Strides of Pride: Recent Changes and Developments in the Indian Arbitration Scenario

Unnati Sinha[1]


Introduction


The Arbitration & Conciliation Act (“Act”)(hereafter referred to as "the 1996 Act") was initially made official by the issuance of an ordinance as a promising approach to the urgent economic changes demanded by new economic policy. The Arbitration & Conciliation (Amendment) ordinance, which, 20 years later, revised the 1996 Act to bring it into compliance with international standards. Arbitration has recently evolved into the best option for resolving business conflicts. However, during the last 20 years, the arbitration procedure, particularly in ad hoc domestic disputes, has started to resemble the adversarial processes in India to a greater extent. High costs brought on by an inadequate supply of qualified and educated arbitrators contributed to the rising frustration felt by its customers. Public authorities addressed the adjustments that are required to close any voids in the 1996 Act and reduce the likelihood of it being misinterpreted and other issues with its implementation. Numerous organizations submitted reports and recommendations with the goal of modifying the 1996 Act. These recommendations, however, fall short of the urgent demands of contemporary practice. The 1996 Act has not been modified despite two failed efforts to do so in the years 2001 and 2010.


Additionally, the Arbitration and Conciliation (Amendment) Act, 2015 includes novel features that have not yet been included in important arbitration legislation. Some of these regulations deal with unusual situations in ad hoc domestic arbitration, such as the deadline for finishing the arbitration and the fees of the arbitrators. The Amendment Act also makes other important revisions that significantly diverge from the legislation that was previously in place, resolve disputes, or affirm the regulations that have developed as a result of court interpretations.


Amendments to the Indian Arbitration Act, 1996


The Arbitration and Conciliation Act, 1996 (the "Arbitration Act") has finally been amended, after great outcry. The President of India gave his nod to the Arbitration and Conciliation (Amendment) Act, 2015 (the "Amendment Act") on December 31, 2015, and it entered into effect on October 23, 2015. The Amendment Act suggested significant modifications to the Arbitration Act. The road to the Amendment Act was somewhat difficult. The Arbitration Act was passed in 1996 in order to facilitate quick and efficient conflict settlement via arbitration or conciliation and lessen the load on courts, .


The Act now employs a new word, "arbitral institution," which refers to an arbitration institution selected by the Supreme Court or High Court in accordance with the law. The judge of the relevant High Court may appoint an arbitral tribunal to carry out the duties and responsibilities of the arbitration institution and supervise the arbitral tribunal regularly. The Supreme Court and the High Court have powers to appoint arbitration bodies from time to time, classified by the Council.


Once the arbitral ruling has been rendered, no application may be brought for interim orders under Section 17.


The aim is to resolve the dispute within a year from the day the pleadings under Section are accomplished. The ruling in international commercial arbitration may be made as quickly as practicable (4). After the revision, only the arbitral tribunal's record may be utilized under Section 34 to seek the annulment of an arbitral award. The Act's Sections 37(1) and 50 provide the legislature with further authority to appeal.


A new Section, known as Sections 42A and 42B, has been added regarding the confidentiality of all arbitral proceedings, with the exception of awards where a disclaimer is required for the execution and enforcement of the award. This section also states that the arbitrator is not subject to legal action for anything done or aimed to be done in good faith in accordance with this Act or the rules or regulations created thereunder.


The Act for the Establishment of the Arbitration Council of India contains a new component, Part 1A. After the amendment, judicial authorities may refuse to submit a party to arbitration based on the proposal of the party asserting rights thereby or based on it, even if the contract is first determined to be invalid, void, or unenforceable. Matters relating to the parties' entering into the contract are referred to in Article 44. Arbitrator qualifications and experience have changed, and Article 26 of the law has been rejected by recent amendments.


The court has started enforcing the arbitration award. This means that time limits under the Arbitration Act are no longer pending and no courts need to be involved.


The Supreme Court addressed the retroactive issue of the 2015 Amendments and the changes that reversed the BCCI decisions made by the 2019 Amendments in decisions published in the cases BCCI Vs. Kochi Cricket and Hindustan Construction Vs. UOI.


The Supreme Court in the aforementioned case totally avoided the anomalies that would develop if the meaning it gave to Section 26 is applied to other circumstances by ignoring the aforementioned revised parts as well. For instance, Section 9 amendment, being a judicial procedure, would apply even before the changes went into effect, but a Section 17 modification will only apply to arbitral proceedings begun after the 2015 Amendment. It is possible to argue that although Section 36 does not alter vested rights, Sections 9 and 17 modifications will have an impact on those rights, therefore a Section 9 amendment would not be applicable retroactively.


Since the revisions in amendment act were implemented via an ordinance, there was still uncertainty and ambiguity, and it was unclear whether the amendments would be applied prospectively or retroactively. The Amendment Act is unquestionably a positive step and has been praised for giving the Indian arbitration process the much-needed boost.


Maximizing Possibilities for Joinder in International Arbitration


Although non-signatories have been included in the arbitral procedure as a result of Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., there is still some uncertainty over their acknowledgment. Relying on their participation and interest, the question of whether the arbitral judgment is enforceable against such non-signatories varies from case to case. The Supreme Court thoroughly construed Part II of the Act in Gemini Bay Transcription (P) Ltd. v. Integrated Sales Service Ltd. and concluded that foreign awards should also be enforceable on non-signatories to the arbitration. However, it is unclear if their authority corresponds with a party's obligations under Section 2(h) of the Act. The arbitration's subject matter and location are entirely at the discretion of the parties. Since these non-signatories share equal responsibility with the signatories for the award's compliance, they should have an equal say in changing the arbitration's structure.


