Law Assignment: Critical Discussion OnArbitration & Conciliation Act 1996
Task: In the most recently passed Amendment to the Arbitration and Conciliation Act 1996 ("the Act"), the Statement of Objects and Reasons in the 2021 Bill was 'to promote India as a hub for international commercial arbitration'. In this law assignment, discuss what are some of the existing gaps in the law or judicial precedents preventing India from being seen as a global arbitration hub What are some of the steps that can be taken to encourage parties to arbitrate in India
As per the research on law assignment, The Statement of Objects and Reasons for the Bill expressly states: 'To promote India as a hub for international commercial arbitration.' This is in addition to 'to provide for an effective mechanism to ensure that parties to international commercial transactions achieve their desired outcome without undue delay.' However, it is not clear at this stage what precisely constitutes such objectives. Below are some of the existing gaps in law or judicial precedents preventing India from being seen as a global arbitration hub.
Changes to Arbitration Act 1996 are required to be made so that it is not limited to disputes under an international commercial transaction only, but also extends it for domestic commercial transactions. The current limit placed on public policy grounds for setting aside the award by Supreme Court under Section 34 of the arbitration act is an obstacle. This limit should be enhanced so that issues of sovereignty are not prevented from being brought up in the domestic courts.
The Arbitration and Conciliation Act 1996 does not have a specific provision creating a committee to look into matters of confidentiality, yet Article 16(b) of the New York Convention requires contracting states to designate a 'competent authority' that is entrusted with ensuring confidentiality. It does not reflect in Indian law, and creates problems when parties want this confidentiality provision to be binding upon them.
There is no specific arbitration agreement under Section 7 of the 1996 Act. Even though it can be inferred from the conduct of the parties, it is not expressly provided for. The Act should be amended so that this inference is made explicit in law. The Delhi High Court has ruled that under Section 44(1)(b) of the 1996 Act, grounds including fraud and duress are only available when an arbitration agreement signed by "conspicuous publication" is relied upon. This restricts the availability of such grounds under Section 44(1)(b), especially when an agreement is signed in a non-standard format, for example, by just exchanging letters or emails. The amendment should include specific provisions to govern challenges made on jurisdictional issues including "locus standi" and "justiciability". The court of Indian arbitration has the power to set aside arbitral awards without explicitly stating grounds for doing so. According to Section 34 of the 1996 Act, only the Supreme Court can review an award on merits based on public policy, fraud or corruption. This is an extremely restrictive provision that prohibits certain aspects of public policy from being heard by Indian courts.
In the absence of a law governing challenges to Indian arbitral awards, there is no specific provision for enforcement of foreign arbitral awards in India. This makes it difficult for parties if they want to enforce an Indian award abroad through international conventions without having first obtained reciprocal remedies. The Statement of Objects and Reasons states that the amendment aims 'to ensure that parties to international commercial transactions achieve their desired outcome without undue delay.' However, it is not clear what precisely this means or entails. The amendments should consider including a provision on the timelines for arbitrations in India. As a part of its Statement of Objects and Reasons, the amendment seeks to '…promote India as a hub for international commercial arbitration.' These amendments seek to present an opportunity for India to establish itself as a global arbitration hub. The steps that can be taken to create this are:
1. Amend the Arbitration Act 1996 so that it is not limited to disputes under international commercial transactions only, but also extends it for domestic transactions of commerce. This would allow for arbitration to take place in India even if the commercial transaction has not taken place abroad.
2. Amend Article 34 of the 1996 Act so that public policy grounds for setting aside the award are not limited only to matters where "the said matter directly and substantially affects sovereignty or national security." This would allow other forms of public policy issues (beyond just national security) to be heard by the Indian courts.
3. Amend Section 44 of the 1996 Act so that the above jurisdictional challenges are allowed specifically under Sections 34(1)(c) and 34(2), but are also implicitly included in Section 37(1)(b) where it states that 'the court may not set aside an award on any other ground'. This would allow for various kinds of challenges including fraud and duress to be dealt with specifically rather than implicitly.
4. Implement a law in India governing the enforcement of foreign arbitral awards, so that the enforcement process becomes simpler and can be done through international conventions such as the New York Convention 1958 or the UNCITRAL Model Law on International Commercial Arbitration.
5. Amend the 1996 Act to ensure that parties receive their awards without undue delay, through a specific provision such as including timelines within which hearings should take place and decisions be made.
6. Include provisions for local arbitration in India where the parties agree to this expressly to promote domestic commercial transactions in India.
7. Consider including provisions for local arbitration in India where the parties agree to this expressly to promote domestic commercial transactions in India.
8. Include provisions on confidentiality of arbitral hearings and settlement procedures, so that parties can negotiate settlements privately without disclosing these negotiations publicly by referring to them as part of any award given out by the tribunal.
The Indian judiciary has taken a conservative approach to interpretation of the Arbitration Act 1996. As it currently stands, the act only applies to international commercial transactions resulting in disputes under clauses (1) & (2). The act also limits public policy grounds available for setting aside arbitral awards to cases that 'directly and substantially affect sovereignty or national security'. The act also ignores other relevant public policy grounds, such as fraud or duress.
The courts have held that the arbitral process, agreements to arbitrate and the award are all subject to the law of India where it is stated under Section 20(1). This can be done even if arbitration has taken place outside India. Similarly, Section 34(1)(b) provides that courts cannot set aside awards on any ground other than those expressed under Section 34. There are narrow limits to judicial review of arbitration awards, with the courts only considering challenges which meet strict conditions regarding errors of procedure or fact. Hence amendments need to be made so as not to limit the scope of these grounds, and also to include other grounds for challenges such at fraud or duress.
The courts have stated that party autonomy applies in international commercial arbitration. This position stems from Section 23 of the act which reads that 'any party may require that the award be made without undue delay'. However, if parties choose to arbitrate outside India (for example, if they opt for English arbitration), then there is no statutory framework to ensure that the award is made without undue delay.
The lack of a law governing the enforcement of foreign arbitral awards results in Indian courts relying on public international law and refusing enforcement unless there is an applicable treaty providing for such enforcement. For example, the New York Convention 1958, to which India is not a signatory, states that 'if an award of an arbitral tribunal has been made in pursuance of this Convention and the losing party has not brought before the appropriate court or tribunal within six months from the date on which the award was made a claim for annulment or revision of it, then such party shall be precluded from objecting to the validity of the award or claiming a set-off, under any of these grounds, against a demand made upon him in a proceeding before such court or tribunal'.
The above recommendations would increase the commercial viability of arbitration in India, and make it a more attractive venue for international investors and parties. This can be said to also promote India as a hub for international commercial arbitration. Also, the amendments would help Indian courts to apply public policy clauses, such as fraud or duress clauses, where relevant without limiting the scope of party autonomy. The recommendations would strengthen the enforcement of foreign arbitral awards to ensure that parties can predict what will happen in case they lose an arbitration award.
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