A CASE OF MISGUIDED LEGISLATION – CRITICAL ANALYSIS OF THE 2019 ARBITRATION AMENDMENT BILL
Over the past few decades, India has been transforming into an arbitration hub. Post the enactment of the Arbitration and Conciliation Act, 1996 (hereinafter “Act”), there have been many judicial pronouncements which have clarified, strengthened and promoted the arbitration law in India. Of late, there have been judicial pronouncements such as Bhatia, Saw pipes and Western GECO which are contrary to the ethos of arbitration and it is only in situations like these that the importance of legislations are realized. With the judicial trend tilting towards an anti-arbitration attitude, corrective measures have taken place with the Law Commission of India, under the chairmanship of Justice Ajit P Shah, recommending the 2015 amendment to the Act. Fortunately, the recommendations of the committee were put in to flesh and blood. After the 2015 amendment, there was another high-powered committee set up by the government to look into the nuances of Indian arbitration. This committee headed by Justice Sri Krishna had recommended various amendments to the Act. This is where things took a hoarse turn. A lot of recommendations which were actually beneficial were not incorporated in the Act. Instead, amendments antithetical to the idea of arbitration and those that would alter the already settled position of law were added to the amendment bill.
The following post shall analyze the 2019 amendment bill and its likely impact of the same on domestic arbitrations in India.
Recommendations of Sri Krishna Committee
It was proposed that an amendment may be made to Section 19 of the Act to introduce model rules of procedure in domestic arbitrations. Just like any other soft law in the realm of arbitration, these model rules of procedure would only serve as a guidance mechanism to help parties to the arbitration. Unfortunately, this suggestion was not incorporated in the 2019 amendment bill. Likewise, Section 2(1)(c) which defines the term arbitral award was recommended to include ‘emergency awards’ and not just ‘interim awards’. Interestingly, this key addition was recommended twice by both Justice Shah and Sri Krishna committee and was conveniently overlooked.
One of the many ways in which India could be an arbitration hub in the world is if there is involvements of professionals, both arbitrators and advocates, across all foreign jurisdictions. In order to encourage the same, recommendation was made to amend the Advocates Act. The idea was to invite foreign participation making Delhi, Mumbai or Kolkata an international commercial arbitration hub. Instead, as will be elucidated later on in this article, Schedule 8 was added to the Act, which is precisely contrary to this idea.
Evils of the Arbitration and Conciliation (Amendment) Bill 2019
Instead of the much important and necessary amendments, the following is what the amendment bill achieved.
First, by adding Part 1A to the Act, it set up “Arbitration Council of India” consists of – judges of Supreme Court or Chief Justice of High Court, an arbitration practitioner, academician and representation of a recognized body of commerce. Further, two secretaries of the government have also been interposed in the council. The role of the Council is to encourage, promote, recognize professional arbitral institutions, review the performance of arbitral institutions and training of arbitrators. Given the private nature of the arbitration, the creation of a Council is entirely unnecessary. The composition of this Council is problematic for intervention of the government in regulation of arbitrators and arbitral institutions is against the very idea of arbitration. Further, in many cases the Government of India is also a party to the arbitration. An arbitration under a ‘government controlled’ Council in which one of the parties is the government itself is a clear case of conflict of interest and against the idea of natural justice.
Second, contrary to the idea of making India an arbitration friendly country with involvement of professionals across all jurisdictions, Schedule 8 was added to the Act. This Schedule sets out “Qualifications and experience of Arbitrators”. The problem is that once the council is formed, a panel of accredited arbitrators will be created and in that, the parameters set out in the 8th Schedule will be adhered to. The parameters are that the person has to be – an advocate under the Advocates Act, Chartered Accountant, Cost Accountant, Company Secretary, officer of Indian Legal Service, officer with a law/engineering degree having ten years of experience, officer having senior level experience of administration in the central or the state government. A plain reading of this suggest that the person has to be an Indian national. This means that foreign professional as arbitrators cannot be associated with arbitrations in India and the dream of becoming a global arbitration hub will remain a distant one.
Third, in an International Commercial Arbitration, Indian courts may be moved under Section 11 of the Act to appoint an arbitrator if the parties are unable to agree on one. Pursuant to clause 9 of the said section, the nationality of the court appointed arbitrator cannot be the same as either of the parties. If the panel of arbitrators were created who will ultimately be ‘Indian’ arbitrators only and an Indian party files a Section 11 petition before the court, how will the court appoint an arbitrator who is not Indian?
Fourth, the word ‘prima facie case’ have been introduced to Section 45 which is a prelude to kickstarting an international commercial arbitration. The law regarding the same was well settled after the much illustrious Shin-Etsu judgement. The court held that the test of ‘prima facie case’ is only if the court is referring the parties to arbitration. The validity of an arbitration clause has to be decided conclusively only where the court does not refer the parties to the arbitration. The exact words substituted in the section are ‘unless it prima facie finds’ instead of ‘unless it finds’. The ultimate effect of the said introduction is the exact opposite of the Shin-Etsu judgement. This leads to absurdity of the law as well. How is it that there exists a ‘prim facie case’ if the court is only delving into the question of validity of the clause, not referring the parties to arbitration? It will probably take a judicial pronouncement to reinstate the law by deleting the words ‘prima facie’ using the absurdity principle.
Fifth, after the 2015 amendment to the arbitration, there was a lot of confusion regarding the retrospective application of the amendment act. The Supreme Court in the case of BCCI vs Kochi Cricket Private Limited has clarified that the amendment act will apply to all arbitrations and arbitration related court proceedings that have begun after the effective date of the amendment which was 23rd October 2015. More specifically, the judgement was related to Section 36 of the Act relating to automatic stay provision. The amended section 36 shall apply to all pending Section 34 applications before the court. With the insertion of section 87 which is stated to have the effect from 23rd October 2015, the amendments of the 2015 act henceforth shall not be applicable to the court proceedings arising out of arbitration proceedings which have begun before the commencement of the amendment act irrespective of when the court proceedings have commenced. In effect, the judgement of the court in BCCI vs Kochi Cricket Private Limited was nullified, unsettling the position of law yet again. The ‘automatic stay provision’ has always and will always have retrospective application. What remains to be seen now is how the judiciary will interpret the interplay between Section 36 and Section 87 in light of the retrospective applicatory nature of automatic stay provision.
Overhaul of the Indian Arbitration regime – A necessity
Until before the 2019 amendment, the Indian arbitration practice was performing satisfactorily with small yet significant strides in various aspects of the Indian arbitration practice. Experts opine that the extremely redundant and counter productive amendment is antithetical to the practice of arbitration and will serve no purpose whatsoever. Historically, the parliament has had the practice of overturning judicial pronouncements by way of amendments to the act. This case is no different. The amendments specifically against the Shin-Etzu and BCCI judgements are superfluous and will only lead to confusion. Irrespective of the fallacies in the bill, there is at least one certain consequence – judicial intervention refurbishing the damage done. But the moot point here is not just expecting judicial intervention. For a parliament as old as 72 years and many mistakes to learn from, it is reasonably expected that the legislations are pro-development of the law, especially in niche areas of law such as arbitration. Until then, we have miles to go and miles to go.
By-
Yasachandra Devarakonda
Student Reporter, INBA