The Firm

Show Timings:

Friday: 10.30 pm, Saturday: 11.30 am

Sunday: 9:30am & 11.00pm

CNBC TV18
Network18

Amendments To The Arbitration Act

Published on Fri, Oct 30,2015 | 22:56, Updated at Mon, Nov 02 at 20:07Source : CNBC-TV18 |   Watch Video :

Over 3 crore cases are pending in courts across India. You'd think those involved in a dispute would much prefer arbitration to litigation. Except that in India, arbitrations can sometimes run as long as a court case! Time delays, high costs and judicial interference are all reasons why arbitration in India is often ineffective. The 20 year old law has been ripe for amendment and those amendments have now come via an ordinance. While the form may not be ideal, the substance breaks new ground. India is now probably the only country in the world to fix a time limit for arbitration and also the first to fix fees for arbitrators. To discuss the amendments to the Arbitration and Reconciliation Act, 1996 - CNBC TV18's Menaka Doshi is joined by Justice A P Shah. Justice Shah was the Chairman of the Law Commission when it submitted its report on the changes required to the act. She is also joined by a very well known arbitrator - Birendra Saraf and the Aditya Birla Group General Counsel - Ashok Gupta.

Justice A P Shah, Former Chairman, Law Commission

Birendra Saraf, Lawyer & Arbitrator

Ashok Gupta, General Counsel, Aditya Birla Group

Below is the transcript of Justice A P Shah's, Birendra Saraf's and Ashok Gupta's interview with CNBC-TV18's Menaka Doshi.

Doshi: I am going to start first by highlighting the most unique feature that this ordinance brings in and that is fixed timelines. This was not on the list of recommendations that the law commission made. What do you think of this feature?

Shah: The timelines are according to me unrealistic and this is going to increase the judicial interventions and consequently it would add to the delays. There is nothing like this particular provision says that the award has to be delivered within 12 months, the arbitration proceedings to be completed and award should be given in 12 months and by consent this could be extended to another six months that is 18 months and thereafter the parties have to approach the court to get further extension. This provision also provides that if the arbitrationer decides the case within six months then he will get some extra fee to be decided by the parties and if the court finds that the arbitrator is responsible for the delays then his fees will be reduced by five percent every month. According to me this provision is very undesirable and I had spoken to the Prime Minister, the concerned ministers, I opposed the introduction of this particular provision. These timelines were discussed in several meetings of the commission where the several judges, lawyers and academicians were involved and this was expressly rejected by the commission.

Now, just consider there is nothing like average timeline for an arbitration. The time required for an arbitration depends upon the technical or legal complexity of the case or the volume of evidence. Now it is not proper to say that it has to be decided within 12-18 months. It is really revival of the old provision, that is, there was a provision under the old act which said the arbitration has to be completed within four months otherwise the parties have to approach the court for extension.

Secondly this carrot and stick policy according to me is completely undesirable. It says that the arbitration should get some extra fees if he finishes the case in six months. It is like telling the court or the judge that if he decides the case within a particular time you will get extra salary and this idea of deducting the fees, I have never heard of such a practice in any part of the world that the arbitrator is penalised for not finishing the arbitration in time. I personally feel that this provision will really adversely affect the arbitrations in India. Government is saying that they want India to become a hub for international commercial arbitration. But I feel that with this no foreign party would be interested in conducting arbitration in India. On the other hand even the domestic parties would prefer to go to the other forums to seek their disputes adjudicated.

Doshi: Besides the flaws that you have pointed out, I want to point out one more thing. Do you expect that because you require the court's permission to extend this further than the timeline that you have pointed out which is 12 to 6 months that we are going to end up seeing a pile of applications to the court in a sense all of it will go and end up or get clogged at the high court level or the court level.

Shah: Oh yes. This is absolutely correct because the courts are there is huge pendency in courts. Though the section provides these applications shall be decided within 60 days but believe me, these applications are going to take months and perhaps years together.

