ABSTRACT
The Arbitration and Conciliation Act of 1996, which governs arbitration proceedings in India, has undergone several significant reforms to make arbitration an efficient, reliable, and internationally compatible means of dispute resolution. Such reforms pertinently reflect the Country’s commitment to creating a conducive legal skeletal for arbitration while aligning with the universal standards, to foster a pro-arbitration regime.
In recent years, with a sudden boost in the infrastructure and construction industry, there has been an evident increase in global competitiveness and challenges associated with the construction of developmental projects. As a result of such development in the infrastructure and construction industry and as a continuous endeavor to promote ease of doing business across the globe. On June 12, 2023, the Ministry of Law & Justice formed a sixteen-member expert committee, chaired by Dr. T.K. Vishwanathan, a former Secretary of the Department of Legal Affairs, to assess the effectiveness of arbitration law in India and propose reforms to the Arbitration and Conciliation Act, 1996. The committee meticulously considered a range of recommendations, carried out additional research, and evaluated best practices from both national and international perspectives before delivering its report on February 7, 2024. It is expected that the proposed changes are geared towards making arbitration a further appealing option for the resolution of commercial disputes, both domestic and international, by transforming the entire process into a swift, cost-effective, and less susceptible to unnecessary legal hurdles. However, the effectiveness of such proposed reforms in achieving their intended outcomes continues to be a subject of analysis and review within the legal and business fraternity.
INTRODUCTION
The history of arbitration legislation in India dates back to the colonial era, with the enactment of the Arbitration Act, 1899 which was primarily based upon the English Arbitration Act, 1889. Over time, India’s arbitration laws evolved, resulting in the enactment of the Arbitration Act, 1940, which replaced the Act of 1899. The 1940 Act was influenced by the English Arbitration Act of 1934 and primarily dealt with domestic arbitrations. However, the Nation recognized the need for a contemporary and comprehensive legal framework to govern the arbitration mechanism which led to the formulation of the Arbitration & Conciliation Act, 1996 based upon the UNCITRAL Model Law on International Commercial Arbitration and the existing Arbitration Act, 1940 was thereby replaced.
Since its advent, the Arbitration & Conciliation Act, 1996 has undergone several significant reforms to make arbitration mechanism more efficient, reliable, and an internationally compatible means of Dispute Resolution. These reforms reflect India’s commitment to creating a conducive legal framework for arbitration while aligning with the global standards to foster a pro-arbitration regime. The primary objectives of these reforms have been to minimize judicial intervention in arbitration processes, streamline the arbitration procedure, and develop India into a more attractive destination for International Commercial Arbitration. Some of the key reforms include:
The Amendment of 2015: The 2015 amendment of the Arbitration & Conciliation Act, 1996, marked a significant milestone in the evolution of dispute resolution and arbitration legislation in India. One of the key provisions of the amendment was the introduction of fast-tracking arbitration and allowing the Parties under dispute to resolve their differences within a specified timeframe. The amendment also focused on enhancing the autonomy of the arbitration processes while also ensuring the neutrality of the arbitrators by clarifying the grounds for challenging an arbitrator, thereby aiming to reduce conflict of interest between the Parties and the Arbitrator. The amendment moreover emphasized the importance of institutional arbitration by facilitating the establishment of arbitral institutions to administer the arbitration proceedings in the Country. Overall, the 2015 amendment marked a significant step towards modernizing the arbitration legislation of the Country while promoting Arbitration as a preferred method of resolving disputes between contracting Parties.