According to Section 2(1)(f)(iii) of the Act, one such condition for international commercial arbitration (“ICA”) is the central focus of central management and control in the case of an association or a group of people. The ICA principles would be in effect if such central management or power were to be applied in any nation other than India. By putting ICA into the equation, this clause thereby denotes a proactive strategy involving various stakeholders, including signatories and non-signatories. The possibility exists to change the character of arbitration from domestic to international commercial arbitration if a non-signatory foreign party is established outside of India, as well as any organization or group of persons with administration or control outside of India.


The High Courts have appropriately departed and progressively adopted a favorable stance, even though some earlier judgments had ascribed a restrictive interpretation to the scope of ICAs. According to Section 44 of the Act, participants in a "legal connection," whether or not one is contractual, may decide on overseas awards. When compared to Section 2(1)(f) of the Act, this section does not include the "foreign party" component. Therefore, in accordance with the Act, a foreign award may be made regardless of the ICA's terms. The court has weakened the arbitration clause so that Indian parties may get a foreign seat, bringing ICA to local courts.


With this decision, the courts have given parties reason to believe in the arbitration's party autonomy premise. It is important to contrast the two current circumstances. Even if there might be a foreign component in an arbitration ruling, a foreign party is nonetheless subject to domestic arbitration. With the proper judicial interpretation and application of the laws, the discordant tone may be corrected. The foundation of arbitration is autonomy and consent, hence the Indian courts may take a more cutting-edge approach to granting ICA in response to parties' requests. The equivalents of the parties to the arbitration will soon experience some relief after following the path of the arbitration guidelines.


The Indian Supreme Court upholds the arbitrability of cases involving allegations of fraud


In its ruling on whether disputes involving fraud allegations are subject to arbitration in India, the Supreme Court concluded that only "substantial fraud allegations" need to be decided by civil courts, i.e. allegations that violate the agreement to arbitrate or raise questions of public law.


The Share Subscription Agreement ("SSA"), via which HSBC invested US$60 million in Avitel India in 2011, gave rise to the underlying issue. The HSBC investment was based on the assertions made by Avitel's promoters that, amongst many other significant contracts, they were close to finalizing a high-value deal with the British Broadcasting Corporation and that the money would be used to buy equipment to support this contract. Later, HSBC learned that such a contract did not exist and that the promoters had diverted a bulk of their funding into other businesses. It started the arbitration process in 2012, and the conclusion of the arbitration was reached in 2014. In the meantime, in 2013, HSBC also filed a criminal complaint. The arbitral tribunal ruled in favor of HSBC, concluding that Avitel's promoters intentionally made false or misleading claims to induce investment into HSBC. In addition to interest and costs, the court awarded damages totaling $60 million. The Supreme Court issued this ruling as under the section 9 of the Act proceedings. HSBC requested that the entire sum be insured in Avitel’s bank account pending enforcement of the arbitration award. Among other things, the Supreme Court considered whether HSBC had strong prima facie evidence in the enforcement proceedings.


The parties argued before the Supreme Court over whether the disagreement may be the focus of an arbitration hearing since there were fraud claims implicated, involving criminal accusations.


The court took into account earlier instances and cited Section 8 of the Act, which requires courts to submit disputes that are covered by an arbitration agreement to arbitration. The court established two criteria to evaluate if "serious accusations of fraud" exist to the point where the civil courts should get involved:


(i) When the fraud corrupts the arbitration agreement and renders it void,


(ii) When the state or one of its agencies is accused of acting arbitrarily, dishonestly, or maliciously, and the hearing entails discussing issues that are of general interest and not related to the parties' contractual arrangement.


Regarding the case's circumstances, the court determined that there was no fraud present that would have rendered the SSA's arbitration clause invalid. False representation, money theft, and other difficulties were all between the parties and did not meet the criteria outlined in the previous sentence for a judicial trial.


This situation regarding the arbitration of disputes, including fraud charges, has been beneficially clarified by this judgment. It may also inspire civil courts to be more discriminating in deciding if fraud is being charged just to thwart arbitration procedures.


Concluding Remarks


As a result of legislative reforms that eliminated several flaws in the main 1996 Act and rendered invalid court judgments that inhibited the correct implementation of arbitration rules in India, these improvements are significant advances toward enhancing the arbitration process and arbitration jurisprudence. A word of caution is linked to these advancements, however,that the revisions call for the application of many rules in the arbitration process to be made in too little time, which is difficult to do in reality and runs the danger of forcing unnecessary judicial conflict settlement. The aforementioned revisions reiterate the specifics that are now used by the parties or institutions, but there are still no clear-cut requirements supporting institutional arbitration in India.


Although the adjustments may have been made with noble intentions, their implementation was not perfect. The change is a positive move, and with some other changes, India would be able to establish itself as a center for arbitration.


 

[1] Unnati Sinha is a 3rd-year student pursuing B.B.A.L.L.B (Hons.). She can be reached at unnatisinha1412@gmail.com.

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