LOOPHOLES IN THE ARBITRATION AND CONCILIATION ACT, 1996 : A WAY FORWARD

By Manisha Das


INTRODUCTION

An act known as the Arbitration and Conciliation Act came into enforcement on the 16th of August 1996 to consolidate or to amend the related domestic arbitration laws as well as international commercial arbitration and also to enforce the foreign arbitral award. In the 47th year of the Republic of India, this act was enacted by the Indian Parliament. The Act deals with the matters related to conducting conciliation proceedings and its laws. In 1985, the United Nations Commissions on International Trade Law (UNCITRAL) espoused the Model laws on the matters of International Commercial Arbitration. It is also recommended by the United Nations General Assembly to all those countries that are being listed with United Nations that they all with due diligence should consider such Model Laws on the International Commercial Arbitration and to ensure uniformity on the related laws to the arbitral procedures and International Commercial Arbitration practices.


PRINCIPLE SHORTCOMINGS OF THE 1996 ACT:

  1. In order to issue a summons, take evidence, examine witnesses etc, no such power is vested to the Arbitrator.

  2. Scopes of arbitrator’s biasness are higher since the parties themselves appoints the arbitrator. That one party who is in the dictator position might pressurize the arbitrator of his own choice.

  3. Arbitration award’s enforcement could only be through Court.

  4. Dispute resolution remains ineffective and slow in the process outside the court.

  5. In spite of the arising dispute in India it was preferred by the foreign investors to adopt foreign arbitration.

Before the amendment of the Indian Arbitration and Conciliation Act, 1966, the country’s journey in order to become an international commercial hub that would rival the countries like London and Singapore was impeded by a chiefly indecisive Act and an arbitration regime that was stricken with numerous issues including those of delays and high costs.


In order to address such problems, the Government of India promulgated an Arbitration and Conciliation (Amendment) 2015 Bill that was being passed by the Rajya Sabha on December 23rd, 2015 and the Lok Sabha on December 17th, 2015 to promote arbitration as a preferred mode for settling commercial disputes by building arbitration as much more user friendly and efficient in cost, with the hope that this would result in more expeditious disposal of cases. This consecutively was intended to improve the ‘ease of doing business in the country and consequently instil the credence with the investors, who had to be wary previously in selecting India as a seat of arbitration.


CRITIQUE OF THE AMENDMENTS

Albeit, most of the amendments to the Act was welcomed by the community of arbitration for their potential in broadening the equity, agility and most importantly the economy with which arbitration disputes are being resolved in India, in particular, two amendments might end up being counter-productive.


REDUCING DELAYS

The introduction of Sec 29A was one of the chief amendments to this Act, which was intended to lessen the delays and those protracted timelines in the Indian arbitrations by imposing stringent timelines on the arbitral proceedings and the minimization of court involvement.


As per Sec 29A, the arbitral tribunal should enter the award within twelve months from the date the tribunal entered reference with the choice to extend the term by a further six months along with the mutual consent of all the parties. Nevertheless, subsequent to the expiry of that term of eighteen months, parties who seek extension further would have applied to the courts of India, that may accord such extensions on such terms and conditions since it might implement if they find that there’s adequate cause. In case such an extension is not present the Arbitral tribunal’s mandate can immediately be terminated and the court might appoint a new tribunal in order to continue the process of arbitration. Conversely, even if the court permits an extension of the term, and if by any means the court is of the view that the proceedings are being delayed by the deeds of that arbitral tribunal, the court has the authority to order the devaluation of fees of the arbitrator by up to five per cent for each month of delay.


Although the amendment emerges too, on its countenance, address the matter of protracted chronologies in the arbitrations of the country, further observation manifests that the process might be intrinsically erroneous.


Arbitration cases are of different varies and setting the same time boundary for every arbitration disregards the extensive range of dissimilarity in every issue which appears in arbitration. Further, provided the objective to decrease court involvement, requiring court’s assent for any such further extension of term exemplifies a step backwards in encouraging the methodical disposal arbitral cases by inclining, rather than declining, court’s interference in ongoing arbitrations, hence considering the schedule of Indian courts which is already quite overburdened, this amendment might culminate in prolonging protracted chronology of Indian arbitration. Ultimately, it shouldn’t be ignored that the court has the power to devaluate the fees of the arbitrators for delaying arbitrations timeline, which is in return, unduly pressurizing them to swift through the arbitration in order to render award so that the stringent timeline is met.


