Comparative Analysis of Arbitration and Conciliation Act, 1996 & the Amendments of 2015 2nd July 2016

Issues pre-amendment Arbitration looked more like traditional Court proceedings Two unsuccessful attempts for amendments in 2001 and 2010 Misinterpretation of certain sections led to confusion. BALCO judgment of the Supreme Court of India 1 [1] Bharat Aluminium v. Kaiser Technical Services(2012) 9 SCC 649

The beginning…… The Arbitration and Conciliation (Amendment) Act, 2015 received Presidential assent on 31 December, 2015.  Notified in the Official Gazette on 1 January, 2016, the Amendment Act is deemed to have come into force with effect from 23 October, 2015. The most important changes : Litigants can knock the doors of the High Courts for all purposes relating to international arbitration. Time limit for arbitral award has been set to twelve months from the arbitral tribunal being constituted. The mere filing of an application for setting aside arbitral award (u/s 34 ) shall not by itself render the award unenforceable.

Amended definition of “Court” The term 'Court' under Section 2(1) (e) of the Act has been amended and now means the High Courts having original civil jurisdiction. Foreign parties need not litigate in remote areas of the country as they can directly knock the doors of the High Court . The definition remains the same in case of a domestic arbitration. In all international commercial arbitrations, High Courts have been made the exclusive forum, which was earlier the Principal Civil Court. District Courts will have no jurisdiction. It will only apply to court proceedings initiated after the Ordinance.

Section 2(2) –where place of arbitration is in India The controversy caused by the SC decision in “BALCO” is settled due to this amendment. This section will have a retrospective effect! Principal Act had a complete restriction on any Indian court exercising jurisdiction whatsoever with respect to an arbitration not seated in India. The amendment remedies this irregularity by providing that provisions for interim measures(Sec 9) and taking assistance of court(Sec 27) in seeking evidence and section 37 (appeals from orders) can be invoked even if the arbitration is seated outside India. Section 2 ( 2) This Part shall apply where the place of arbitration is in India:[Provided that subject to an agreement to the contrary, the provisions of sections 9, 27 and clause (a) of sub-section (1) and sub-section (3) of Section 37 shall also apply to international commercial arbitration, even if the place of arbitration is outside India, and an arbitral award made or to be made in such place is enforceable and recognized under the provisions of Part II of this Act.

Section 7 – Arbitration Agreement Section 7(4)(b) in the arbitration agreement has been inserted in the new Act which includes communication through electronic means which provide record to the agreement. Exchange of emails or any other way of electronic communication would constitute an agreement in writing. Based on the judgment of the Supreme Court judgment Shakti Bhog Foods 1 , this amendment is clarificatory in nature. [1]Shakti Bhog Foods Ltd. vs. Kola Shipping Ltd.[(2009) 2 SCC 134]

Amendment to Section 8 (Reference of parties to the dispute to arbitration) Before After The law as it stood made it mandatory for a judicial authority to refer the parties to arbitration and the scope of any review was extremely limited. . The courts should take a prima facie view as to existence of a valid arbitration agreement. This will apply irrespective of any decision by the Supreme Court or any other court. Amendment allows even non-signatories to an arbitration agreement to be joined as parties in a domestic arbitration.  Section 8(2) where where an original arbitration agreement is not available with a party and it is retained by the other party, a petition can be filed to call upon the other party to product the copy. Negates the decision of the Supreme Court in Sukanya Holdings v Jayesh H Panda, where it had ruled that joinder of non-signatories to an arbitration agreement was not permissible

Section 9 & Section 17: Interim Measures Newly added proviso u/s 9 which states that proceedings shall commence within a period of 90 from the date of interim order. The courts will be restrained from entertaining an application for interim relief once arbitration has commenced. An order of the arbitral tribunal passed u/s 17 granting interim measures will be enforced as if it was an order of the court. No application for interim measure under Section 9 shall be entertained after the arbitral tribunal has been constituted, unless the remedies under Section 17 have been rendered ineffective

Appointment of Arbitrators- Section 11 The High Courts may frame rules for the purpose of determination of the fee payable to arbitrators. Sub-section 13 has been inserted which states that the SC or the HC shall make an effort to dispose of the application of appointment within 60 days from the date of service of notice on the opposite party. The Ordinance has replaced the words “Chief Justice” with either “Supreme Court” or “High Court”. 1 The Court will only look into the question of existence of the arbitration agreement. Sub section 7 has been amended and no appeal, including a Letters Patent Appeal, will lie against the decision of the Supreme Court or High Court with regard to appointment of arbitrator. [1] SBP & Co v Patel Engineering Ltd (2005) 8 SCC 618

SECTION 12: GROUNDS FOR CHALLENGE An obligation requiring arbitrators to make an express disclosure on conflicts.  Section 12 (1) is substituted to provide in detail the circumstances in which a person appointed as an arbitrator must disclose. Schedule 5 is also added to the Act which provides the guidelines to determine justifiable doubts as to the independence or impartiality of an arbitrator. Schedule 6 is also added which provides the form in which such disclosure should be made. Section 12(5) along with the Seventh Schedule is inserted. Will be applicable to proceedings where the tribunal is yet to be constituted

Section 29A and 29B: Insertion of new sections Award shall be made within a period of 12 months Parties may by consent extend the period for a further period not exceeding 6 months Arbitrator may be terminated if award not made within the prescribed time Reduction of fees not more than 5% if the award is not passed within the prescribed time Parties may agree in writing to resolve their dispute in a fast track procedure(before or at the time of arbitral proceedings) Time limit for making an award is capped to 6 months No oral arguments. Sole arbitrator In case the award is not made within the prescribed time period, the provisions of section 29 A will be applicable.

