The Indian Arbitration and Conciliation (Amendment) Act, 2019: Double Whammy
Reporter: Sanjna Pramod (CMS Asia Pacific)
Considerable progress has been made in the last decade by legal practitioners, constitutional courts and the government to promote arbitration in India. Recent pro-arbitration decisions of the Indian Supreme Court show a joint effort to establish India as a leading hub for international arbitration.
The Arbitration and Conciliation Act, 1996 (“Act”) is the primary source of law governing arbitration in India. Traditionally, India has favoured ad-hoc rather than institutional arbitration. In addition, arbitration in India has been riddled with excessive costs, and proceedings are often protracted. These distinct characteristics have caused Indian parties to prefer Singapore and London as their seats for arbitration of their disputes.
To remedy these issues, the Arbitration and Conciliation (Amendment) Act, 2015 (“Amendment Act 2015”) was introduced. Although the Amendment Act 2015 aimed to make arbitration cost effective by stipulating a fixed time period for the disposal of disputes, it failed to address certain issues. First, it failed to underscore the importance of institutional arbitrations. Second, it failed to clarify the applicability of the Amendment Act 2015 to court proceedings relating to arbitrations commenced prior to 23 October 2015. Further amendments were therefore necessary.
In December 2016, the Indian government constituted the High Level Committee under the chairmanship of Justice (Retired) B.N. Srikrishna (“Committee”) to review and reform the institutionalisation of arbitration. The Committee submitted its report on 3 August 2017 (“Report”) which suggested measures for improving arbitration in India by strengthening institutional arbitration and removing certain ambiguities in the Amendment Act 2015.
The Arbitration and Conciliation (Amendment) Bill, 2018 (“2018 Bill”) was passed by the Lok Sabha (lower house of the Indian Parliament) in August 2018 but was not passed by the Rajya Sabha (upper house) and eventually lapsed with the dissolution of the Lok Sabha. The 2018 Bill was proposed pursuant to the recommendations of the Committee.
On 18 July 2019, the 2018 Bill, albeit with minor changes, was passed by the Rajya Sabha as the Arbitration and Conciliation (Amendment) Bill, 2019 (“2019 Bill”) to amend the Act. Subsequently, the 2019 Bill was passed by the Lok Sabha on 1 August 2019 and the Arbitration and Conciliation (Amendment) Act 2019 (“Amendment Act 2019”) came into force on 9 August 2019.
The 2018 Bill and the Amendment Act 2019 have sparked great controversy both within India and internationally. Notably, the broader aim of the Amendment Act 2019 to foster institutional arbitration in India is praise-worthy; however, certain key provisions remain controversial. For instance, India’s notorious conservatism towards the opening up of its legal market is reflected in the Amendment Act 2019. As indicated by Lord Goldsmith QC, the 2018 Bill appears to prohibit foreign lawyers. The article discusses certain key provisions of the Amendment Act 2019.
Constitution of the Arbitration Council of India
Similar to the 2018 Bill, the Amendment Act 2019 envisages the creation of a separate, independent, statutory body called the Arbitration Council of India (“ACI”) which would be presided over by a Judge of the Supreme Court of India or Chief Justice or judge of any high court or any other eminent person nominated by the government. The ACI’s roles include grading arbitral institutions, accrediting arbitrators, and promoting and encouraging arbitration as well as other ADR mechanisms. The ACI’s mandate is to formulate appropriate policy and guidelines for the establishment, operation, and maintenance of uniform professional standards in respect of all matters relating to arbitration and ADR mechanisms generally. The Amendment Act 2019 adds several provisions governing the procedure to be followed by the ACI regarding the removal and resignation of members, and other administrative matters.
The creation of a centralised body to promote arbitration is admirable but the composition, power, and functions to be performed by the ACI are drastically different from what was proposed in the Report. The Committee emphasized that the Arbitration Council of India should not be a government-controlled body. Hence, the Amendment Act 2019 risks undermining the independence of arbitration because the government is the largest litigator in India.
Speedy appointment of arbitrators
One of the factors contributing to delays in arbitration in India was the time taken by the courts to appoint arbitrators under section 11 of the Act. Under this section, the Supreme Court of India or the various high courts may appoint an arbitrator within thirty days from the receipt of a request by a party. This process often took several years given the backlog of court cases.
