The Arbitration Act of 1940 was replaced by the Arbitration and Conciliation Act of 1996 in order to address the problems and obstacles encountered when looking for alternative conflict settlement procedures. To stay up with the advancements in alternative dispute resolution in both local and international law, The Arbitration and Conciliation Act of 1996 has undergone modifications. The Arbitration and Conciliation Act of 1996, its revisions, their effects, and any necessary future adjustments will be the main topics of this research article. The potential areas for advancement in the alternative dispute resolution system, particularly arbitration, have also been addressed in this article. Additionally, it compares Indian arbitration law to American and British arbitration law and gives a brief historical overview of the Indian arbitration system. This article also highlights the potential misuse or challenges that the recent amendments could face.
Introduction
Arbitration is the root of the Indian justice system and is practiced in rural and urban areas since time immemorial. According to Muslim law, the work of arbitration would be overlooked by a Hakam, and the Qazi, the official judge, would deliver the arbitral award provided he was satisfied with the same by the Hakam in terms of validity and legality. The Hindu Law was resolved through Panchayats where the Sarpanch would resolve the disputes by arbitration and mediation, without any involvement or interference by the court.[1]
The Arbitration and Conciliation Act, 1996 (hereinafter called the 1996 Act), is a principal legislation which is the law on domestic and international arbitration, and the law to enforce the foreign arbitral awards.[2] The Ministry of Law & Justice did the inclusion of the 1996 Act to reduce the influence and intervention of the judiciary in the ADR mechanism, especially in arbitration. The aim of the amendments was to overcome the practical issues which arise in the arbitration proceedings, at the same time to ensure the needs of the trade and commerce. The future of arbitration promises to save the excessive burden on the courts and to have a combination of the legislature and judiciary to take care of arbitration efforts..
Statement of Problem
The fundamental problems faced within the arbitration and conciliation domain are the retrogressive amendments and the toing and froing of the judiciary and legislature. Accompanied by these is the problem of upholding speedy justice and prudent proceedings. Arbitration is one of the essential methods of reducing the burden on the judiciary and providing an alternative to the time- and resource-consuming judicial process, especially for commercial disputes within or outside India.
• To critically analyze the developments in The Arbitration and Conciliation Act of 1996.
• To put forward the changes necessary for the smooth functioning of ADR
• The reduction of the burden of the judiciary with its provisions
• To analyze the effectiveness of The Arbitration and Conciliation Act 1996
Research Questions
- What past amendments were made to The Arbitration and Conciliation Act of 1996?
- What is the scope of these amendments concerning commercial arbitration?
- How have the amendments impacted the Alternative Dispute Resolution mechanism?
- What are the possible changes to rectify the anomalies in The Arbitration and Conciliation Act of 1996?
Judicial Pronouncements
The legislature has made amendments to the 1996 Act over time, but its impact has also been shaped significantly by the judicial decisions in India. In the case of Bhatia International v. Bulk Trading S.A.[3], the Supreme Court ruled that Part I of the Act would apply to arbitrations conducted outside India unless the parties had explicitly excluded its application. The court reduced the applicability of Part I and Part II of the 1996 Act in Bharat Aluminium Co. Vs. Kaiser Aluminium Technical Services.[4] In the case of Hindustan Construction Company v. Union of India,[5] the Supreme Court declared the interpretation of the 1996 Act in the National Aluminium Company case invalid and unconstitutional, particularly regarding the new Section 87. It clarified that the 2015 Amendment to the 1996 Act would have prospective applications. The court’s decision in the case of BCCI v. Kochi Cricket Pvt. Ltd.[6] established the requirement for applications for a stay order to be filed under the amended Section 36, with no provision for automatic stay. The Supreme Court granted an automatic stay provision in the case of National Aluminium Company Ltd. (NALCO) v. Pressteel & Fabrications (P) Ltd.,[7] rendering an arbitral award inexecutable when the award-debtor challenges the award under Section 34 of the 1996 Act.
