June 06, 2018

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India: Making Of The World's Newest International Arbitration Hub?

- Dr. Manoj Kumar, Founder & Managing Partner [ Hammurabi & Solomon ]
- Shweta Bharti, Senior Partner [ Hammurabi & Solomon ]

manoj kumar & shweta bharti

The amendments to the Arbitration & Conciliation Act, 1996 must help India institutionalize arbitration and eventually become an international arbitration hub...

From circa 1991, when India was still under a controlled regime with the prevailing license raj to 2018, the country has gone through a paradigm shift in the manner in which business is conducted. Foreign companies entering India faced repercussions, and that was the genesis of international disputes. The prevailing mechanism for resolution of disputes through alternate mechanisms was falling short of the requirements of expeditious resolutions of such commercial disputes. Thus came about the overhauling of the prevailing laws and thus came about the promulgation of the Arbitration & Conciliation Act, 1996 (“the Act”). The Act from the beginning fell short of the requirements of the commercial world and ended up in multifarious interpretations and interferences by the Judiciary, consequently leading to huge delays. Business started looking for other viable options for resolving its disputes expeditiously, and thus, it was just at the opportune time that the Singapore Government noticed the huge potential of establishing itself as the hub of International Arbitration with countries like India, China, Japan, and various others fast emerging as arbitration hubs. The Singaporean Government committed significant resources for building infrastructure and forming institutions like the Singapore International Arbitration Centre (SIAC). The Singapore Judiciary—also appreciating the needs of business and commerce—was reticent about intervening in the arbitration proceedings. The responsive Legislature introduced statutory amendments in order to ensure that it facilitates the arbitration. India, thus, started losing huge chunks of its arbitrations to Singapore, barely realizing the magnitude of the financial implications it had on the revenues of the country.

It was in this scenario, subsequent to the BALCO judgment (2012) of the Hon’ble Supreme Court, that a dire need was felt to amend the Act, and thus, the amendment in the Act was brought about in order to expedite the arbitration process. The amendments of 2015 were a step in the right direction. The changes brought about in the Act since paved the way for an expeditious disposal of arbitrations and gave a ray of hope to the business community. However, immediately after its coming into effect, the amendments were mired in controversy following the applicability of Section 26 of the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter referred to as the “Amendment Act”) on the ongoing proceedings.

The different views given by different High Courts were ultimately settled by the issue being decided by the Hon’ble Supreme Court in the case of BCCI vs. Kochi Cricket, wherein the construction of Section 26 of the Amendment Act was extensively considered by the Court. The Supreme Court upon examining its earlier views in the case of Thyssen{(1999) 9 SCC 334} and Milkfood (2004) held that the scheme of Section 26 was clear, that the Amendment Act is prospective in nature, and will apply to those arbitral proceedings which have been commenced, as understood by Section 21 of the Principal Act, on or after the Amendment Act, and to Court proceedings which have commenced on or after the Amendment Act came into force. Thus, while the Supreme Court settled the dispute with respect to the prospective applicability of the Amendment Act, the Legislature too in the meanwhile on March 7 came up with the proposed amendment to the Principal Act, wherein inter alia amongst others which have been discussed hereinafter, the issue with respect to the applicability of the Amendment Act has been provided for under Section 87 of the Act. The new Section 87 is proposed to be inserted to clarify that unless parties agree, the Amendment Act 2015 shall not apply to (a) Arbitral proceedings which have commenced before the beginning of the Amendment Act of 2015; (b) Court proceedings arising out of or in relation to such arbitral proceedings irrespective of whether such court proceedings are commenced prior to or after the commencement of the Amendment Act of 2015 and shall apply only to Arbitral proceedings commenced on or after the commencement of the Amendment Act of 2015 and to court proceedings arising out of or in relation to such Arbitral proceedings.