The Amendment Act 2019 provides the Supreme Court of India and the high courts with the power to designate arbitral institutions which have been accredited by the ACI. This is a significant step towards strengthening institutional arbitration and reducing the heavy burden on courts. However, the designated institution may only appoint an arbitrator who satisfies the eligibility criteria envisaged by the Amendment Act 2019.
The Amendment Act 2019 prescribes the requirements for accreditation of arbitrators. One of the primary qualifications is that a person shall not be qualified as an arbitrator unless he or she is an advocate within the meaning of the Advocates Act, 1961 with ten years of practice. This requirement effectively excludes lawyers who are not qualified in India from acting as arbitrators in India-seated arbitrations. This may discourage foreign parties from seating their arbitrations in India as the parties may not be able to appoint foreigners as arbitrators.
In addition, the Amendment Act 2019 prescribes general norms applicable to arbitrators. One of the norms requires that arbitrators be conversant with the Indian Constitution. This unusual provision may lead to arbitrator challenges.
Removal of time limit in international commercial arbitrations
The Amendment Act 2015 imposed a time limit of twelve months (extendable to eighteen months with party consent) for completion of arbitration proceedings from the date the arbitral tribunal is constituted.
The 2018 Bill excluded international arbitrations from the twelve-month time limit for rendering an award that had been imposed under section 29A of the Act, which was introduced by the Arbitration Amendment Act 2015. For domestic arbitrations, the 2018 Bill extended the time limit from twelve months after the constitution of the arbitral tribunal to twelve months after the filing of the defence, which should take place within six months of constitution of the tribunal in both domestic and international arbitrations. These changes are retained in the Amendment Act 2019. However, the Amendment Act 2019 has clarified that awards in international arbitrations “may be made as expeditiously as possible” and that “endeavour may be made” to issue the award within twelve months of the filing of the defence. The time limit is therefore no longer binding, but tribunals are encouraged to conclude proceedings as expeditiously as possible.
The Amendment Act 2019 imposes an overarching confidentiality requirement because it obliges the arbitrator, the arbitral institution, and the parties to the arbitration agreement to keep all arbitral proceedings confidential. However, the award may be disclosed where this is necessary for implementation and enforcement of the award.
Notably, the confidentiality requirement does not envisage other circumstances which may justify disclosure of the arbitral proceedings by the parties such as court proceedings related to the arbitration, where a party may initiate criminal proceedings, file an anti-arbitration injunction or communicate with a third party funder. Disclosure may also be required when communicating with a third-party funder.
Applicability of the Amendment Act 2015
Given the persistent uncertainty about the applicability of the Arbitration Act 2015 to existing arbitrations and arbitration-related court proceedings, the Amendment Act 2019 clarifies that the Arbitration Amendment Act 2015 is only applicable to arbitral proceedings which commenced on or after 23 October 2015 and to such court proceedings which emanate from such arbitral proceedings.
This goes against the Supreme Court’s decision in BCCI v. Kochi Cricket Pvt. Ltd. where the Court held that the Amendment Act 2015 would apply to applications which are pending in various courts for challenging an award and which were filed before the commencement of the Amendment Act 2015.
The Amendment Act 2019 confers upon the ACI exclusive authority to regulate arbitration practice, change the qualification requirements for arbitrators, and introduce restrictions that would prohibit the appointment of foreign lawyers as arbitrators in India-seated arbitration. Many stakeholders have expressed concern over the proposed creation of the ACI in that it is a government-led body vested with the task of grading arbitration institutions and arbitrators, and regulating arbitration in the country.
India has expended considerable resources in improving its “doing business” climate and in promoting foreign investment. Resolution of disputes through arbitration is both integral and ancillary to these efforts. However, the above changes to Indian arbitration law are regressive. The Amendment Act 2019 may set back the country’s progress and impede the ambitions of an enthusiastic arbitration community to establish India as a desirable hub for international arbitration.
 The Law Society Gazette, ‘India arbitration reform will restrict foreign lawyers’, 18 February 2019, available at https://www.lawgazette.co.uk/law/india-arbitration-reform-will-restrict-foreign-lawyers/5069320.article , available on 11 July 2019.