The Amendment of 2019: The 2019 amendment of the 1996 Act marked the second milestone in the evolution of Arbitration laws in India. It brought further enhancement to streamline the arbitration proceedings and strengthen the enforceability of arbitral awards by addressing issues related to confidentiality by allowing the Parties in dispute to possess greater flexibility in determining the confidentiality of arbitration proceedings. Additionally, the amendment sought to tackle the issue of excessive delays in adjudication of disputes by imposing stricter timelines for the completion of arbitral proceedings and the rendering of awards. The 2019 amendment also established the Arbitration Council of India (ACI) to grade arbitration institutions and accredit arbitrators. The amendment while fixing the loopholes of the 2015 amendment also enacted the provisions pertaining to appointment of arbitrators by arbitral institutions. The amendment clearly specified that in case of international commercial arbitration, the arbitral institutions designated by the SC will, on an application made by a Party, appoint the arbitrator(s), and in case of other arbitrations, the arbitrator(s) will be appointed by arbitral institutions designated by the High Court. However, if there are no arbitral institutions in the jurisdiction of the High Court, the Chief Justice of that High Court may maintain a panel of arbitrators for discharging the functions of an arbitral institution. The 2019 amendment therefore played a pivotal role in fostering and developing the existing arbitration legislation in India and has sought to develop arbitration as a preferred method for resolution of differences between the Parties.
The Amendment of 2021: The 2021 amendment to the Act primarily removed the Eighth Schedule, which had been introduced by the 2019 Amendments and outlined the qualifications for arbitrator appointments. The Eighth Schedule faced significant criticism for being restrictive and ambiguous, particularly regarding the appointment of foreign arbitrators in India-seated arbitrations. Its removal is broadly seen as a positive move towards encouraging arbitration in India.
FORMATION OF EXPERT COMMITTEE BY THE GOVERNMENT AND THE NEED FOR AMENDMENT IN THE EXISTING PROVISION
In recent years, India has witnessed significant strides in infrastructure development, bolstered by ambitious initiatives. Due to such developments in various sectors and issues such as changes in international arbitration standards, emerging technologies impacting dispute resolution, practical implementation of issues, and addressing the shortcomings in the Act identified by various courts and arbitral institutions while adjudicating the disputes between Parties, there emerges a necessity for revision in the existing provisions of the Act to ensure that the Act remains relevant, effective and conductive to fair and efficient arbitration proceedings. Given the factors mentioned above, an Expert Committee was constituted by the Department of Legal Affairs, Ministry of Law & Justice, Government of India on 12th June 2023, to consider reforms with the Arbitration and Conciliation Act, 1996. The expert committee features a team of legal specialists, with Dr. TK Vishwanathan serving as the chairman and DK Singh, CCA from the Department of Legal Affairs, as the convener. It also includes notable members such as Mr. N Venkatraman, Additional Solicitor General of India, Mr. Gourab Banerji, and Mr. AK Ganguli, Senior Advocates, as well as representatives from respected organizations like NITI Aayog, the Ministry of Railways, and the Ministry of Housing & Urban Affairs, among others.
The expert committee has been entrusted with a comprehensive set of terms of reference to guide its work which includes:
Assessing the existing arbitration landscape in India, comparing it with international standards, and identifying its strengths, weakenesses and challenges.
Suggesting a framework for an ideal arbitration system that is efficient, effective, cost-effective, and fulfills user needs.
Formulating strategies to cultivate a competitive environment in the arbitration services market for both domestic and international parties, with an emphasis on cost-effective arbitration and the advancement of arbitration professionals.
Recommending steps to accelerate the enforcement of arbitral awards, including changes to current provisions regarding the annulment of awards and appeals.
Proposing statutory measures to reduce reliance on judicial authorities and courts in arbitration-related dispute resolution processes.
Recommending an administrative mechanism or standard operating procedure (SOP) to limit routine government challenges to arbitral awards.
Recommending principles for setting costs and fees in arbitration.
Formulating a charter of duties to direct arbitral tribunals, parties, and arbitral institutions.
Assessing the feasibility of implementing distinct laws for domestic and international arbitration, as well as for the enforcement of foreign awards.