Another thing which is very startling, in section 85A which the commission drafted a scheme was laid down as to which provision would operate prospectively and which would operate retrospectively. Now I am not sure whether 29A is going to operate prospectively or retrospectively, whether it will affect the pending proceedings as well. On a fair reading of the law I am of the view that it will not apply to the pending proceedings but this again is going to lead to some litigation and this will really mean that most of the arbitrations which have already crossed 18 months, the duration is over 18 months, they will all come to a standstill.

Really the whole effort of the law commission to bring the reforms is undone by this one provision. I strongly appeal to the government that they should reconsider about laying the timelines and what we suggested instead is that the arbitrator should give in writing that he is in a position to decide the matter within a period of two years, we said two years. Secondly we also made provisions for day to day hearing, discouraging the adjournments and also we proposed powers to the arbitrator to impose exemplary cost on a party which is trying to delay the matter. These provisions are sufficient to ensure that the arbitrations are decided in timely manner and it is really not necessary to fix some timelines. I find it very odd honestly.

Doshi: Would you agree that as Justice Shah says the imposition of this timeline may in fact make India less attractive as a place to arbitrate in?

Saraf: I agree with that these timelines are generally applied to all arbitrations and it is impractical that every arbitration can be completed in a period of 12 months and 18 months is not the time permitted by the statute, 18 months is only with the consent of parties. So, at the end of 12 months if one party wants to delay the matter further he is not going to give a consent to the extension and the immediate recourse will be that you have to go back to the court and seek that the arbitration comes to a standstill and you have to go back to the court and as Justice Shah said there will be piled up burden on the court already. This is going to add to the delays of arbitration.

Secondly I also feel that this will render arbitrators very vulnerable because they are subject to a constant scrutiny of the court as if they are proving themselves every moment to the court that I have not delayed it and it will become a competition between each party to show who is delaying the arbitration. As a result of which I feel this provision is going to lead to a whole lot of complication. Plus, also on the prospective part of it when the law commission suggested a prospective application and that has not been incorporated in this ordinance there is a great likelihood of it being also interpreted to mean that it will apply retrospectively because some provisions have expressly stated that even in the ordinance they will not apply to pending arbitrations whereas that is not there in 29A. So, that is going to be another complication as a result of which till this issue is clarified the entire pending arbitrations which have crossed 12 months will be at a standstill.

Doshi: That would apply, that concern about whether this is prospective or retrospective will apply to several provisions that we will discuss.

Saraf: Of course it would.

Doshi: The whole idea is for companies, groups and clients like yours to get some sort of decision in a quick timeframe. The government hopes is this going to meet that goal or is this as our guests have expressed so far going to be counter-productive?

Gupta: I only hope the timelines are being met. I have a perspective that too from business perspective. The whole idea of putting in time limit is based on our India experience. 1940 Act did have the time limits done away with, 1996 did not have it; it did not improve the position. One of the reasons for review of 1996 Act is also delays caused and therefore total amount of money involved in this, dispute resolution is not happening on time and loss of credibility in the system.

As a result of which many companies like us our now looking at arbitration outside India where it is much faster. So, despite the fact there is no time limit laid down whether in Paris, UK, Singapore or Hong Kong, invariably arbitration matters decided within a year or so, even though the matter is complex. That is working I think because a) the system is attuned.

The entire holistic system arbitration, be the arbitrator, institution or the parties, they are subjected to certain discipline which need to come in. Therefore if you look at these experiences outside India and in India, would you not think twice that I wish there is some period or time limit laid down for disposal of those cases? 

Now that may sound very unrealistic given our way of thinking. We can debate on 12 months or 18 months but from business point of view, we definitely would like a certainty within which the matter will get resolved and that too of a commercial nature.

Doshi: You are affectively saying that despite the pitfalls or the flaws that have been pointed by Justice Shah, been seconded by Mr. Saraf, you feel comforted by the fact that there is now a fixed timeline?

