2015 Amendment to the Arbitration and Conciliation Act, 1996By Argus Partners

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Introduction
The Arbitration and Conciliation Act, 1996 (“Act”) has been amended by the
Arbitration and Conciliation (Amendment) Ordinance, 2015 (“Ordinance”), promulgated
by the President of India on October 23, 2015.
The Ordinance has introduced significant changes to the Act and seeks to address
some of the issues, such as delays and high costs, which have been affecting arbitrations in
India.
The Ordinance is an attempt to make arbitration a preferred mode for settlement of
commercial disputes and to make India a hub of international commercial arbitration.
With the amendments, arbitrations in India are sought to be made more user-friendly and
cost effective. The major changes brought about by the Ordinance are summarized in this
update.
Interim Measures
The Ordinance introduces a paradigm shift in the mode and method of grant of interim
measures in an arbitration proceeding.
Recent judicial decisions (Bharat Aluminum Co v. Kaiser Aluminum Technical
Services, Supreme Court (2012) 9 SCC 552) had held that Part I of the Act (which, inter
alia, includes provisions on seeking interim reliefs before a Court in India) would not
apply to foreign seated arbitrations. The Ordinance has inserted a proviso to section 2 of
the Act, whereby, sections 9, 27 and clause (a) of sub-section (1) and sub-section (3) of
Section 37 (all falling in Part I of the Act) have been made applicable to international
commercial arbitrations, even if the place of arbitration is outside India. As a result a party
to an arbitration proceeding will be able to approach Courts in India for interim reliefs
before the commencement of an arbitration proceeding, even if the seat of such arbitration
is not in India.
Importantly, under the newly inserted section 9(3), a Court cannot, as a matter of
course, entertain an application for interim measure once an arbitral tribunal has been
constituted, unless the Court finds that circumstances exist which may not render the
remedy available under section 17 of the Act, i.e. approaching the arbitral tribunal for
interim measures, efficacious. The intention of the Legislature is to limit the involvement
of Courts in an arbitration proceeding thereby making such proceedings swift and
effective.
Another important change introduced by the Ordinance is the power of an arbitral
tribunal to grant interim reliefs. Though the original section 17 of the Act afforded an
arbitral tribunal the power to grant interim measures, it definitely did lack the saber- tooth.
In this regard the Supreme Court of India had held that though section 17 of the Act gave
an arbitral tribunal the power to pass interim orders, but the same could not be enforced as
an order of a Court (M/s. Sundaram Finance v. M/s. NEPC India Ltd., AIR 1999 SC 565,
136 2015 Amendment to the Arbitration and Conciliation Act, 1996
and M.D. Army Welfare Housing Organisation v. Sumangal Services Pvt. Ltd., AIR 2004
SC 1344). The Ordinance has substituted section 17 by a new section which ensures that
an order passed by an arbitral tribunal under section 17 will now be deemed to be an order
of the Court and shall be enforceable under the Code of Civil Procedure, 1908. Moreover,
as discussed above, once the arbitral tribunal is constituted, all applications seeking
interim measures would now be directed to it and not the Court.
Strict Timelines
The Ordinance brings about some strict timelines in completion of arbitration
proceedings. Proceedings before Courts have also been made time-bound.
Commencing arbitration proceedings after obtaining an interim order from a Court
In order to discourage litigants who obtain an interim order under section 9 of the Act,
but do not commence arbitration proceedings, a timeline of 90 (ninety) days to commence
arbitration proceedings after obtaining an order under section 9 of the Act has been
introduced.
Application to set aside an arbitral award
An application to set aside an arbitral award under Section 34 of the Act has to be
disposed of by the Court within a period of 1 (one) year from its filing.
Application for appointment of an arbitrator
The Ordinance provides that the Chief Justice of the High Court or the Chief Justice of
the Supreme Court of India, in an application for appointment of an arbitrator, can only
confine themselves to ascertaining that a valid arbitration agreement exists. Such
application is required to be disposed of within a period of 60 (sixty) days.
Completion of arbitration proceedings
As far as arbitration proceedings are concerned, newly introduced section 29A of the
Act mandates completion of arbitration proceedings within a period of 12 (twelve) months
of entering into a reference. Amended section 12 of the Act now requires an arbitrator to
make a specific disclosure if there are circumstances which would affect his ability to
complete the arbitration proceeding within the period of 12 (twelve) months.