The rules that control arbitration in India are regulated by The Arbitration and Conciliation Act of 1996, in the USA by the Federal Arbitration Act of 1925, and in the UK by The Arbitration Act of 1996. The 1996 Act applies in India to both domestic and international arbitration; on the other hand, in the US and UK, they apply to domestic arbitration only, and then for international arbitration, they incorporate domestic law and the New York Convention.[8] The New York Convention is the regime for the enforcement of arbitral awards on a worldwide scale. The three laws provide a comprehensive and efficient structure and rules for arbitration and draw heavily upon the UNCITRAL Model Law. Some have described the UK Act as the most significant of the three laws. The UK Act does not define the term “Arbitration”. Interestingly, Lord Hurj believes that the definition is broad and all-encompassing and extends to the determination of the rights and obligations of parties to a binding and enforceable arbitration agreement.[9]
Critical Analysis
There was a strong feeling that the Arbitration Act of 1940 did not sufficiently meet the needs of the time and was subjected to criticism, especially by the Supreme Court of India. The Court pointed out the deficiencies of the 1940 Act in cases such as Guru Nanak Foundation v. Rattan Singh & Sons[10] and Raipur Development Authority v. Chokhamal Contractors,[11] stating that the Act was inefficient and complicated the arbitration process.
Recognizing these criticisms, the Arbitration and Conciliation Act of 1996 was enacted, relying heavily on the United Nations Commission on International Trade Law (UNCITRAL) Model Law of 1985.[12] The objective behind the introduction of the 1996 Act was to create a more efficient and effective arbitration system designed to cater to the needs of both domestic and international commercial arbitration. A significant characteristic of the Act of 1996 is the fact that it aligns with international standards, as the famous Section 5 of the 1996 Act and Article 5 of the UNCITRAL Model Law are nearly identical. Both encapsulate the concept of minimizing judicial interference in arbitral affairs and reiterating the overarching objective of the Act to have a fair and efficient arbitration procedure.
The 1996 Act is divided into four parts, with Part I regarding both domestic and international commercial arbitration. However, there is criticism of Section 2(1)(a)[13] of the Act which defines the term “arbitration” circularly, leaving it ambiguous. One of the unclear portions of the Act of 1996 regards the application of Part I to international commercial arbitrations which are conducted outside India. Section 2(2)[14] of the Act mentions that Part I applies to arbitrations where the place of arbitration is in India and does not give a direction with respect to international commercial arbitrations held outside India. The consequence of this ambiguity was that there were conflicting views of different High Courts in India, and finally, the Supreme Court had to decide the same. the Supreme Court held that unless the parties expressly excluded the application of Part I, it would apply even to arbitrations held outside India. This interpretation, however, was later overruled by the Supreme Court in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services,[15] where the Court clarified that Part I would not apply to international commercial arbitrations held outside India unless there was an express agreement to the contrary. The 1996 Act, therefore, represents a significant evolution in India’s arbitration law, striving to create a more robust and internationally aligned framework, while also addressing the various challenges and ambiguities that arose under the previous legislation.
Arbitration and Conciliation (Amendment) Act, 2015
The Supreme Court granted an automatic stay provision[16] in the National Aluminium Company Ltd. (NALCO) v. Pressteel & Fabrications (P) Ltd case.[17] which made an arbitral award inexecutable after the award-debtor challenged the award under Section 34[18] of the 1996 Act. This stay provision would continue, and the arbitral award would be set aside.[19] Until a court decided the challenge proceedings, the Law Commission, in its 246th Report, highlighted this issue and criticized the automatic stay provision. In its recommendation, the Law Commission sought to substitute Section 36 of the 1996 Act as due to the automatic stay provision, the purpose of alternate dispute resolution was defeated[20].
The Parliament amended the 1996 Act in 2015 based on the recommendations of the 246th Report and the power given to the civil courts by Order 41 Rule 5[21] of the Civil Procedure Code, 1908, to stay the execution of an arbitral award. The court imbibed the recommendations of the Law Commission in the case of BCCI v. Kochi Cricket Pvt. Ltd.[22] The court held that applications must be filed under the amended Section 36 for a stay order, and there would be no automatic stay provision.
Arbitration and Conciliation (Amendment) Act, 2019
The 2019 Amendment to the 1996 Act sought to reverse the court’s decision in BCCI v. Kochi Cricket Pvt. Ltd.[23] through the non-retrospective use of the 2015 Amendment by virtue of Section 87[24]. The Indian Government intended to make changes with the 2019 Amendment. In circumstances where a stay on the award of the award-debtor was refused the award-debtor could now use the mechanism of the automatic stay, also allowing award-debtors to enforce the award given to the award-creditor by virtue of Section 36 as amended by the 2019 Amendment.
