior level experience of administration [both in the government and in the private sector with 10 years of experience], or a person having educational qualification at the degree level with 10 years of experience in a technical or scientific stream in the fields of telecom, information technology, intellectual property rights or other specialized areas [both in the government and in the private sector].

The ability to be an arbitrator is therefore expressly tied-in with qualification and experience. There are a few more vague general norms applicable to arbitrators, which primarily deal with their impartiality and independence and their legal and practical competence to be able to render a reasoned award and their understanding of the applicable law and best practices.

Significantly, any person having been convicted of any offence involving moral turpitude or an economic offence would fall afoul of these norms. However, both these qualifications and norms, are introduced by the 2019 Amendment in relation to Section 43J which pertains to accreditation of arbitrators by the Arbitration Council of India. There does not seem to be any express reference to the incorporation of these parameters in the existing Fifth Schedule or the Seventh Schedule, meaning thereby that for the moment there is no proscription against persons not falling within the parameters as specified in the Eighth Schedule being appointed as arbitrators. 

About the author: Dr Amit George is an Advocate practicing before the High Court of Delhi

Members of the Nani Palkivala Arbitration Arbitration Centre (NPAC) will be writing a weekly column for Bar & Bench analyzing the latest developments on the law of arbitration.

[Read the The Arbitration and Conciliation (Amendment) Act, 2019]

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