Global Development

Background to recent developments in commercial arbitration

India has taken many strides in the past decade to establish arbitration as a mainstay in dispute resolution, mainly to alleviate the existing backlog in courts. It took the first notable step in this direction on 23 October 2015 with the introduction of significant amendments (‘2015 Amendments’) to the Arbitration and Conciliation Act, 1996 (‘Arbitration Act’) to strengthen the Indian arbitration regime.¹ However, the 2015 Amendments failed to address certain issues, notably:

• the importance of institutional arbitration in both domestic and international arbitrations involving Indian parties;
• an ambiguity as to the applicability of the 2015 Amendments to court proceedings arising from arbitrations that were initiated prior to 23 October 2015.

The government thus set up a ten-member high-level committee to issue recommendations for the promotion and development of institutional arbitration in India. This high-level committee, chaired by a retired judge of the Indian Supreme Court included other former justices, senior lawyers and policy experts.²

Based on their recommendations issued in July 2017,³ the legislature first tabled several amendments in 2018 (the Arbitration and Conciliation (Amendment) Bill, 2018). However, this bill lapsed before it received the assent of the upper house of the Indian parliament. A revised bill was subsequently re-introduced a year later, on 15 July 2019 which culminated in the passing of the Arbitration and Conciliation (Amendment) Act, 2019 (‘2019 Amendment Act’).⁴ Speaking on behalf of the Government of India, the Union Law Minister indicated the intention behind 2019 Amendment Act was to make India a hub for international and domestic commercial arbitration.⁵ The key changes it implements to the 2015 Amendments are discussed below.

The Arbitration Council of India

Part IA of the 2019 Amendment Act creates in the Arbitration Council of India (‘Arbitration Council’), an independent body that is to promote arbitration, mediation, conciliation and other alternative dispute redressal mechanisms. The Council is meant to spearhead policy reforms and guidelines in arbitration, with a view to solidifying institutional arbitration and promote uniform professional standards.

The main functions of the Arbitration Council include:

• framing policies for grading arbitral institutions and accrediting arbitrators;
• making policies for the establishment, operation and maintenance of uniform professional standards for all alternate dispute resolution methods;
• maintaining a depository of arbitral awards made in India and abroad.

This amendment most solidly reflects the Indian government’s wish to promote the focused growth of arbitration in India. However, since the Arbitration Council comprises of government officials and persons nominated/appointed by the central government,⁶ this could impinge on the neutrality of the arbitration process, an essentially private dispute resolution mechanism. Further, it also exposes the policy objectives of promoting arbitration to the whims of successive governments whose priorities may change.

The accreditation of arbitral institutions by the Arbitration Council, if implemented properly, would be a significant achievement. At present, in India, a number of arbitral institutions are operational, including institutions that set up several decades ago, e.g. the Indian Council for Arbitration (1965) and the International Centre for Alternative Dispute Resolution (1995), as well as more recent ones such as the Mumbai Centre for International Arbitration. Further, international institutions such as the International Chamber of Commerce (‘ICC’) are also very active in India as are several smaller institutions that operate on a domestic level.

As no institution dominates the Indian market, an attempt to harmonise standards will therefore go a long way in increasing users’ trust in arbitration. The 2019 Amendment Act provides that the Arbitration Council is to grade arbitral institutions based on criteria relating to:

• infrastructure;
• quality and calibre of arbitrators;
• performance and compliance of time limits for disposal of international or domestic commercial arbitrations.

While in theory these are reasonably objective parameters to take into account, in practice, these grading criteria may create additional hurdles for smaller arbitral institutions which may not have the means to fulfil these standards.

Qualifications to be an arbitrator

The 2019 Amendment Act introduces a new Eighth Schedule that describes the qualification, experience and norms for accredited arbitrators. According to the 2019 Amendment Act, the minimum requirements for the arbitrators are as follows:

• advocates enrolled under the Indian Advocates Act, 1961;⁷
• persons with law degrees who have been officers in government/autonomous bodies;
• public sector undertakings;
• private sector and certain other qualified professionals such as chartered accountants;
• company secretaries and engineers with certain level of experience.

To an extent, the Eighth Schedule codifies the qualifications that parties already typically rely on when appointing arbitrators. However, it remains unclear if foreign lawyers with experience in arbitration can be appointed as arbitrators in India-seated arbitrations. If appointment of foreign advocates as arbitrators is prohibited, it is likely to disincentivise foreign parties from choosing India as a seat of arbitration.

The Eighth Schedule also lays down general norms that are applicable to arbitrators that are more subjective. The arbitrator must be (i) a person reputed to be fair, impartial and capable of objectivity; (ii) conversant with the relevant laws; (iii) have a robust understanding of the domestic and international legal system on arbitration; (iv) understand key principles of contractual obligations involved in most civil and commercial disputes; as well as (v) principles of natural justice and capable of delivering a reasoned and enforceable arbitral award.

Although these are general norms, their binding force (or lack thereof) remains to be tested especially as it is difficult to envisage how exactly a court will interpret these rather subjective qualifications and more importantly, if any arbitrator is disqualified or an arbitral award set aside on the ground that such qualifications were not met.