Section 31 and 31 A 31 Forms and contents of arbitral award 31A Regime of costs - New section inserted in the Act It stipulates a common regime for costs under the Act – both for arbitration proceedings and litigations arising out of arbitration. Costs include legal fees, expenses of witness, courts, arbitrator. The main objective of including the "costs follow the event" regime is to check the filing of frivolous claims/ applications; The Principal Act had a default post-award interest rate of 18% p.a. The parties can now claim interest at the rate of 2 % higher than prevailing market rates.

Amendment of section 34- Setting aside Arbitral award After Before Awards could be challenged if they were contrary to public policy. Losing parties filed application u/s 34 and made the court treat the challenge as a first appeal and the power to entertain the challenge was with the District Court. The interpretation of public policy through various judgments was leading to confusion. Award could be set aside merely on the ground of erroneous application of the law or by re-appreciation of evidence. “Public policy” has been defined in the new amendments. The scope of public policy has been narrowed. Awards in arbitrations exclusively between Indian parties can be challenged on the ground of patent illegality. Challenge petitions are to be concluded within 1 year.

Amendment of Section 36 - Enforcements In the Principal Act a mere filing of Section 34 challenging the arbitral award resulted in an automatic stay of the award. The amendment mandates separate applications to be filed by the losing party and Court will have to record reasons for granting a stay. The Court has the discretion to impose such conditions as it deems fit, while deciding an application for stay of an award. Thyssen Stahlunion Gmbh vs. Steel Authority of India (1999) 9 SCC 334  Section 36 (2) “Where an application to set aside the arbitral award has been filed in the Court under section 34, the filing of such an application shall not by itself render the award unenforceable, unless upon a separate application made for that purpose, the Court grants stay of the operation of the award in accordance with the provisions of sub-section (3) hereof;” Section 36 (3) “Upon filing of the separate application under subsection (2) for stay of the operation of the award, the court may, subject to such conditions as it may deem fit, grant stay of the operation of the award for reasons to be recorded in writing.”

Prospective or Retrospective ?

Applicability to pending proceedings Upon a clarification being sought by the Madras High Court, subject to correction, Section 26 was added to the amended Act when the Ordinance was replaced by the Act. `  "Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of Section 21 of the Principal Act, before the commencement of the New Act unless the parties otherwise agree but the New Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act." Thyssen Stahlunion Gmbh vs. Steel Authority of India (1999) 9 SCC 334 New Tirupur Area Development Corporation vs. Hindustan Construction limited, Madras High Court, A.No. 7674 of 2016 in O.P. No. 931 of 2015

Applicability to pending proceedings The Amendment Act clarifies that the Act shall not apply to arbitral proceedings commenced, u/s 21 of the main act, before the commencement of the Act. The Old Act provided for an automatic stay of the Award upon a Section 34 application being filed before the Court. The amended Act provided for a separate application to be filed for a stay of the Award upon the Section 34 application being filed. The amended Act further contemplated the discretion to grant stay to be exercised in accordance with the principles of Order 41 of the CPC.

The Bombay High Court has part heard a matter with respect to amendment to Section 36 of the Act to the effect, that mere filing of an application for challenging the award by a losing party would not automatically stay execution of the award. 1 A Single Judge of the Calcutta High Court in Electrosteel Castings Ltd. vs. Reacon Engineers (India) Pvt. Ltd. (AP No.1710 of 2015) held that in light of Section 26, the amended provisions did not apply an arbitrations commenced prior to the amended to Act. Another Single Judge of the Calcutta High Court has held the same in Nitya Ranjan Jena vs. Tata Capital Finance Services (GA 145 of 2016). However, a Division Bench of the Calcutta High Court in Tufan Chatterjee vs. Ranjan Dhar (FMAT No.47 of 2016) 2 has drawn a distinction between 'arbitral proceedings', as used in Section 26, and arbitration related court proceedings, and has held that the amended Act will apply to pending arbitration related Court proceedings. The Court held that proceedings filed under Section 9, prior to the commencement of the amended Act, are affected by the amended Act so as to limit the powers of the Court in granting interim reliefs once the tribunal is constituted, as contemplated by the amended Section 9. [1]Rendevous Sports World vs. the Board of Control for Cricket in India, Bombay High Court, Chamber Summons No. 1530 of 2015 [2] Sri Tufan Chatterjee vs. Sri Rangan Dhar, 2016 SCC Online Cal 483

The Madras High Court has taken a view in New Tirupur Area Development Corporation Ltd. vs. M/s Hindustan Construction Co. Ltd. that the provisions of the amended Act will, despite Section 26, apply to arbitration related Court proceedings commenced before the commencement of the amended Act. This was on the basis that the term 'in relation' was not included before the term 'arbitral proceedings' in the first part of amended Section 26. In a sense, the same thing as is held by the Division Bench of the Calcutta High Court.  The Supreme Court in Thyssen ruled that use of the words in relation to arbitral proceedings which commenced before amendments in the Act would apply to arbitral proceedings which commenced prior to the Act coming into force unless otherwise agreed by the parties and Act would apply in relation to arbitral proceedings which commenced on or after the Act came into force. The usage of the words in relation to cannot be interpreted in a narrow manner and would include all proceedings including court proceedings. New Tirupur Area Development Corporation vs. Hindustan Construction limited, Madras High Court, A.No. 7674 of 2016 in O.P. No. 931 of 2015

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