INTRODUCTION:
The Indian arbitration regime is under consideration by an expert panel for examining its working and recommending potential reforms. The Union Government on June 14, 2023, constituted a sixteen member-expert committee headed by Dr. T.K. Vishwanathan, Former Secretary, Department of Legal Affairs, which is expected to recommend statutory measures to reduce the need for recourse to courts in as well as measures to expedite the enforcement of the award by suggesting modifications to the current provisions relating to setting aside the award and appeal. Among other things, one of its mandates is to examine the viability of passing distinct laws for domestic and international arbitration as well as for the enforcement of specific foreign awards.
Interestingly, the English Arbitration Act, 1996 (the “Arbitration Act”) has also undergone extensive deliberations since March 2021, when the Law Commission (the “Commission”) was given the laborious task by the Ministry of Justice to determine the scope to amend the Act, in order to maintain England and Wales as the most desirable seat for international arbitrations. Following a thorough review of the same, the Commission released its Final Report on the Reform of the 1996 English Arbitration Act, along with a summary on 6 September 2023, which contains its recommendations and proposed amendments to the Arbitration Act along with a Draft Bill for the UK Government to consider for implementation.
The Commission, while culminating every response received from the legal fraternity around the Globe has suggested the following reforms as recommendations: Codifying an arbitrator’s duty of disclosure, strengthening arbitrator immunity around resignation and removal, Power of Tribunal to dispose cases on summary basis, making the law of the seat as the default law governing the arbitration agreement, framework around objections on substantive jurisdiction of the Tribunal under Section 67 and clarifying court powers in support of arbitral proceedings and in support of emergency arbitrators.
This article primarily discusses; firstly, a comparative analysis of the provisions of Indian Arbitration Regime with that of the English Arbitration Act; secondly, comprehending whether the Arbitration and Conciliation Act, 1996 of India is suited for such reforms in the near future and lastly, suggesting necessary reforms in the Arbitration and Conciliation Act, 1996.
THE INDIAN ARBITRATION REGIME VIS-À-VIS THE PROPOSED REFORMS UNDER THE ENGLISH ARBITRATION ACT, 1996
The proposed reforms under the Arbitration Act have now spurred further discussions in the global arbitration community about their respective domestic acts and has opened doors for other jurisdictions to deliberate over some much-required changes such as, emergency arbitration, summary disposal etc. Some of the modifications proposed in the Arbitration Act are already included in the Arbitration and Conciliation Act, 1996 (the “Indian Act"), either by way of a particular provision or through judicial development.
A. Arbitrator’s duty of Disclosure:
Unlike the Arbitration Act, the disclosure requirements are already codified in India under Section 12(1) of the Indian Act which casts a mandatory obligation on Arbitrators to disclose in writing any circumstances which might reasonably give rise to justifiable doubts as to their impartiality. Moreover, the Arbitration and Conciliation (Amendment) Act, 2015 further encouraged transparency in the provision by identifying the circumstances which can create justifiable doubts to about the independence or impartiality of the arbitrator. This amendment has also been widely appreciated by the Courts in India, especially by the Hon’ble Supreme Court of India in M/s Voestalpine Schienen GmbH v. Delhi Metro Rail Corporation Ltd., (2017) 4 SCC 665.
B. Procedure to challenge the substantive jurisdiction of the Tribunal
Similarly, the provisions under the Indian Act are amply clear on the power of the Courts to entertain proceedings challenging the award passed by the Arbitral Tribunal on its substantive jurisdiction, post exercising its power enshrined under Section 16 of the Indian Act. The remedy to challenge the award by the Tribunal after it has rejected the plea of jurisdiction on its competence, lies under Section 37 of the Indian Act by way of an appeal or under Section 34 after the proceedings are complete and an award is passed. Further, Section 67 of the Arbitration Act (Challenging the award: substantive jurisdiction) was proposed to be modified by way of rules of court to avoid rehearing of the issues that has already been heard once. This would also change the prevailing position in English Law as was established in Dallah Real Estate and Tourism Holding Company v. The Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 46 wherein the UK Supreme Court held that a challenge under Section 67 entails a full re-hearing of argument and evidence before the courts even if the question of the Tribunal’s jurisdiction has been fully debated in the arbitration.
The Hon’ble Supreme Court in India has provided much clarity on the power of the courts to entertain an application under Sections 34 of the Indian Act vide its judgments in Reliance Infrastructure Ltd. v. State of Goa, 2023 SCC OnLine SC 604, PSA SICAL Terminals (P) Ltd. v. Board of Trustees of V.O. Chidambranar Port Trust Tuticorin, 2021 SCC OnLine SC 508 and UHL Power Company Limited v. State of Himachal Pradesh, (2022) 4 SCC 116 wherein it was observed that in an application under Section 34, the court is not expected to act as an appellate court and re-appreciate the evidence. The scope of interference would be limited to grounds provided under Section 34 of the Arbitration Act.
