On August 10, 2018, Lok Sabha passed a bill to further amend the Arbitration and Conciliation Act, 1996. The objectives are to provide for a time-bound settlement of disputes, accountability of the arbitrator and creating an architecture for institutional arbitration in order to make India a hub for domestic and global arbitration for settling commercial disputes. An independent body called the Arbitration Council of India (ACI) will be set up.
In 1996, the Arbitration and Conciliation Act, was brought in modelled on the UNCITRAL rules. A key focus was to minimise the supervisory role of courts in the arbitral process and to ensure that every final arbitral award is enforced as if it were a decree of the court. However, despite the 1996 and 2015 amendments restricting the scope of court interventions, there was and continues to be almost routine challenge to arbitral awards leading to much delay. The worst offender is the government - if an arbitration award goes against the government it is almost invariably challenged, divorced from merits of the case.
The most common ground of such a challenge of an arbitral award is the rather amorphous standard - ‘contrary to fundamental policy of Indian law’. For setting aside both domestic as well as international commercial arbitral awards, ‘fundamental policy of Indian law’ was narrowly applied by the Supreme Court in Renusagar Power Co. Ltd. v. General Electric Co. [1994 Supp (1) SCC 644]. However, in 2003 the Supreme Court gave a wider meaning and included the ‘patent illegality’ standard as part of the public policy scrutiny in ONGC Ltd. v. Saw Pipes Ltd. [(2003) 5 SCC 705]. Further expansion of the interpretation of "Public Policy" was given by the Apex Court in ONGC Ltd v Western GECO Ltd., [(2014) 9 SCC 263] and it made it possible for Courts to modify the arbitral award as well. In the same year however, in Shri LalMahal Ltd. v. ProgettoGrano Spa [(2014) 2 SCC 433] the Supreme Court held that for refusing enforcement of foreign arbitral awards, the wider meaning given to the expression “public policy of India” occurring in Section 34(2)(b)(ii) in Saw Pipes is not applicable. Unfortunately, the interpretation by various courts continue to waiver.
The 2015 amendments limited ‘patent illegality appearing on the face of the award’ for setting aside only domestic awards. It also included a Proviso that an award shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciation of evidence further narrowing the scope. Further, in respect of international commercial arbitration, the 2015 amendments circumscribed the scope by disallowing “a review on the merits of the dispute.” There are no case law under these 2015 amendments and currently unfortunately arbitral awards are being challenged routinely, cases are reopened and arguments are being made anew.
In another important respect the 1996 Act had taken a step backwards. Unlike the1940 Act, it did not provide for a fixed the period of time for completion of arbitration proceedings. Arbitral Tribunals took 3-4 years for pronouncement of awards after the conclusion of final arguments. To tackle this issue, the Arbitration and Conciliation (Amendment) Act, 2015 inserted provisions for speedy disposal of arbitral proceedings and court proceedings arising out of the same e.g., a cap of 12 months (with extension of further 6 months) for making the arbitral award from the start of reference. However, this was considered too restrictive and the 2018 Bill removes this time restriction for international commercial arbitrations. Further, to ensure that Section 34 applications challenging arbitral awards arising out of a domestic arbitration and an international commercial arbitration are disposed of expeditiously by courts, two provisions were added in 2015 requiring notice to be served upon the other party prior to filing of the application (Section34 ) and disposing such an application by the court within a year from the date on which the notice is served upon the other party (Section34 ). However, the emerging case law from different High Court is conflicting with regard to whether these provisions are mandatory or directory.
Until the above flagged issues are settled in a meaningful and predictable manner, it is difficult to share the enthusiasm of the law minister on the rosy picture he painted in the Parliament on the possibilities and outcomes of the 2018 amendment bill. These outstanding issues and lack of clarity on legal pronouncements make India an unattractive destination for international commercial arbitrations.
Krishna Sarma is managing partner at Corporate Law Group