Gupta: Yes. Whether it works or not because many statutes have provided for time limits and that did not work. So, going by Indian experience I don’t think it is going to work but I would like to have certain guidelines if I were to say this where there is definitiveness about resolution of a dispute.

Doshi: How would you respond to that concern? This is the concern coming from those for whom arbitration is a material issue?

Shah: Delay is a material issue. The question is whether fixing timelines is a solution. Secondly, this whole idea of incentive to the arbitrators if they decide the matter in a particular time is dangerous. Justice delayed is justice denied but justice hurried is also justice buried. The other problem is that arbitration culture is completely missing in this country. Arbitrations are treated like a traditional litigation; where is the commitment either from the arbitrators or from the legal fraternity to decide the arbitrations in timely manner.

Civil Procedure Code (CPC), Evidence Act all this is excluded by the arbitration law but with so many retired judges doing arbitrations, all these technicalities are brought back in the arbitration. The whole attempt of the commission was to remove all these technicalities which become hurdles in timely decision in deciding the arbitration in a timely manner.

Doshi: Barring this provision, can we examine the ordinance for the other provisions that also include strict timelines and see whether in themselves they are sufficient to provide for speedier arbitrations. For instance if I may bring up, the amendments to Section 9 and 17 which have to do with interim measures, of course the purpose of those amendments is far broader but there as well you can see that it says that the arbitration must commence within 90 days of the court passing an interim measure order.

The Section 24 amendment which says as far as possible hold oral hearings on a day-to-day basis and do not grant any adjournments and impose costs on parties seeking adjournments without sufficient causes. If you were to take out this fixed time limit bit and look at the other provisions that include fixed timelines of some sort would they in themselves be enough to create speedier arbitrations?

Saraf: They won’t be enough but they are certainly a step in the right direction. Very often earlier, a party used to take an interim order and then not even commence arbitration proceedings. For days together they never used to commence arbitration proceedings though the Supreme Court had said that you must take immediate steps for commencing arbitrations proceedings. There was no deterrent on the party who has already secured an order. So, now there is a compulsory provision that you must go to arbitration and you cannot sit over an interim order.

Similarly, there are also timelines prescribed for the courts for disposing off proceedings. Like Section 11 proceeding for appointment of an arbitrator must be disposed off in 60 days. I understand that these may not be strictly adhered to but there is certainly now a principle which is laid down in the ordinance which will weigh with on the minds of the court that I have timeline to meet, a challenge petition must be decided within one year.

So, these are timelines which will certainly help in bringing about a mindset of arbitration both for the courts as well as the parties that they must expedite. However, certainly this day-to-day hearing part of it which is provided in the ordinance, I think is over monitoring an arbitration and to some extent I feel it is an interference with party autonomy because how an arbitration should be conducted should be left for the convenience of the parties and the arbitrator as long as it is done expeditiously.

Doshi: What is curious about the amendments to Section 9 and 17 was that the law commission had in fact set a limit of 60 days saying that the arbitration must commence within 60 days of the court passing an interim order and if it doesn’t then the interim measures would lapse thereafter. What has been included in the ordinance is 90 days instead of 60 days and the provision for the interim measures to lapse have not been included from what I understand. So in some senses where you did make fairly solid recommendations to stick to stricter timelines, maybe not all of them have been adopted in entirety whereas this fixed time limit thing has been imposed when you didn’t make the recommendation.

Shah: Some provisions might not have been adopted and these are according to me not very major issues. For example, we have recommended that Section 11 should be decided by 60 days but new Section 11, the courts role is very limited. The court has to just satisfy whether prima facie an arbitration agreement exists between the parties and that need not take much time and then it can be easily decided. The whole idea of this 60 days or 90 days timeline to be brought in Section 9 or Section 17 is to start the arbitration immediately. Efforts must be made in different ways. The idea that if you don’t decide, then the arbitration will come to an end, that is not a correct solution according to me.

