Cardinal Amendments: Jamia Millia Islamia, New Delhi
Cardinal Amendments: Jamia Millia Islamia, New Delhi
Cardinal Amendments: Jamia Millia Islamia, New Delhi
CARDINAL AMENDMENTS
In context of The Foreign Arbitral awards
(With special emphasis on 2015 amendments wrt Arbitration)
As a part of ARBITRATION
Project
I also owe sincere gratitude to the staff at library for always helping in the process of finding
material and other sources for research. I am very grateful to all the individuals involved in the
subgroup for their contributions and assistance in compiling this assignment and the
recommendations that go with it: they are the outcome of an open, interactive and creative
cooperation.
I also thank social networking site for searching the required information in precise and as per
needed. How I can forget to give credit and my satisfaction to my friends. My institution and
family really supported me throughout in my endeavors to which I am honored to thank. My sense
of gratitude is due to FACULTY OF LAW, JMI.
At last, I express my heartfelt gratitude to the God Almighty, without whose blessing and
motivation, the completion of this assignment would have been impossible.
Thanks to all.......
Dilwar Hussain
HISTORY OF ARBITRATION
Needless to say, arbitration has a long history in India. In ancient times, the mechanism called
“Panchayat” acted as an arbitrator in several matters for a binding resolution1. Modern arbitration
law in India was created by the Bengal Regulations in 1772, during the British rule. The Bengal
Regulations provided for reference by a court to arbitration, with the consent of the parties, in
lawsuits for, inter-alia, accounts, partnership deeds, and breach of contract. Until 1996, the law
governing arbitration in India consisted mainly of three statutes: (i) Arbitration (Protocol and
Convention) Act,1937 (1937 Act) (ii) Indian Arbitration Act,1940 (1940 Act), and (iii) Foreign
Awards (Recognition and Enforcement) Act, 1961 (1961 Act). The 1940 Act was the general law
governing arbitration in India along the lines of the English Arbitration Act of 1934, and both the
1937 and the 1961 Acts were designed to enforce foreign arbitral awards. The 1961 Act
implemented the New York Convention of 1958.2
1
K Ravi Kumar, ‘Alternative Dispute Resolution in Construction Industry’, International Council of Consultants (ICC)
papers
2
The New York Convention of 1958, i.e. Convention on the Recognition and Enforcement of Foreign Arbitral Awards,
1958.
3
Section 16 of Arbitration Act, 1940
4
Indu Malhotra, ‘Fast Track Arbitration’, ICA’s Arbitration Quarterly, ICA, 2006, vol. XLI/No.1 at p 8.
The delay of time in arbitral proceedings was not the only malady plaguing arbitration of India,
another equally daunting challenge was Court interference in arbitration under Section 9 and
awards being set-aside by Courts. Probably the most criticised aspect was setting aside of awards
under the “Public Policy” doctrine.
“ONGC Vs SAW Pipes”5 the Supreme Court of India expanded the scope of public policy by
taking a wider view than Renusagar Power Co Vs General Electric Company6 and held that Pubic
policy means the statutory provisions of Indian law or even the terms of the contract. This was
further expanded ONGC Vs Western Geo International Ltd.7 In the context of these issues the
Hon’ble President of India, promulgated the said ordinance.
The parties in the international commerce and businesses prefer arbitration as an amicable
measure for resolving disputes alternate to the litigation process which is considered as a lengthy
process. The rights evolved pursuant to the arbitral award can be of various natures and may be
required to be enforced in other countries as the case may where the right accrued by the Arbitral
Award lies.
Such right in a third country can be enforced after the execution of the Arbitral Award in that
particular country. Section 46 of the Act provides the criterion as to when such foreign award
would be binding on the parties. According to the said Section, any foreign award which would
be enforceable shall be treated as binding for all the purposes on the persons as between whom it
was made, and may accordingly be relied on by any of those persons by way of defence, set off
or any other purpose in any legal proceedings in India. Therefore, an Award may be recognized
without being enforced, but if it is enforced, then it is necessarily recognized.
Evidence
Section 47 of the Act provides the requirement as to the evidence, which are required for
enforcement of the Arbitral Award. Section 47 of the Act reads as under:
5
(2003) 5 SCC 705
6
1994 Supp (1) SCC 644
7
(2014) 9 SCC 263
1) The party applying for the enforcement of a foreign award shall, at the time of the application,
produce before the court -
a) the original award or a copy thereof, duly authenticated in the manner required by the law of
the country in which it was made;
c) Such evidence as may be necessary to prove that the award is a foreign award.