Additionally, the Hon’ble Delhi High Court in its recent judgment New Delhi Municipal Council v. Decor India Pvt Ltd., O.M.P. (COMM) 502/2020 on following the Hon’ble Supreme Court’s decision in State of Maharashtra v. M/S. Hindustan Construction Company Ltd AIR 2010 SC 1299 and National Highways Authority of India v. Progressive Construction Ltd. 2014 (2) Arb. LR 504 (Delhi), has held that new grounds or challenged containing new material facts cannot be introduced for the first time as an appeal in an application under Section 34 of the Indian Act, if it has not been raised previously before the Arbitral Tribunal. The Hon’ble Delhi High Court again in its recent judgment, National Highways Authority of India v. Trichy Thanjavur Expressway Ltd., 2023 SCC OnLine Del 5183 has discussed in detail the scope of Section 34 altogether while observing that the Court may either reject the objections, uphold the award or set it aside wholly or partially but does not have the power to modify the award entirely or consider new evidence de novo.
C. Rights of third parties
The law relating to third parties or non-signatories to the arbitration has evolved consistently in India and the position is clear when it comes rights of the parties to appeal, being a direct beneficiary to the dispute. Recently, the Hon’ble Supreme Court has settled the ambiguity around involvement of a non-signatory/third party in an arbitration agreement through its judgment, Cox & Kings Ltd. v. SAP India (P) Ltd., 2023 SCC OnLine SC 1634 which held that non-signatories to the arbitration agreement can be bound by the arbitration agreement and that the definition of ‘parties’ under Section 2(1)(h) read with Section 7 of the Indian Act includes both signatories as well as non-signatories. Ultimately, the parties would have the curtailed right to appeal as well. Therefore, as suggested by the Law Commission to amend Section 44 (Court powers exercisable in support of arbitral proceedings) of the Arbitration Act to confirm explicitly that orders thereunder can be made against third parties as well may not serve any purpose in the Indian Act.
D. Default law governing the Arbitration Agreement
One thing that seems familiar in almost all jurisdictions is the ambiguity and uncertainty surrounding the law governing the arbitration agreement. Even the Indian Act does not explicitly define the same, however, the Commission’s thought behind making the law of the seat as the default law is nothing but to promote simplicity and expediency of the disputes. This position is evaluative of the parties’ intent and on applying the three-step approach devised by Sulamérica Cia Nacional de Seguros SA v. Enesa Engelharia SA. (2013) 1 WLR 102: 2012 EWCA (Civ) 638 that is (i) express choice, (ii) implied choice and (iii) closest and most real connection. This was subsequently affirmed by various other judgments including the Kabab-Ji SAL (Lebanon) v. Kout Food Group (Kuwait) [2020] EWCA Civ 6. The Indian Arbitration Regime has often adopted a seat-centric approach to determine the law of the seat as the proper law governing the arbitration agreement since the ruling by the Hon’ble Supreme Court of India in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552.
By way of this jurisprudential development, the Sulamerica and Kabab-ji ruling has issued a very holistic approach in determining the proper law governing the arbitration procedure, on duly considering the parties’ intent as well as enforcement of the eventual award.
E. Arbitrator Immunity
The Commission has recommended protecting an arbitrator from incurring costs on resignation unless the resignation is shown to be unreasonable. Under the Indian Act, the arbitral immunity stands codified under Section 42B by virtue of the Arbitration & Conciliation (Amendment) Act, 2019 that safeguards the arbitrator from any action that was done in good faith. The Indian Act does not specify anything in particular relating to cost liability of the Arbitrator, however, it does provide certain exception under Section 14 by which the mandate of an arbitrator can be terminated. In this context, extending such immunity unconscionably in terms of cost would serve no purpose as the same is covered under the conditional ambit of ‘good faith’ actions by the arbitrator. The Courts in India are consistently determined to construe the elements of good faith in terms of the arbitrator’s mandate as duly provided under the Indian Act.
CAN THE INDIAN ARBITRATION ACT ADOPT SUCH REFORMS IN THE NEAR FUTURE?
Since India is also in the reformative stage in terms of its Arbitration regime, it is quite possible that the modifications suggested in the Arbitration Act, as mentioned below, inspire some changes in the Indian Act as well.