Doshi: You have heard all the concerns, do you feel confident at the end of this ordinance when you read it that things will get done quicker whether because of this one provision or several other provisions that have timelines?

Gupta: I am only hoping but I don’t think it is going to work like that because as you use the right word convenience, if it is convenient to one side of the party, he would like to use that convenience to defeat finality in the matter and that is the problem.

Doshi: If parties did want to finish arbitrations quickly you would have never needed a law to tell you this is the timeline within which you have to finish.

Gupta: Precisely and that is the context I am talking about.

Doshi: And that is the missing culture that Justice Shah talks about as well.

Gupta: So therefore if that missing culture – that is why the arbitration has not taken off in India, the reason is I don’t know whether it is going to work and even if I get an arbitration award, how I am going to enforce it, on what grounds it is going to be challenged. So, therefore despite the fact that we know this is the most effective way of bringing about commercial disputes to a rest, it doesn’t work like that. Everybody is looking for a judicial order because there is finality attached to it, there is some sanction attached to it and that is the problem there.

So, the way the scheme has been framed, it is not a pure arbitration law where parties would decide amongst themselves but where judicial intervention is brought in, is a good future in my view because if the parties are going adrift, people can go to court and bring them on line. So, the whole intention should be resolution of dispute through this mechanism. As the system would mature perhaps we will have further refinement of this act where judicial intervention would be further reduced.

ARBITRATION ACT AMENDED!

SC in Saw Pipes Case (2003)
- ‘Public policy of India’ includes ‘patent illegality’
- ‘Patent illegality’ sufficient grounds for setting aside an arbitral award

Subsequent SC decisions extended this view to foreign arbitral awards as well

ARBITRATION ACT AMENDED!

Ordinance says

A Court can set aside an award as against ‘public policy of India’ only if

it is affected by fraud or corruption or

is in contravention with the fundamental policy  of Indian law or

is in conflict with the most basic notions of morality or justice

No review on the merits of the dispute

ARBITRATION ACT AMENDED!

Ordinance says

Indian arbitral awards can also be set aside on grounds of ‘patent illegality’

But an award shall not be set aside merely on grounds of erroneous application of law or by re-appreciation of evidence

Filing of an application to set aside an award does not render the award unenforceable unless the Court grants an order of stay

In 2003 in the Saw Pipes Case the Supreme Court allowed for a domestic arbitral award to be challenged on grounds of patent illegality thereby expanding the scope of public policy as a ground for setting aside an arbitral award. Subsequent Supreme Court decisions extended that view to foreign arbitral awards as well opening the door to increased judicial intervention in arbitration. The ordinance now seeks to limit judicial intervention by providing that a court can set aside an award as against public policy of India only if it is affected by fraud or corruption or is in contravention with the fundamental policy of Indian law or is in conflict with the most basic notions of morality or justice. It also clarifies that determining whether an award is in contravention to the fundamental policy of Indian law shall not entail a review on the merits of the dispute. Only Indian arbitral awards can now be set aside on grounds of patent illegality but not merely on grounds of erroneous application of law or by re-appreciation of evidence. Finally the amendments also provide that filing of an application to set aside an award does not render the award unenforceable unless the court grants an order of stay.

Shah: Just let me explain this aspect. As I said that the problem is with the court expansively reading the powers to interfere with the award. In as far as back as 1994 the Supreme Court said that the award will be set aside on the ground that it is opposed to public policy. If either it is against the fundamental policy of Indian law or against national interest and lastly if it is against morality or justice. So, we further restricted this to say that only when it is opposed to fundamental policy of Indian law or the very basic concepts of morality and justice, say child labour or say which is universally considered as immoral and unjust and not mere what the judge feels what is just and what is moral. So, therefore we said very basic notions of morality and justice.