2) If the award or agreement to be produced under subsection (1) is in a foreign language, the
party seeking to enforce the award shall produce a translation into English certified as correct
by a diplomatic or consular agent of the country to which that party belongs or certified as
correct in such other manner as may be sufficient according to the law in force in India.
Explanation- In this Section and all the following Sections of this Chapter," Court" means the
principal Civil Court of original jurisdiction in a district, and includes the High Court in
exercise of its ordinary original civil jurisdiction, having jurisdiction over the subject- matter of
the award if the same had been the subject- matter of a suit, but does not include any civil court
of a grade inferior to such principal Civil Court, or any Court of Small Causes.
According to Section 47 of the Act, any person applying for enforcing an Award in India shall
produce before such court, the original award or a copy thereof (duly authenticated), Original
Agreement for arbitration or a certified copy thereof, such evidence as may be required to prove
that the award is a foreign award.
Further, the explanation to Section 47 of the Act, provides that the application is to be filed in the
court where the subject matter of the award lies. The subject matter of an award can be of any
nature which could be the part of the evidence as provided under Section 47 or any other relief
which may arise during the course of Arbitration proceedings. For example, if the subject of an
international arbitration is a licensing agreement between the parties, and the award provides
certain other reliefs which are related to the intellectual property of either of the parties in some
other country in which neither of the party has any actionable assets or claims lying, it may be
necessary to enforce the foreign arbitral award in that third country. It can be said that, per se, the
right/relief provided by a foreign arbitral award to a judgment debtor cannot be exploited in a
third country until such foreign award is enforced in that particular country. Once such foreign
award is enforced in such country, it would be the decree of such court and the rights conferred
by such decree can be enforced.
The idea of enforcing the award in a country where there is no place of business of any of the
parties, has been discussed and examined by various courts in the light of the extent of scope and
jurisdiction of such courts.
Amendments
The following are the salient features of the new ordinance:
1. The first and foremost welcome amendment introduced by the ordinance is with respect
to definition of expression 'Court'. The amended law makes a clear distinction between an
international commercial arbitration and domestic arbitration with regard to the definition
of 'Court'. In so far as domestic arbitration is concerned, the definition of "Court" is the
same as was in the 1996 Act, however, for the purpose of international commercial
arbitration, 'Court' has been defined to mean only High Court of competent jurisdiction.
Accordingly, in an international commercial arbitration, as per the new law, district court
will have no jurisdiction and the parties can expect speedier and efficacious
determination of any issue directly by the High court which is better equipped in terms of
handling commercial disputes.
2. Amendment of Section 2(2): A proviso to Section 2(2) has been added which envisages
that subject to the agreement to the contrary, Section 9 (interim measures), Section
27(taking of evidence), and Section 37(1)(a), 37(3) shall also apply to international
commercial arbitrations, even if the seat of arbitration is outside India, meaning thereby
that the new law has tried to strike a kind of balance between the situations created by the
judgments of Bhatia International and Balco v. Kaiser. Now Section 2(2) envisages that
Part-I shall apply where the place of arbitration is in India and that provisions of Sections
9, 27, 37(1) (a) and 37 (3) shall also apply to international commercial arbitration even if
the seat of arbitration is outside India unless parties to the arbitration agreement have
agreed to the contrary.
The above amendments to Section 9 are certainly aimed at ensuring that parties
ultimately resort to arbitration process and get their disputes settled on merit through
arbitration. The exercise of power under Section 9 after constitution of the tribunal has
been made more onerous and the same can be exercised only in circumstances where
remedy under Section 17, appears to be non-efficacious to the Court concerned.
As per the new Act, the expression 'Chief Justice of India' and 'Chief Justice of High
Court' used in earlier provision have been replaced with Supreme Court or as the case
may be, High Court, respectively. The decision made by the Supreme Court or the High
Court or person designated by them have been made final and only an appeal to Supreme
Court by way of Special Leave Petition can lie from such an order for appointment of
arbitrator. The new law also attempts to fix limits on the fee payable to the arbitrator and
empowers the high court to frame such rule as may be necessary considering the rates
specified in Fourth Schedule.