Institutional Arbitration should be the norm and not the exception, with institutional support to ICADR coming from Public Sector Undertakings & Public-Private Partnership bodies to achieve the ‘Resolve in India’ initiative

While the old Act continues to apply to court proceedings which have commenced post amendment due to the commencement of arbitration proceedings prior to the amendment, the Amended Act shall apply to both arbitral and court proceedings in case the arbitral proceedings commenced post the amendment. The entire purpose behind the amendment, which is to expedite the arbitration and court proceedings, shall stand defeated due to the above if the pre-amendment Act shall continue to apply to the proceedings since the automatic stay under Section 34 of the old Act shall continue to prevail and shall lead to consequential delays in the execution proceedings.

Further, with the 2018 amendment, the welcome change that has been introduced is the creation of an independent body, namely, the Arbitration Council of India (ACI). In a report submitted by Our Law Firm, Hammurabi & Solomon, to the Ministry of Law & Justice last year, we had categorically suggested creation of an apex body (Arbitration Council/ Arbitration Promotion Council of India) that will supervise as well as promote institutionalized arbitration in the country. We suggested this apex body to be constituted of 5 members: 4 eminent jurists and a retired judge of the Supreme Court. The said suggestion seems to have been adopted with certain minor modifications as per Justice Srikrishna’s committee report, which provides for setting up the ACI, the Chairperson of which shall be a person who has been a Judge of the Supreme Court or Chief Justice or Judge of any High Court or any eminent person and the other members would include an eminent academician etc., besides other government nominees.

This institution will perform a plethora of functions such as grade all arbitration institutions in the country; lay down the policy governing the grading of arbitration institutions; issue recommendations & guidelines for arbitration institutions for infrastructure, personnel, fees, etc.; nominate members of the governing council of the ICADR, make rules for institutionalized arbitration in India; select the panel of arbitrators & set out selection criteria; host seminars and conferences to promote arbitration in the country; and decide the curriculum for an accreditation course. The need for such an institution was felt for long, and thus, it was imperative that such amendments are brought about in the Act.

The other significant change that is being brought about by the 2018 amendment is to facilitate speedy appointment of arbitrators designated arbitral institutions by the Supreme Court or a High Court, without having any requirement to approach the court in this regard. It provides for the Parties to directly approach the arbitral institutions designated by the Supreme Court in cases of International Commercial Arbitration and in other cases the concerned High Courts. The need for institutionalizing the arbitration process has since long been acknowledged by the Hon’ble Courts. The Supreme Court in the matter of Sanjeev Jain v Raghubir Saran Charitable Trust (2012), while deliberating on the need of regulating arbitrators’ fees and development of institutional Arbitration regime in the country, took note of instances where arbitration is being shifted to the neighboring jurisdictions like Singapore, Kuala Lumpur, etc. owing to the presence of more professionalized or institutionalized arbitrations, which get concluded expeditiously at lesser cost. In another case of U.O.I v Singh Builders Syndicate (2009), the Hon’ble Supreme Court expressly acknowledged the advantage of institutional arbitration over ad hoc arbitration in relation to the t000ermination of arbitration fees which is not fixed by arbitrators themselves on a case-to-case basis but is governed by the uniform rate prescribed by the institution under whose aegis the arbitration is being held.

In terms of the way forward for the government to create a more arbitration-friendly environment upon optimizing the present resources, in the report (http://www. report-2017/#p=1) submitted by Hammurabi & Solomon before the Ministry of Law & Justice, we also recommended involvement of ICADR in the arena of International Commercial Arbitration with the members of the ACI nominating the Governing Council of ICADR, which in turn would be responsible for overseeing the functioning and administration of the ICADR on a day-to-day basis.

The Srikrishna Committee report in its recommendation has also reiterated that ICADR should be taken over and be re-branded as the India Arbitration Centre in keeping with its character as a flagship arbitral institution. There must be a complete revamp of its governance structure to include only experts of repute who can lend credibility and respectability to the institution. Though the 2018 amendments have presently limited its scope to provide for the Parties directly approaching the arbitral institutions designated by the Hon’ble Supreme Court and the High Courts in cases of International Commercial Arbitration and Domestic Arbitrations, respectively. However, the emphasis on institutionalizing the arbitrations shall go a long way in India becoming an international arbitration hub.

Disclaimer – The views expressed in this article are the personal views of the authors and are purely informative in nature.

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