APPOINTMENT OF ARBITRATORS BY THE COURTS

The inauguration of Sections 11(13) and 11(14) was another significant amendment. As per Sec 11(13), an application should be disposed for the court in order to appoint the arbitrators ‘as rapidly as it can be’ and that ‘in order to dispose of the matter by a term of 60 days from the date of service’s notice to the other party an endeavour should be made. Whereas, as per Sec 11(14), ‘the HC might formulate rules since it may be requisite, after considering the rates that are being stated in the 4th schedule, which is for the reason of determination of arbitral tribunal’s fees and the method of its remittance to an arbitral tribunal.


Sec 11(13) is probable to authorize applications in order to appoint the arbitrators that are dealt with a stipulation of time, explicitly Section 11(13) is likely to enable applications for the appointment of arbitrators to be dealt with in a timely manner, explicitly as it provides that the authority to appoint arbitrators could be assigned by the SC or the HC to any institution or any individual. Although, the ambiguities and flaws of Sec 11(14) along with the fourth schedule aren’t worthwhile.


Firstly, In the Fourth Schedule, only the model fees vary as per the sum in dispute. Generally, it could be quite difficult in practice to quantify the “sum in dispute”. Furthermore, even if the claimed amount could be quantified, but whether the ‘sum in dispute’ only relates to the claimed amount by its claimant or whether it also will involve the amount that is counterclaimed by the respondent is still kept unknown.

Secondly, the application’s extent is ambiguous in the Fourth Schedule. It is still not clear if the Fourth Schedule is applicable to (i) All arbitrations in India, (ii) All the arbitrations that are initiated under sec 11, or (iii) All initiated arbitrations under sec 11 except for the fast track arbitrations under sec 29B by any sole arbitrator.


Lastly, there’s the potentiality for the up to date sec 11(14) in the ad hoc arbitration it can be misused. In an arbitration agreement, any party or parties might fail intentionally in order to follow appointment relevant procedure or to concur with an arbitrator for taking advantage of the fee structure of the Fourth Schedule, which might be lower significantly than that of the fee quotes by ad hoc arbitrator. of A party or parties to an arbitration agreement may intentionally fail to follow the relevant appointment procedure or to agree to on an arbitrator in order to take advantage of the Fourth Schedule fee structure, which may be significantly lower than the fee quotes by ad hoc arbitrators. It is very unfortunate that this also has unintentional effects on the growing judicial interference.


Change is required in the culture of the Indian Arbitration

  • Pool of legal practitioners in India who are specialised in practising arbitration has to increase, alongside arbitration is contemplated as a priority more than performing fiddle to the court litigation work in India. Individually there is a need to change the perspective with which arbitration is contemplated

  • So as the pool of arbitrators is needed to grow. Since there is a proclivity to designate Indian judges who are retired as arbitrators is one of the causes preventing the growth of arbitration while a dispute resolution mechanism in the country. Currently, the much-needed aspect is that the growth of the arbitrator’s community is not controlled or restricted by the typical traditions of courts in India and only focuses on the growth of arbitration in its own right.

  • The most essential and final required change is the minimisation of judicial involvement. ONGC vs. Saw Pipes[1] has been an instance in case of interference by a judicial authority in the process of arbitration may dig root while there’s even the diminutive ambiguity in the arbitration law with the involvement being of such enormity that legislative change is requisite in order to recover it.

  • In both the cases of Avitel Post Studioz Ltd. vs. HSBC PI Holdings (Mauritius) Ltd[2]. and Ayasamy vs. A. Paramasivam[3] the SC had to draw a differentiation between ‘serious allegations of fraud’ and ‘fraud simpliciter’ that permeated the whole of the contract, that too caused damage and caused hamper in the public domain, held that only in the latter cases, the disputes would fall outside of the arbitral tribunal’s competence.

  • The development in arbitration law can only be possible when the culture of Indian arbitration will change and when the persisting issues will be addressed.


CONCLUSION

Amendments to the Act, however meritorious, are only primary steps regarding constituting arbitration as the preferred method of dispute resolution in the country. It has to be acknowledged that the grown coherence in the nature of arbitration is not likely to approach exclusively from the implementation of top-down legislative transformation, especially the one which inherently has flaws just like this one.



[1] Oil & Natural Gas Corporation Ltd vs. Saw Pipes Ltd (case no. appeal civil 7419 ; 2001 of 518);

[2] Avital Post Studioz Limited And vs. HSBC PI Holding (Mauritius) Ltd. (civil appeal no. 5145 of 2016);

[3] A. Ayyasamy vs. A. Paramasivam & Ors (CIVIL APPEAL NOS. 8245-8246 of 2016);


Author: Manisha Das

Year: 2year, student

College: Amity Law School, Kolkata

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