6. Amendment to Section 12: Amendment to Section 12, as per the new law makes the
declaration on the part of the arbitration about his independence and impartiality more
onerous. A Schedule has been inserted (Fifth Schedule) which lists the grounds that
would give rise to justifiable doubt to independence and impartiality of arbitrator and the
circumstances given in Fifth Schedule are very exhaustive. Any person not falling under
any of the grounds mentioned in the Fifth Schedule is likely to be independent and
impartial in all respects. Also, another schedule (seventh schedule) is added and a
provision has been inserted that notwithstanding any prior agreement of the parties, if the
arbitrator's relationship with the parties or the counsel or the subject matter of dispute
falls in any of the categories mentioned in the seventh schedule, it would act as an
ineligibility to act as an arbitrator. However, subsequent to disputes having arisen, parties
may by expressly entering into a written agreement waive the applicability of this
provision. In view of this, it would not be possible for Government bodies to appoint
their employees or consultants as arbitrators in arbitrations concerning the said
Government bodies.
7. Amendment to Section 14: Amendment of Section 14 aimed at filling a gap in the
earlier provision, which only provided for termination of mandate of the arbitrator. If any
of the eventualities mentioned in sub-section (1) arises. The new law also provides for
termination of mandate of arbitration and substitution and his/her substitution by another
one.
8. Amendment to Section 17 (Interim Measures by Arbitral tribunal): The old Act had
lacunae where the interim orders of the tribunal were not enforceable. The Amendment
removes that lacunae and stipulates that an arbitral tribunal under Section 17 of the Act
shall have the same powers that are available to a court under Section 9 and that the
interim order passed by an arbitral tribunal would be enforceable as if it is an order of a
court. The new amendment also clarifies that if an arbitral tribunal is constituted, the
Courts should not entertain applications under Section 9 barring exceptional
circumstances.
9. Amendment to Section 23: The new law empowers the Respondent in the proceedings
to submit counter claim or plead a set-off and hence falling within the scope of arbitration
agreement.
10. Amendment to Section 24: It requires the arbitral tribunal to hold the hearing for
presentation of evidence or oral arguments on day to day basis, and mandates the tribunal
not to grant any adjournments unless sufficient causes shown. It further empowers the
tribunal the tribunal to impose exemplary cost where adjournment.
11. Insertions of new Section 29A and 29B (Time limit for arbitral award and Fast
Track Procedure) : To address the criticism that the arbitration regime in India is a long
drawn process defying the very existence of the arbitration act, the Amended Act
envisages to provide for time bound arbitrations. Under the amended act, an award shall
be made by the arbitral tribunal within 12 months from the date it enters upon reference.
This period can be extended to a further period of maximum 6 months by the consent of
the parties, after which the mandate of the arbitrator shall terminate, unless the Court
extends it for sufficient cause or on such other terms it may deem fit. Also, while
extending the said period, the Court may order reduction of fees of arbitrator by upto 5%
for each month such delay for reasons attributable to the arbitrator. Also, the application
for extension of time shall be disposed of by Court within 60 days from the date of notice
to the opposite party.
The Ordinance also provides that the parties at any stage of arbitral proceeding may opt
for a fast track procedure for settlement of dispute, where the tribunal shall have to make
an award within a period of 6 months. The tribunal shall decide the dispute on the basis
of written pleadings, documents and submissions filed by the parties without oral hearing,
unless the parties request for or if the tribunal considers it necessary for clarifying certain
issues. Where the tribunal decides the dispute within 6 months, provided additional fees
can be paid to the arbitrator with the consent of the parties.
12. Amendment to Section 25: The new Act empowers the tribunal to treat Respondent's
failure to communicate his statement of defence as forfeiture of his right to file such
statement of defen ce. However, the tribunal will continue the proceedings without
treating such failure as admission of the allegations made by the Claimant.
13. Amendment to section 28: The new law requires the tribunal to take into account the
terms of contract and trade usages applicable to the transaction. In the earlier law, the
arbitral tribunal was mandated to decide disputes in accordance with the terms of the
contract and to take into account the trade usages applicable to the transaction. To that
extent, the new law seeks to relieve the arbitrators from strictly adhering to the terms of
the contract while deciding the case. However, the arbitrator can still not ignore the terms
of the contract. Therefore, the new amendment seems to bring in an element of discretion
in favour of the arbitrators while making of an award.
14. Amendment to Section 31: This provides for levy of future interest in the absence of any
decision of the arbitrator, on the awarded amount @2% higher than current rate of
interest prevalent on the date of award. The current rate of interest has been assigned the
same meaning as assigned to the expression under Clause (b) of Section 21 of the Interest
Act, 1978.
In addition, the new Act lays down detailed parameters for deciding cost, besides
providing that an agreement between the parties, that the whole or part of the cost of
arbitration is to be paid by the party shall be effective only if such an agreement is made
after the dispute in question had arisen. Therefore, a generic clause in the agreement
stating that cost shall be shared by the parties equally, will not inhibit the tribunal from
passing the decision as to costs and making one of the parties to the proceedings to bear
whole or as a part of such cost, as may be decided by the tribunal.