OBSERVATIONS OF THE COMMITTEE
The Committee noted that the 1996 Act has been updated multiple times—specifically in 2015, 2019, and 2021—to stay aligned with global and contemporary trends in arbitration. The latest proposed changes are intended to enhance institutional arbitration, update the law to incorporate best global practices, and resolve existing ambiguities. These amendments aim to foster a thriving arbitration environment by promoting timely arbitration processes, reducing judicial interference, and improving the enforcement of arbitral awards. Recognizing that legal reform is an ongoing endeavor requiring active participation from all stakeholders, the Committee recommended a comprehensive approach, which includes: (i) implementing both existing and proposed changes to the Act; (ii) ongoing oversight by the Ministry of Law and the Arbitration Council regarding the Act's performance; (iii) gathering data to evaluate the effectiveness of the amendments; and (iv) fostering a change in attitudes among all involved parties.
CONCLUSION
The committee has submitted a comprehensive report proposing amendments to the current Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the Act"). While the majority of the recommended changes by the Committee are positive steps that will undoubtedly enhance the act for better implementation, there are certain points where the committee's recommendations are lacking.
1. Amendment to the Preamble and the Short title of the Act.
Through this recommendation, the committee intends to omit the word “conciliation’ from the Preamble and Title of the Act to bring the Act in consonance with the Mediation Act 2023. However, the committee overlooks the distinction between mediation and conciliation according to international standards. Conciliation involves a neutral third party actively facilitating a settlement, whereas mediation entails the neutral third party serving as a facilitator without an active role.
Furthermore, after the enactment of the new Mediation Act, of 2023, the mediation in India has taken stepped into the role of conciliation, to the extent that the role of mediator now is identical to the role of conciliator. Legal procedures, including enforcement of settlement agreements, previously associated with conciliation, are now being applied to mediation. However, the committee fails to recognize that conciliation was never a popular choice for dispute resolution in India. By merging legal formalities from conciliation into mediation, the legislature has compromised the simplicity and efficiency of mediation. This approach carries significant risk and warrants careful consideration.
2. Time for disposal of an Application under section 8
The committee recommended a timeline of 60 days for the disposal of the application under section 8. The committee observed that in practice, an application under section 8 takes a long time to get decided and thus it proposed the time. However, the language of the proposed recommendation is vague and unclear rendering the rationale behind the proposed changes ineffective. The committee used the words “endeavor shall be made to dispose of the matter within a period of sixty days from the date of the application”. The committee used language suggesting that efforts should be made to dispose of the matter within 60 days, rather than mandating disposal within the specified timeframe. Despite using the term “shall,” the clause essentially functions as “may,” as it does not explicitly require disposal within 60 days.
It is therefore proposed that if the committee truly aims to address the issue of pending applications under section 8, it should either revise the recommended provision for clarity or offer alternative measures in case applications are not disposed of within the specified timeframe. The Committee could take similar approach that it has taken for the proposed amendment to section 9.
3. Provision for appeal under Section 37 for rejection of the Application under Section 13 and Section 16
Repeatedly, the courts of our nation and legislative bodies, through the Amendment Acts of 2015 and 2019, have emphasized the principles of Party Autonomy, minimal Court Interference, and the sanctity of Arbitral Tribunal decisions to enhance the effectiveness and efficiency of Arbitration as a dispute resolution mechanism. However, the committee’s recommendation for an appeal provision against Arbitral Tribunal decisions undermines these efforts, rendering them ineffective. Introducing appeals at every stage, which would be used as a sword by the party, would inevitably prolong the dispute resolution process, potentially resulting in injustice for one party. This approach not only consumes time but also incurs unnecessary costs.
4. Power of the court to vary the Arbitral Award.
It is reiterated that minimum court interference is one of the foremost principles in arbitration as propounded by the previous amendment act and the Courts. The committee has empowered the courts to alter the award to “meet the ends of justice” which leaves the scope quite broad. Only the term exceptional has been used but the subsequent requirement to meet the ends of justice will inevitably leave the aggrieved party at liberty to approach the court. This undermines the right of party autonomy (because it was the parties who decided to approach the arbitrator to resolve the disputes instead of the court) and the finality of the Arbitral award, both of which are considered as pillars of Arbitration.
The above article is authored by Mr. Ankit Konwar, Principal Associate, Ms. Darshita Sethia, Associate and Nishi Kashyap, Associate.
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