Then we also clarified that the review on merit is not permissible under public policy, that is in view of the decision in Western Geco a supplementary report was made by the law commission which was accepted by the government. So, today the interference in a international commercial arbitration is extremely limited. As far as the domestic arbitration are concerned it is the view of the commission that the powers of the court should be slightly broader than when it is with the international commercial arbitration. Therefore we recommended that there should a separate, that is 34 (II)(A) that the award is vitiated by patent illegality, these are the words used. And it is also clarified that mere wrong application of law is not a sufficient ground for setting aside the award. It is not permissible for the court to re-appreciate the evidence and on that basis set aside the award. So, even that 34 (II)(A) is a very restrictive ground but believe me at the way in which some of these awards are passed in this country there has to be some power with the court to intervene and set aside a completely perverse or completely illegal award. So, that is very necessary. Therefore we try to make a distinction between the courts' power in dealing with the international commercial arbitration and the courts power in dealing purely domestic awards. And I feel that this has restricted the scope of interference to a large extent.

Doshi: First up, when I was talking to a few arbitrators, lawyers, senior counsels in Mumbai some of them raised issue with the wording of fundamental policy of Indian law or in conflict with the most basic notions of morality or justice. So, they said what is the difference between basic notions of morality and justice and most basic? Now it may seem that I am splitting hairs here but these are things that do end up litigated in court. So, I want to get your view on what you think of the attempt to limit the scope of judicial interference. Is it a successful one based on what the law commission recommended and what the ordinance has adopted?

Saraf: All this depends on with what mindset the courts interpret these provisions. It is important that the courts interpret these provisions in the spirit in which they have been incorporated. Otherwise take a word, patent illegality. Anything can be patently illegal. Now, while the law commission and the ordinance says that erroneous application of the law will not be a ground. Now, what is an erroneous application of law and what patent illegality is a very thin line. So, if the courts want to expand even in the 1996 act error of law was not a ground available as a ground under the 1996 act but it is the court judgments which interpreted public policy of India to bring about an error of law as a ground in the provision. So, if the courts want to expand this anything can get expanded. This word fundamental policy of Indian law can be expanded.

Doshi: Most basic notions and not just basic notions.

Saraf: Very often we have seen that the courts have heard arbitration challenges, like a first appeal decided whether to set it aside or not and then gone reverse to fit it into one of the grounds, that is how it works. So, it is ultimately how the courts will as much as Justice Shah spoke about the arbitration culture it will have to develop with all the participants in the arbitration; the parties, the arbitrators, the lawyers and also the courts. So, without that these provisions are not going to curtail judicial interventions.

Doshi: Your experience of having to get judges in India to not interfere as opposed to, let us say, anywhere else in the world when you do a foreign seated arbitration. Do you ever hear a judiciary wanting to step in on any of these grounds, whether it is fundamental policy or most basic notions of morality and justice or patent illegality?

Gupta: First of all judiciary intervenes at the instance of the party. They don't do it on their own. And the question is they interfere only when they find there is merit in it.

Doshi: Let me rephrase my question. What could be in an ordinance if at all the ordinance or a law is an answer to this problem what provision would have been better than this. So, is this the best we could have had to narrow the scope of judicial interference?

Gupta: Left to ourselves we need to be very specific listed down but then the challenge is human limitation of thinking through and anticipating all possible reason on which it can be challenged. So, that is the real challenge. That is why the word of general expression are normally used but these expressions are not desirable expressions at all for the purpose of bringing about finality within a defined period of time.

Doshi: Similar provisions or similar recommendations have been made for foreign arbitral awards as well that is judicial intervention in foreign arbitral awards if I understand that correctly. Your last word on this issue of judicial interference. Are we going to see courts and judges interpret this ordinance and this provision in the right spirit and therefore reduce the interference?

Shah: I agree with Mr Saraf that there is also a need to change of mindset of the judges in dealing with the arbitrations.

Doshi: Is that going to happen?