15. Amendment of Section 34 (Limiting the gamut of Public Policy of India): As per the
new amendment, an award passed in an international arbitration, can only be set aside on
the ground that it is against the public policy of India if, and only if, – (i) the award is
vitiated by fraud or corruption; (ii) it is in contravention with the fundamental policy of
Indian law; (iii) it is in conflict with basic notions of morality and justice. The present
amendment has clarified that the additional ground of "patently illegality" to challenge an
award can only be taken for domestic arbitrations and not international arbitrations.
Further, the amendment provides that the domestic awards can be challenged on the
ground of patent illegality on the face of the award but the award shall not be set aside
merely on the ground of an erroneous application of law or by re-appreciation of
evidence. The new Act also provides that an application for setting aside of an award can
be filed only after issuing prior notice to the other party. The party filing the application
has to file an affidavit along with the application endorsing compliance with the
requirement of service of prior notice on the other party. A time limit of one year from
the date of service of the advance notice on the other parties has been fixed for disposal
of the application under Section 34. Significantly, there is no provision in the new Act
which empowers the court or the parties to extend the aforesaid limit of one year for
disposal of the application under Section 34.
17. Amendment to Section 37: Under Section 37(1), the new law makes provision for filing
of an appeal against an order of judicial authority refusing to refer the parties to
arbitration under Section 8.
18. As regards enforcement of certain foreign awards, the new law seeks to add explanation
of Sections 48 and 57 thereby clarifying as to when an award shall be considered to be in
conflict within public policy of India. The parameters are the same as are provided under
Section 34. Similarly, the expression "Court" used in Sections 47 and 56 have been
defined to mean only the High Court of competent jurisdiction.
8
A.I.R 2002 SC
parties to dispute. 4. Arbitrator chosen may be an expert: based on the issue of dispute, parties
may choose a specific arbitrator having that particular technical experience and expertise in the
area disputed. 5. Arbitration less expensive: since arbitration is a time effective remedy and does
not involve too many procedures, it is less expensive as compared to litigation procedures.
KEY HIGHLIGHTS OF ARBITRATION AND CONCILIATION
(AMENDMENT) ORDINANCE, 2015
Section 12(1) of the Arbitration and Conciliation Act (Principal Act) has been
amended to include certain conditions such as:
Further, Section 23 of the Principal Act has been amended to insert subs-section
(2):
That the respondent may file a counter-claim or set-off if it falls within the scope
of arbitration.
Section 24 of the Principal Act contains probably one of the most important
amendments in the form of insertion of a proviso that is:
The arbitral tribunal shall not give adjournments to any party without sufficient
reason and may impose an exemplary cost on those seeking adjournments
without sufficient cause.
Section 29-A is inserted which mandates that an award shall be made within 12
months from the date when the arbitral tribunal enters upon the reference i.e.
the date on which the arbitrator or all the arbitrators, as the case maybe, have
received notice in writing of their appointment. Further, if the award is made
within 6 months then the parties have to give an additional incentive to the
arbitrators as mutually decided by them. The parties also may extend the period
by six months at most. This section further empowers the Courts to impose a
reduction of fees of arbitrators due to delay because of the arbitrators. The Court
may either extend or terminate the mandate of arbitrators in case of delay.
Section 29-B that is inserted lays down a procedure for Fast-Track arbitration.
Section 34 has been amended to give a conclusive definition to the term “public
policy” and includes:
Section 48 also has been amended to include the aforementioned points to clarify
what is award in conflict of public policy.
A domestic arbitral award may be set aside due to patent illegality alongside other
points as mentioned above.
Section 47 has been amended to give powers to High Courts having original
jurisdiction to decide questions forming the subject-matter of the arbitral award.
References
WEBSITES REFERRED -
[1]http://www.prsindia.org/uploads/media/Arbitration/Arbitration%20and%20Conciliation%20bill,%202
015.pdf
[2]http://www.mondaq.com/india/x/448666/Arbitration+Dispute+Resolution/Highlights+of+Amendme
nt+To+The+Arbitration+And+Conciliation+Act+1996+Via+Arbitration+Ordinance+2015
[3]http://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf
[4]http://www.prsindia.org/uploads/media/ND%20International%20Arbitration/ND%20International%2
0Arbitration%20Centre%20Bill,%202018.pdf
[5]https://corporate.cyrilamarchandblogs.com/2018/03/supreme-court-2015-amendments-cabinet-
2018-arbitration-amendments-good-india/#more-2340