More Misses Than Hits

Though Arbitration and Conciliation Act 1996 has been amended, several lacunae still remain in the existing arbitral regime, creating confusion in the minds of litigants and lawyers

By Usha Rani Das

Though the Arbitration and Conciliation Act, 1996, was amended into the Arbitration and Conciliation (Amendment) Act, 2015, there still are many lacunae in it. Lapses in the new law have left lawyers befuddled.

Arbitration continues to be one of the most popular means of alternate dispute resolution, especially for international commercial disputes. The Arbitration Act was enacted in 1996 with the intention of providing speedy and effective resolution of disputes through arbitration or conciliation and thereby reducing the burden on courts. But undesirable interpretations of arbitration law, slow disposal of court disputes and inadequate infrastructure to facilitate speedy disposal have made foreign investors wary.

Vivek Sharma, partner at Bharucha & Partners, told  India Legal: “The prospective applicability of the amendments (Section 26 of the amendment Act indicates that the amendments will not apply to arbitral proceedings which commenced before the amendment Act) has resulted in a dichotomous situation where the old and new regime continues to apply in parallel.”

In addition, the Calcutta and the Madras High Courts have given conflicting judgments which have created confusion in the minds of the litigants and lawyers as to which law would apply to court proceedings. Lomesh Kiran Nidumuri, partner at law firm Indus Law, said: “The legislature ought to have ensured that there was clarity in drafting to ensure that no such confusion is created, particularly when similar issues arose when the 1996 Act (repealing the 1940 Act) was enacted.”

So what are the major lapses?

• The proposed timeline of 12 months to pass the arbitral award is very ambitious even by international standards. There are some complex disputes, the resolution of which may not be possible within this timeframe. Such timelines might deter foreign parties from choosing India as the seat of arbitration, particularly in complex disputes. Some arbitrators even refuse to take up a case when they are not sure if they can resolve the dispute within the strict timeframe and particularly because extensions have to be sought from the High Court in case the arbitrations are not completed within the timeframe. Lomesh said: “Providing ambitious timelines may actually backfire and go contrary to the very purpose of introducing these amendments.”
• The Amendment Act also does not clarify if Indian parties can choose foreign law to resolve disputes through arbitration. While some argue that this is possible as the choice of the party to determine the choice of law must be recognized. The more conservative argument has been that Indian parties cannot agree to resolve disputes choosing a foreign law, as that would mean contracting out of Indian law, and therefore opposed to public policy. The Bombay and Madhya Pradesh High Courts have taken contradictory stands and the matter ought to be decided by the Supreme Court.
• The Law Commission Report had recommended the addition of “emergency arbitrator” to the definition of “arbitral tribunal” under Section 2(d) of the Arbitration Act, which has not been accepted. The concept of “emergency arbitrator” has gained popularity across the world and recognized by most international arbitrational institutions and some of the new Indian institutional arbitration centers. This is a significant omission that is likely to impact arbitrations in India.
• While a time limit has been fixed for challenge to a domestic arbitral award (one year), no such time limit is prescribed for the enforcement of foreign arbitral awards despite the recommendations in the Law Commission Report. This does not make India “arbitration-friendly”.
• The Amendment Act does not address the issue of confidentiality in arbitrations.
• The Law Commission Report had recommended changes to Section 16 of the Arbitration Act, to empower the arbitral tribunal to decide disputes that involve serious questions of law, complicated questions of fact or allegations of fraud and corruption, but this provision has not been amended as recommended. There are conflicting judgments of the Supreme Court on whether or not questions of fraud can be decided by the Arbitral Tribunal.
• The lack of will to implement things quickly poses a major hindrance. For instance, under the Amendment Act, the High Court of each state is required to frame rules for fixing the costs of ad-hoc arbitration. Despite the passing of the new law, very few states have actually enacted the model fees for ad-hoc arbitration. Therefore, the arbitrators in ad-hoc arbitration are fixing the fees as per their own convenience.

Lead Illustration: Anthony Lawrence