Appointment of arbitrators

The 2019 Amendment Act modifies Section 11 of the Arbitration Act relating to appointment of arbitrators by courts pursuant to an application by a party. Previously, parties were free to appoint arbitrators; in case of disagreement, the parties could apply to the Indian Supreme Court, or the relevant High Court, or any person or institution designated by the relevant Court, to appoint an arbitrator.

Under the 2019 Amendment Act, the Courts may now designate accredited arbitral institutions, which parties can approach for the appointment of arbitrators. For international commercial arbitration, appointments will be made by the institution designated by the Supreme Court. For domestic arbitration, appointments will be made by the institution designated by the concerned High Court. In case there are no arbitral institutions available, the Chief Justice of the concerned High Court may maintain a panel of arbitrators to perform the functions of the arbitral institutions.

Such appointment of arbitrator must be completed within 30 days from the application being made by the parties. Placing a time limit for such appointment is a positive step towards expediting arbitration proceedings in a jurisdiction notorious for lags in the judicial system. This change is also aligned with practices followed in other arbitration friendly jurisdictions such as Singapore.⁸

Timeline for completing arbitrations

Among the most controversial amendments in 2015 was the introduction of Section 29A, whereby arbitral tribunals were required to render their award within a period of 12 months from its constitution, which could be extended by a further period of six months. If the award was not rendered within the specified or extended period, the mandate of the arbitral tribunal would be terminated, unless the relevant high court extended the time limit.

The 2019 Amendment Act has amended Section 29A of the Arbitration Act by adding specific time limits that would be binding, in particular, upon parties. Pursuant to the 2019 Amendment Act:

• The parties must file the statement of claim and statement of defence within six months from the date of receipt of notice of the appointment of arbitrators or the formal constitution of the tribunal.
• (The arbitration must be completed within 12 months, extendable by another six months by mutual consent of the parties. If arbitration is not completed within 18 months, the relevant high court's permission is required for the arbitration to continue.

While these revised timelines are mandatory only for domestic arbitrations, Section 29A however adds that an ‘endeavour may be made to dispose of the matter within a period of twelve months from the date of completion of pleadings’ in international commercial arbitrations.⁹

The underlying intention is evidently to prevent arbitrations from being drawn out for several years. However, it is unclear how these timelines would apply if a party sought for instance, to bifurcate proceedings, a scenario which arises very frequently in arbitration and would test the efficacy of the operation of these amendments, increase the potential for court involvement, and result in additional costs and delays for the parties.

Applicability of the 2015 Amendments

As indicated above, it was unclear if the 2015 Amendments would apply to court proceedings arising from arbitrations that had commenced before 23 October 2015 (when the 2015 Amendments came into force).¹⁰

The 2015 Amendments sought, for instance, to resolve a particularly thorny issue by taking away an automatic stay of enforcement of awards (as was the case until then), stating that the mere filing of a challenge application would not render the award unenforceable, unless the court specifically granted a stay against enforcement. However, since it was unclear whether the 2015 Amendments applied to court proceedings that had commenced before 23 October 2015, it was uncertain if stays on enforcement would continue in those proceedings.

The issue was eventually resolved by the Supreme Court in BCCI v. Kochi Cricket Private Limited,¹¹ in which the court held that the amendments would be prospective such that they would apply to court proceedings instituted after 23 October 2015 even if they were in relation to arbitrations that commenced before 23 October 2015. The court also held that there would be no automatic stay operating on the award even when an application challenging the award had been filed prior to 23 October 2015.

The 2019 Amendment Act introduced a new section (Section 87) clarifying that the 2015 Amendments only apply to:

• arbitrations commenced on or after 23 October 2015; and
• court proceedings arising out of or in relation to these arbitration proceedings.

The 2019 Amendment Act thus overturned the decision of the Supreme Court in BCCI v. Kochi Cricket Private Limited, and clarified that the 2015 Amendments neither apply to arbitrations commenced before 23 October 2015 nor to court proceedings arising from such arbitrations, even if the court proceedings were filed after the commencement of the 2015 Amendments. This clarification (while neat on paper) led to a loophole in regard to cases in which automatic stays were lifted following the decision of the Supreme Court (on 15 March 2018) until the entry into force of the 2019 Amendment Act (in August 2019) which allowed automatic stays on awards retroactively if the arbitration had commenced before 23 October 2015 even if the application challenging the award was made after.

Recently, on 27 November 2019, the Supreme Court in Hindustan Construction Company & Anr. v.Union of India struck down Section 87 on the basis of the doctrine of manifest arbitrariness, finding it to be unconstitutional.¹² The court opined that retroactively reviving an automatic stay on enforcement (which is what the 2019 Amendment led to in some cases) was not only counterproductive to arbitration but could also result in an absurd situation where payments that had already been made would now have to be reversed.

Conclusion

The 2019 Amendment Act reflects several appreciable objectives in a country that is notorious for the delays of its judicial system, yet it is a growing economy with many Indian and international players across various sectors. Despite arbitration having been in the collective cognition in India for decades, there remains a large dose of uncertainty when arbitrating in India and international players hesitate to choose India as the seat of arbitration. It remains to be seen whether the 2019 Amendment Act achieves its primary objective, i.e. the promotion of institutional arbitration in India by seeking to introduce standards, and increasing faith in the minds of its users that are historically reliant on ad hoc arbitration. Whether this succeeds, and also results in the progress of India as a seat or hub of arbitration, similarly remains to be seen.

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