F. Summary Disposal
Introduction of a clause relating to summary disposal of cases shall be a huge step in the Indian arbitration regime to promote early disposal of cases that have no merit per se. The standard practice in India involves filing of an Application under Section 9 or 17 of the Indian Act in order to secure an interim relief till the final disposal of the dispute. However, as the arbitrators are free to choose a procedure under Section 29 of the Indian Act for expeditious disposal of the case, introduction of a summary disposal would certainly be in par with the vision of the said provision. This can, in fact be a possible modification under Section 29B of the Indian Act under which the parties can agree to resolve their dispute through fast-track arbitration. The proposal of suggesting such modification was thoroughly considered to include parties’ consent and application made by them to initiate a summary proceeding. It is essential that the Parties are given a choice to decide a procedure as well as set a threshold to ascertain prospects of success in a dispute. Further, it is not certain that the Arbitrator may necessarily accede to the parties’ request to proceed with a summary proceeding as it is essential to ensure the true purpose of this modification, i.e., time efficiency and fairness in procedure so that none of the parties should suffer due to lack of merit in a dispute.
G. Emergency Arbitration
The Commission has also proposed reforms with respect to Emergency Arbitration under Sections 44(3) and 44(4) of the Arbitration Act. While the Indian Act does not provide for Emergency Arbitration at all, it has shown significant development in the form of granting interim relief by the Emergency Arbitrators by way of judicial pronouncements. The Hon’ble Supreme Court of India by its significant verdict in Amazon.com NV Investment Holdings LLC v. Future Retail Ltd. & Ors. (2022) 1 SCC 209 clarified that an ‘arbitral tribunal’ under Section 2(1)(d) includes an Emergency Arbitrator as well. It also provided much needed clarity on the enforcement of an award of the Emergency Arbitrator as an interim award under Section 17(2) of the Indian Act. However, unlike Sections 22A and 22B of the Hong Kong Arbitration Ordinance (Cap. 609) which states than an emergency award/order is enforceable with the leave of the court, a codified statutory provision with respect to Emergency Arbitration in India would definitely ease enforcement as well as promote quick resolution.
CONCLUDING REMARKS & SUGGESTIONS:
It is much appreciated that the Commission, while carrying out the process to suggest potential amendments to the Arbitration Act has retained the true spirit of Arbitration and its vision to promote efficiency and early disposal of disputes. It accepts and re-affirms, that the Arbitration Act, which has been functioning for last 25 years, making London the prime seat of arbitration, “works well, and that root and branch reform is not needed or wanted.”. However, some of the reforms suggested such as, inclusion of a summary disposal clause or an amendment including power of the Tribunal to dispose of the cases on a summary basis under Section 29 of the Indian Act can be a welcoming step towards timely disposal of cases. It is praiseworthy that such an inclusion is proposed with certain conditions and shall only proceed on a party’s application which retains the very bedrock of arbitration i.e. Party Autonomy.
A specific provision on third party funding is one of the other matters that can be brought up to be looked into by the Expert Committee. This can be a useful step, especially after the Hon’ble Delhi High Court’s observation in Tomorrow Sales Agency (P) Ltd. v. SBS Holdings Inc., 2023 SCC OnLine Del 3191 that third party funding is not illegal and is essential to ensure access to justice. However, in the absence of codification, third-party funding seems to be misused by potential stakeholders seeking undesirable interest in the arbitration process and its award.
Additionally, the lack of a standard structure in recording of witness testimony by an Arbitral Tribunal set up virtually, is raising fundamental due process concerns. Numerous virtual hearing guidelines and protocols have been introduced by various Arbitral Institutions like the HKIAC Guidelines for Virtual Hearings, ICC Guidance Note on Possible Measures Aimed at Mitigating the Effects of the COVID-19 Pandemic (2020), SIAC Guides: Taking Your Arbitration Remote (2020) etc. However, such developments have not been seen in India despite the Tribunal taking a positive approach towards encouraging virtual hearings. Therefore, a standardized guideline for virtual arbitration proceedings in India can also be adopted by the Arbitral Institutions uniformly. This will not just promote time efficiency but will also reduce room for any kinds of modifications in the original testimony of the witness. This will also encourage quick and effective cross-examination leading to early disposal of cases.
The recommendations extended by the Law Commission in the Arbitration Act have been thoughtfully considered and designed to promote certainty and procedural regularities. Even though the report from the Expert Committee constituted by the Union Government of India is still pending, it will be fascinating to witness whether or not the Model Arbitration Act promotes a competitive environment that serves interests of its users and is ultimately economical and efficient.
The above article is authored by Ms. Shweta Bharti, Senior Partner & Ms. Sanjana Sachdev, Associate. The article was originally published by AXFAIT (https://www.axfait.com/post/revisiting-the-arbitration-legislation-in-india-and-evaluating-reforms)