In its judgment in Hindustan Construction Company v. Union of India[25] the Supreme Court declared the interpretation of the 1996 Act in the National Aluminium Company about this issue and the provision of Section 87 as unconstitutional and unwarranted. This was a progressive judgment as the 2019 Ordinance to the 1996 Act set back all the progressive amendments brought about by the 2015 Amendment and other cases.
Positive changes were made concerning arbitration, with establishing the Arbitral Council of India inclusions under Section 11[26] and Section 43[27]. Section 11 provides for the appointment of arbitrators. The inclusion of Section 42A preserves the confidentiality of the arbitration proceedings.
Arbitration and Conciliation (Amendment) Act, 2021
The Ministry of Law and Justice sought “to ensure that all the stakeholder parties get an opportunity to seek an unconditional stay of enforcement of arbitral awards, where the underlying arbitration agreement or contract or making of the arbitral award is induced by fraud or corruption”.
In Section 36(3),[28] the 2019 Amendment introduced further proviso. It says that when the making of the award is based on an arbitration agreement between the parties or the making of the award was induced or affected by fraud or corruption, then, on application by the party challenging the award, the Court has to grant an unconditional stay of the award until the challenge to the award is finally disposed of. The phrase “prima facie case of fraud or corruption” is not explained, which opens the interpretation to various meanings.
Age-wise pendency of arbitration cases in India in 2023
Required Changes
The 2021 Amendment has put up new obstacles to enforcing arbitral awards, and it has undone the changes that aimed to make enforcing arbitral awards easier. In cases of corruption or fraud, the amended Section 36 makes it hard to enforce an arbitral award. If a court handles an application under Section 36, it must form an initial opinion that the claimed fraud or corruption is untrue, and this process can take up to six years.[29] While the 2015 Amendment tried to make enforcing arbitral awards more flexible, the 2021 Amendment canceled these changes and made enforcing awards more rigid. The Legislature’s decision to get rid of the condition in Section 36 of the 1996 Act, which was added by the 2021 Amendment, has put it at odds with the Judiciary’s view. This clash of opinions is evident in the Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee[30] case. In this case, the court ruled that fraud claims against the arbitration contract or agreement wouldn’t affect the part of the contract that talks about arbitration.
The 2021 Amendment aimed at rectifying the drawbacks of the 2019 Amendment, but it also did away with the positive aspects of the 2015 Amendment. The 2021 Amendment might affect the relations with foreign investors, especially in international commercial arbitration cases. This will disrupt commercial arbitration proceedings and cause delays, so foreign parties might prefer other alternatives. With the advent of the 2021 Amendment, there is a retrogressive change, and it is not building confidence for arbitration or other alternative dispute resolution mechanisms. The parliament is not focusing on the right aspects, and doing away with the progressive changes of the 2015 Amendment is going back to square one.
The 2021 Amendment decreases the confidence in the arbitral process and the regime of arbitration, further, it is made worse by the ranking in the enforcement of contracts, where India got a rank of 163 out of 193[31]. The burden of responsibility lies upon the judiciary to strike a balance between the giving of arbitral awards and the integrity of the contracts.
With the removal of the VIII Schedule of the 1996 Act, there has been a compromise in the appointment procedure of the arbitrator. There is a need to ease or relax the method of enforcement of the arbitral award by using tactics which help in the furtherance of the same.
In the instance of a prima facie case, the party would be entitled for an unconditional stay on the award and removing the discretion for the balancing of the equities of the parties. The judicial discretion is being made futile and the awards granted hold no actual value. The legislature needs to lay down the degree to which the conclusions in the award can be examined or differed with; define what is the definition and extent of fraud and corruption under the 1996 Act; specify the effect of failure to raise such allegations before the arbitral tribunal or in Court proceedings. The 2021 Amendment negatively affects the rights of the award holder.[32] The arbitration process also requires speedy proceedings and relief to the party, keeping in mind minimal intervention by the judiciary.
[1] Panchayats and Dispute Resolution. (2023). In Ministry of Panchayati Raj. Ministry of Panchayati Raj.