Further, amended section 24 of the Act now empowers the arbitrator to impose
exemplary costs on a party that seeks an adjournment before the arbitral tribunal without
citing sufficient cause.
The parties to an arbitration may, however, by consent, extend the period for making
an arbitration award for a further period not exceeding 6 (six) months. In case of expiry of
the extended period, the mandate of the arbitral tribunal will stand terminated, unless a
Court grants a further extension of the period, upon an application of the parties to the
arbitration proceeding. When the Court grants an extension of time as above, it may
substitute some or all of the arbitrators.
Fast Track Arbitrations
The Ordinance introduces a fast track arbitration proceeding.
2015 Amendment to the Arbitration and Conciliation Act, 1996 137
Newly introduced section 29B of the Act provides for an option whereby the parties to
an arbitration agreement may mutually decide to appoint a sole arbitrator who decides the
dispute on the basis of written pleadings, documents and submissions. Oral hearing and
technical formalities may be dispensed with for the sake of an expeditious disposal. An
award has to be rendered within a period of 6 (six) months of entering into a reference.
Challenging an Award
Public Policy
Section 34 of the Act provides that an arbitral award may be set aside if it is contrary
to ‘public policy’.
The Supreme Court of India in ONGC v. Saw Pipes (2003) had expanded the test of
‘public policy’ to mean an award that violates the statutory provisions of Indian law or
even the terms of the contract in some cases. Such an award would be considered as
‘patently illegal’ and therefore in violation of public policy. This interpretation practically
afforded the losing party an opportunity to re-agitate the merits of the case. Though in a
very recent judgment, the Supreme Court noted that while the merits of an arbitral award
can be scrutinized when a challenge is made on grounds that an arbitral award has violated
‘public policy, there were limitations as to the extent to which, such a re-evaluation can be
conducted.
The Ordinance, however, clarifies that an award will be in conflict with the public
policy of India, only in certain circumstances, such as if the award is induced or affected
by fraud or corruption, or is in contravention with the fundamental policy of Indian law, or
is in conflict with the most basic notions of morality or justice. Further, the Ordinance
provides that a determination of whether there is a contravention with the fundamental
policy of Indian law cannot entail a review of the merits of the dispute. This amendment
seeks to limit the re-appreciation of the merits of the dispute at the stage of challenge to
the award before the Court.
Hence, the Legislature has fundamentally reduced the scope of the inquiry by the
judiciary into the question of violation of ‘public policy’.
Patent illegality
Another amendment brought about by the Ordinance is that an arbitral award can be
set aside by a Court if the award is vitiated by patent illegality appearing on the face of the
award.
However, an award cannot be set aside merely on the ground of an erroneous
application of law or by re-appreciation of evidence.
Stay on enforcement of an award
The Ordinance provides that the mere filing of an application challenging an
arbitration award would not automatically stay the execution of the award. The execution
of an award will only be stayed when the Court passes any specific order of stay on an
application by a party to the proceeding.
138 2015 Amendment to the Arbitration and Conciliation Act, 1996
Ensuring Impartiality of an Arbitrator
The Ordinance gives foremost importance to the impartiality of an arbitrator. Original
Section 12 of the Act necessitated an arbitrator to disclose in writing circumstances likely
to give rise to justifiable doubts as to his independence or impartiality. The Ordinance
specifies in elaborate detail the circumstances which may lead to such justifiable doubts.
The newly inserted fifth schedule of the Act lists 34 (thirty four) such grounds which shall
act as a guide in determining whether circumstances exist which give rise to justifiable
doubts as to the independence or impartiality of an arbitrator. It is now important to see
how proximate the arbitrator is to a party to the proceeding and/or the party’s lawyer.
Arbitration Fees
In a very significant step, the Ordinance provides a cap on the fees to be paid to an
arbitrator, barring international commercial arbitrations and institutional arbitrations. The
amendment to Section 11 of the Act empowers the concerned High Court to frame rules to
determine the fees of the Arbitral Tribunal and the mode of such payment. The rates
specified in the newly inserted fourth schedule have to be considered.
The Definition of ‘Court’
Original Section 2(e) of the Act provided a single definition of “Court”, which meant a
District Court, or the High Court exercising its ordinary original civil jurisdiction, as the
case may be. The Ordinance, however, bifurcates the definition and clearly specifies that
unlike other arbitrations, in case of international commercial arbitrations, only a High
Court exercising its ordinary original civil jurisdiction will qualify as a “Court”.