Shah: I hope that it will happen. Just see in Renusagar when the court defined the public policy the subsequent judgment in Lal Mahal a two judge bench headed by Justice Lodha held that Saw Pipes would also apply to international commercial arbitration but surprisingly the three judge bench presided over by Justice Lodha ultimately acknowledged that this RBI decision was erroneous and the international commercial arbitrations award should be tested on the basis of the law laid down by Renusagar and it is a much restricted ground and believe me Renusagar has worked well. By and large the interference with the international commercial arbitration is much less than that it is in the domestic award. Hopefully we have further restricted the grounds as defined in Renusagar. So, hopefully there would be some change in the approach of the court as well.

ARBITRATION ACT AMENDED!

Ordinance says
Supreme Court/High Courts to appoint arbitrators
- Designation of power to appoint is not delegation of judicial duties
- Appointment will be final and not subject to appeal

Court shall confine itself to examination of existence of arbitration agreement

ARBITRATION ACT AMENDED!

Ordinance says

Pre-appointment disclosure by arbitrator on
- qualifications
- independence, impartiality
- time available to complete arbitration within 12 months

ARBITRATION ACT AMENDED!

Ordinance says

Schedule V lists criteria for independence and impartiality

  • To be disclosed by arbitrator

Schedule VII lists relationships that create conflicts of interest

  • Render arbitrator ineligible

ARBITRATION ACT AMENDED!

Ordinance says

High Court may frame rules to determine fees payable to arbitrators

Schedule IV proposes fee slabs ranging from 0.5 – 3.5% of dispute amounts

The appointment of an arbitrator is now the job of the higher courts. The ordinance also permits a court to designate the same power to a person or institution and such designation is neither delegation of judicial duties nor open to appeal. It also limits the court to confine itself of the existence of the arbitration agreement only. Together the mended sections 11 and 12 provide for a pre-appointment disclosure by the arbitrator regarding qualification, independence and impartiality and time available to complete the arbitration in 12 months. India will be the first country to implement the International Bar Association (IBA) to determine conflict of interest and hence the independence of the arbitrator. Also, it is the first time that India has introduced a fixed fee for arbitrators.

Shah: Now, the fixed fee is not something that is unique. For example, ICC has a fixed fee schedule. There are many arbitration institutions which prescribe a fixed fee schedule depending upon the quantum of the claim. There is nothing extraordinary about it and what the ordinance says or what the amendment says that the court may fix the fees and having regard to the fee schedule and the fee schedule is reasonably good. That is improved upon the existing fee schedules of Delhi High Courts, Madras and Punjab High Courts. So, according to me it is a very reasonable fee and it is to be revised every three years or five years.

Secondly as far as conflict of interest is concerned what we have incorporated is the IBA guidelines. They are called orange list and the red list. If it falls in the red list then simply arbitrator his appointment is void. The arbitrator cannot be appointed. Insofar as orange list is concerned arbitrator is obliged to disclose whether there is any conflict of interest. India is the only country where the officer of a party or past employee or the serving employee is appointed as an arbitrator. This practice is prevalent in the public sector. So, the commission is of the opinion that such practice should be completely discontinued. A party cannot be an arbitrator in his own case. Similarly a party's own employee or official cannot be an arbitrator in the process of adjudication. So, I feel that this would really help in enhancing the independence or the test of impartiality or integrity of the arbitrator.

Doshi: Are we going to end up with different high courts having different fee structures because effectively it has been left up to the high court with the reference to the schedule of fees that has been laid down in the ordinance. So, you are going to have to answer this from both points of view. A lawyer involved in several arbitration cases as well as an arbitrator. So, your fee is now going to be determined by this.

Saraf: Honestly in India the fees and the issue about fees had reached a situation of a menace.

Doshi: Were you being paid too much or too little?

Saraf: Not me, but it was an issue which was there in large number of arbitration where the fees were going out of hand and the arbitration was becoming too expensive.

Doshi: But companies or clients have the choice not to go to those arbitrators. Why must we behave or pretend as if this was being forced down their throat?

