THE ARBITRATION AND CONCILIATION

(AMENDMENT) ORDINANCE, 2015AN OVERVIEW AND ANALYSIS

BACKGROUND

Arbitration has become the most vital mechanism to resolve disputes in the

commercial world. But in India, the Arbitration and Conciliation Act, 1996 ('the Act')

failed to be the elixir for relieving the Judiciary of the vast amount of commercial

cases.

Arbitration in India continues to be ad hoc, expensive, long drawn and often suffers

from excessive court intervention.

The process of reform in this regard was initiated by the report of the 246th Law

Commission headed by Retired. Justice A.P. Shah.

The Union Cabinet on 21 October 2015 has approved the Arbitration and

Conciliation (Amendment) Ordinance 2015 ('the Ordinance') which was

promulgated on 23 October 2015 after having received Presidential assent. The

Ordinance introduces several significant changes to the Arbitration & Conciliation

Act 1996 The object of these changes is to expedite the arbitration process and

minimize court intervention in arbitration.

MAJOR PROBLEMS UNDER THE ACT

The ‘no time limit’ malady

Applicability of Part I of the Act to International Commercial Arbitrations

Scope of ‘public policy’

Position of non-signatories to an

arbitration agreement to be joined as parties

Neutrality of Arbitrators

Discrepancy in enforcement of

award pending a S.34 challenge

KEY CHANGES UNDER THE ORDINANCE

Section 2(2)

• Section 9, 27, 37 (1)(a) and 37(3) under Part I are applicable tointernational commercial arbitration

• Bharat Aluminum Company Limited (BALCO) v. Kaiser AluminumTechnical Service, Inc. [(2012) 9 SCC 552]

Section 8: Power to refer parties to arbitration where

there is arbitration agreement

• Allows even non- signatories to an arbitration agreement to bejoined as parties in a domestic arbitration

• Sukanya Holdings Pvt. Ltd v. Jayesh H. Pandya & Anr. [2003 (5)SCC 531]

• Compulsory reference to arbitration by the judicial authorityirrespective of any decision by the Supreme Court or any othercourt, if it finds that a valid agreement exists

• Application of reference where original arbitration agreement isnot available to the applying party

Section 9: Interim measures by the

court

• Restraints courts from entertaining an application for interimrelief once arbitration has commenced.

• The Court is empowered to entertain such application only if it isconvinced that the tribunal will be unable to provide effectiverelief.

• Where court passes an interim order of protection beforecommencement of arbitral proceedings, thereafter theproceedings shall commence within 90days from the date ofsuch order or within such further time as the court may specify.

Section 12: Grounds of Challenge

• Includes an obligation requiring the potential arbitrator tomake disclosure of conflicts which are likely to effect his abilityto devote sufficient time and complete the entire arbitrationwithin 12 months.

• Schedule V lays down the grounds that shall now guide indetermining the independence & impartiality of an arbitrator

• Schedule VII provides for categories laying down suchrelationship of potential arbitrator with parties, counsel and thesubject matter that will make him/her ineligible for suchappointment

• Schedule VII does not apply where arbitrator has alreadybeen appointed on or before commencement of the ordinance

Section 17: Interim

measures by the arbitral

tribunal

• The amendment ensures that interim measures or reliefs including that ofinjunction granted by an arbitrator will be effective and enforceable as anorder of the court

Section 23: Statements of

claim and defence

• The respondent may now be able to file a counter claim or set- off if it falls within the scope of arbitration

Section 24: Hearings and

written proceedings

• The arbitral tribunal shall not give adjournments to any party withoutsufficient reasons and may also impose an exemplary cost on thoseseeking adjournments without sufficient cause

• The tribunal shall, as far as possible, hold oral hearings on day-to-day basis

Section 29-A: Time limit for arbitral award

• A tribunal is obligated to deliver final award within a period of 12 months.

• This period can be extended by the consent of the parties for an additional six months

• If the award is made within six months then the parties have to give an additionalincentive to the arbitrators as mutually decided by them

• Empowers court to extend such period or terminate the mandate of arbitrators in caseof delay , but, where the delay is caused due to the arbitral tribunal, the court canimpose a reduction of fees of arbitrators

Section 29-B: Fast- track procedure

• Provides for the procedure for completion of arbitralproceedings in fast- track within 6months by way of writtenpleadings and other submissions

Section 31- A: Regime for costs

• Costs are not compulsory and at the discretion of the tribunal. TheSection lays down various factors to be considered by the tribunal at thetime of determining the quantum of costs

Section 34: Application for setting aside arbitral award

• The scope of ‘public policy’ is to be limited to instances where-

• (i) Making of an award was induced by fraud/ corruption,

• (ii) Where an award is in conflict with the fundamental policy of IndianLaw, or

• (iii) an award is in conflict with the most basic notions of morality orjustice.

• ONGC v Saw Pipes [(2003) 5 SCC 705] and Delhi DevelopmentAuthority v R.S. Sharma [(2008) 3 SCC 80]

• Similar amendments have also been introduced in Section 48 and 57

• Challenge to the award is to be disposed of within a period of one year

Section 36: Enforcement

• Where an application for setting aside of arbitralaward has been filed in the court under Section34, it shall not render the award unenforceable,unless the Court grants an order of stay ofoperation of the said award

• A separate application has to be made for suchstay of operation

• The court can grant such stay on terms andconditions as it deems fit

• National Aluminum co. Ltd. v. Pressteel &Fabrications [(2004) 1 SCC 540]

RECOMMENDATIONS BY LAW COMMISSION

NOT PART OF THE ORDINANCE

Section 16 of the Act be amended to make issues of fraud expressly arbitrable . This

amendment was proposed in the light of the Supreme Court decision in N.

Radhakrishnan v. Maestro Engineers [(2010) 1 SCC 72)] which appear to denude an

arbitral tribunal of the power to decide on issues of fraud etc. The Ordinance however

does not provide for any amendment to Section 16 of the Act.

Departure from the existing phrase “place” of arbitration was proposed to make the

wording of the Act consistent with the international usage of the concept of a “seat” of

arbitration, to denote the legal home of the arbitration. Such amendment would have

had the impact of further legislatively distinguishing between the “[legal] seat” from a

“[mere] venue” of arbitration.

Section 85-A be inserted to provide in the Arbitration and Conciliation (Amending) Act,

2014 that the provisions of the instant Act (as amended) shall be prospective in

operation and shall apply only to fresh arbitrations and fresh applications, except in

certain situations.

CONCLUSION

The Arbitration Ordinance is a step in the right direction to reform

and modernize Indian arbitration law. However, some of the

amendments require clarity.

A more thoughtful approach to drafting could have avoided certain

inconsistencies which exist amongst different parts of the

Arbitration Ordinance.