[3] Bhatia International v. Bulk Trading S.A., (2002) 4 SCC 105
[4] Bhatia International v. Bulk Trading S.A., (2002) 4 SCC 105
[5] Bharat Aluminium Co. Vs Kaiser Aluminium Technical Services, 2010 1 SCC 72
[6] Hindustan Construction Company Limited v. Union of India, 2019 SCC OnLine SC 1520.
[7] National Aluminum Company Ltd. (NALCO) v. Pressteel & Fabrications (P) Ltd. and Anr. (2004) 1 SCC 540
[8] A.P. Singh, (2017), Choice Of Law: Problems In International Commercial Arbitration – Arbitration & Dispute Resolution – Worldwide, Mondaq, (Accessed: 11 Aug 2024), https://www.mondaq.com/india/arbitration-dispute-resolution/559850/choice-of-law-problems-in-international-commercial-arbitration
[9] OʹCallaghan v Coral Racing Ltd [1998] APP.L.R. 11/19.
[10] Guru Nanak Foundation v. Rattan Singh & Sons, AIR 1981 SC 2075.
[11] Raipur Development Authority v. Chokhamal Contractors, AIR 1990 SC 1426
[12] UNCITRAL Model Law on International Commercial Arbitration, G.A. Res. 61/ 33, U.N. Doc. A/RES/61/33
[13] The Arbitration and Conciliation Act, 1996, § 2(1)(a), No. 26 of 1996, Acts of Parliament, 1996 (India).
[14] The Arbitration and Conciliation Act, 1996, § 2(2), No. 26 of 1996, Acts of Parliament, 1996 (India).
[15] Bhatia International v. Bulk Trading S.A., (2002) 4 SCC 105
[16] Muskan Arora, Indian Supreme Court Strikes Down Automatic Stay Provisions for Good, Kluwer Arbitration Blog(https://arbitrationblog.kluwerarbitration.com/2020/02/15/indian-supreme-court-strikes-down-automatic-stay-provisions-for-good/#:~:text=The%20automatic%20stay%20provision%20enables,at%20the%20expense%20of%20arbitration
[17] Supra note Error! Bookmark not defined.
[18] The Arbitration and Conciliation Act, 1996, § 34, No. 26 of 1996, Acts of Parliament, 1996 (India).
[19] The Arbitration and Conciliation Act, 1996, § 36, No. 26 of 1996, Acts of Parliament, 1996 (India).
[20] Law commission of India, Amendments to the Arbitration and Conciliation Act 1996 Report No. 246,.
[21] Code of Civil Procedure, 1908, Order 41 Rule 5, No. 5 of 1908, Acts of Parliament, 1908 (India).
[23] BCCI v. Kochi Cricket Pvt. Ltd., (2018) 6 SCC 287.
[24] The Arbitration and Conciliation Act, 1996, § 87, No. 26 of 1996, Acts of Parliament, 1996 (India).
[25] Hindustan Construction Company Limited v. Union of India, 2019 SCC OnLine SC 1520.
[26] The Arbitration and Conciliation Act, 1996, § 11, No. 26 of 1996, Acts of Parliament, 1996 (India).
[27] The Arbitration and Conciliation Act, 1996, § 43, No. 26 of 1996, Acts of Parliament, 1996 (India).
[28] The Arbitration and Conciliation Act, 1996, § 36(3), No. 26 of 1996, Acts of Parliament, 1996 (India).
[29] Ashish Dholakia and Ketan Gaur, Kaustub Narendran, India’s Arbitration And Conciliation (Amendment) Act, 2021: A Wolf In Sheep’s Clothing?, Kluwer Arbitration Blog
[30] Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee, (2014) 6 SCC 677.
[31] Kavya Lalchandani, (2020) Opinion: Contract enforcement: India’s key to perform in ease of doing business, mint. Available at: https://www.livemint.com/opinion/columns/opinion-contracts-enforcement-india-key-to-perform-well-in-ease-of-doing-business-index-11590311338929.html.
[32] Ashish Dholakia and Ketan Gaur, Kaustub Narendran, India’s Arbitration And Conciliation (Amendment) Act, 2021: A Wolf In Sheep’s Clothing?, Kluwer Arbitration Bloga