Saraf: That is exactly the point I was coming to that institutions have a fee structure. While in India we have now introduced what I feel is a statutory institutionalisation. In India because there were no institutional arbitration the statutes have kind of created an arbitral institution now laying down all guidelines.

Doshi: Timelines, fees, processes.

Saraf: Yes, section 12 about the impartiality and everything is laid down in a statute. Now, instead of that I feel the government should have encouraged a vibrant institution coming up in India which would have monitored all this.

Doshi: We do have some institutions that are doing good work, right?

Saraf: We could have encouraged them, we have institutions in Singapore, London. We could have encouraged that, but I really do not feel that this kind of statutory institutionalisation is a very healthy thing because it is not there in any other statute. This is like almost having a court governed tribunal in everything from fees to every aspect. And also the impartiality issues is certainly going to reduce the pool of arbitrators to a great extent and it is likely to be abused because suppose the former judge had given an opinion to one party two years back on a completely unrelated issue and he discloses that as a ground of impartiality which I don't think is a ground at all, the other side who wants to have him removed might just raise an objection and say I have an objection to you continuing as an arbitrator and there goes an arbitrator from that. So, there is a great likelihood of abuse to these principles.

Shah: These guidelines work very well. These guidelines are followed all over the world. No one finds any problems with these. The impartiality and integrity and independence of the arbitrators are very important matters. I can just give you one example. It has come to notice that certain corporate bodies are appointing same arbitrators in matters after matters. Therefore what we have provided the arbitrator has been appointed, has acted as arbitrator for this particular party more than three times or four times he should disclose this. The other party still may accept him as arbitrator. But we should apply international standards for determining the independence and integrity of the arbitrator.

Saraf: I do not say no. All I mean is why in a statute like this. These are best left to the institutions which govern that.

Shah: There is no institutional arbitration in India. And the other problem is you have some institutions, I don't want to name them. But tell me one institution in India which can be said to be on par with CIA, London or ICC or any other international arbitration institution. So, actually in the report we have recommended to the government - in fact there are some provisions which were recommended by the commission to encourage institutional arbitrations. Unfortunately they are not incorporated.

Saraf: That is precisely what I meant that we should rather than incorporating such provisions in a statute the government should have taken steps to encourage an institution to be set up which could have monitored and governed all this. That was the need, not a statute in this regard.

Shah: Absolutely true.

Gupta: It is a baby step. You have to look at the perspective. Number one is where will the institution be created, what sanction authority would they have, would they enjoy their respect of their communities at large.

Doshi: Are you happy with fixed fee?

Gupta: Actually I am happy on all fronts on three. Number one, the fees part of it, disclosure of conflict of interest because then I don't have to rake up my mind. Is the arbitrator good, not bad? Are they going to be impartial or not?

Doshi: So, you like them because the provisions are for very extensive disclosures to be honest. A; there is a pre-appointment disclosure. Then you have to fill up a full form and make all these disclosures. Disclosures are never bad, I am not opposed to it but this will give you more comfort?

Gupta: Absolutely and secondly from an arbitrator point of view also something may strike his mine and he is debating whether I disclose it or not. It may not strictly be a disclosable thing but if you lay down the factors to be considered it is easier for him to say, oh I see, I need to declare it. So, I personally feel it is good for the arbitrators and it is good for the parties.

Doshi: You are also happy with the reduced judicial intervention at least on paper?

Gupta: No, absolutely I am actually.

Doshi: I know there is a different view on that slightly. When we discuss the core issue of setting aside an arbitral award or not. There it does seem on paper that judicial intervention has reduced but otherwise your argument is that at various steps these amendments take the process back to court and keep involving the court in the process so to speak. So the court is the monitor.

Saraf: Including 29A where at every stage of delay the court is a monitor.

Doshi: That is a little counterproductive?

Saraf: Yes, it is.

Gupta: It is counterproductive and it could be productive depending…

Doshi: But you are still seeking comfort in the court. Then why go for arbitration at all. Then deploy litigation as your best tool, right?

Gupta: Ideally speaking I would go for arbitration as I do for international arbitration in LCI and others. So, why? Because, it works. So, therefore you come to this conclusion, some kind of supervision at this point in time as we evolve is important.

ARBITRATION ACT AMENDED!                  

Ordinance says

Filing of an application to set aside an award does not render the award unenforceable unless the Court grants an order of stay
New section on costs
- Court/arbitrators can award costs
- As general rule the unsuccessful party to pay costs (with exceptions)
- When determining costs, can consider if settlement offer rejected

The other important amendments introduced by the ordinance are measures that will help expedite arbitrations. For instance, the ordinance provides that the filing of an application to set aside an arbitral award does not render the award unenforceable unless the court grants an order of stay.

A new section on costs empowers the courts or arbitrators to order the unsuccessful party to pay costs. In determining the costs, arbitrators may also consider whether any reasonable offer of settlement was made and rejected.

Shah: Just few aspects I would mention, there won’t be any automatic stay on filing a petition under 34. So, parties will have to apply for stay; that is a very important provision. Otherwise every award is being challenged in the court of law and the moment it is challenged it becomes non-executable. This has been changed now so if the party seeks to get stay of the award, it will have to apply and the court will consider the application in accordance with the CPC principles, broad principles under the CPC.

Second important aspect is that now the award of actual cost is made almost mandatory. There are many times, the defenses before the tribunal or the proceedings which are taken to the court are completely frivolous and ultimately when such proceedings are dismissed, the other side must get actual cost. This would discourage the parties from filing frivolous petitions in the court of law.

Doshi: I am guessing the reason for why this has been brought through or brought about through an ordinance is because the government is very keen to be able to fix this broken system of arbitration and hence project an improved ease of doing business in India because it was amongst the top complaints that foreign investors had along with domestic investors and large groups. Is this going to be a dramatic improvement to the process that we have today?

Saraf: Surely this is going to bring about a big change. It has shaken up a lot of people, the litigants, the arbitrators. It now cannot have a system where an arbitrator has around 40 arbitrations and he does it at his own convenience. So, it is now going to be a big step in the improvement of arbitrations in India. This is welcome step; it is a step in the right direction. I only hope that the implementation of it is done in the same spirit, with the same purpose and ultimately if we continue with that spirit, we will surely see India soon as an arbitration center.

Gupta: I completely echo views expressed by Birendra. Another point which I will bring about, very interesting and I will come that is you are asking the arbitrator before he enters into arbitration, can you finish? That brings about a degree of responsibility that you really want to bring about. I think these are very good features to my mind, the only thing is people are cynical to start with because they have tried many systems, they did not work but it has many good features.

Doshi: I know that you raised the issue of whether this applies prospectively or retrospectively as a question that is yet to be answered and we will only find out in time why the government chose not to include the section that the law commission had recommended but I am going to give the final word to you on this. When we first started and we started by speaking of fixed timelines, you said that that issue or that provision really negates all the other benefits of these amendments. What would you say as your last word on this debate? Have we made a big jump forward in improving arbitration?

Shah: Yes of course, the big jump is that after 16 long years the government has finally accepted the law commissions report because the process of amendments started in 1999, we are in 2015, so this government has taken that initiative and introduced an ordinance on the basis of the report that is a very welcome step. My only worry is about this timelines and the lack of clarity on the retrospectivity or prospectivity of the particular provisions of the law.

However, I hope that with this new regime there is some hope of improving the arbitration culture in India. It has really shaken up the legal community in the sense that the when I meet the other judges and this all matter of discussion about the timelines and the other provisions. So, it will bring some change in the mindset and that is needed to have a successful arbitration system in India.

 
Twitter


 
Copyright © e-Eighteen.com Ltd. All rights reserved. Reproduction of news articles, photos, videos or any other content in whole or in part in any form or medium without express written permission of moneycontrol.com is prohibited.