Introduction
India has seen a spate of changes to its arbitration regime in recent times, starting from 2015 then in 2019, 2021 and now the latest proposed round where the Draft Arbitration and Conciliation (Amendment) Bill, 2024 (Draft Bill) has been published which proposes changes to the Arbitration and Conciliation Act, 19961. There are some long-awaited amendments suggested like the inclusion of the emergency arbitral process — an era ushered into India through Amazon.com NV Investment Holdings LLC v. Future Retail Ltd.2, judgment of 2021 and other more controversial developments like the suggestion of constitution of an appellate Arbitral Tribunal. There are however a few other key matters that this Draft Bill could have captured such as, for example, joinder of parties, consolidation of arbitrations but which are absent.
In this piece, we examine some key changes and comment on what we think of them.
Emergency arbitration
One of the most important changes proposed in the Draft Bill is the statutory inclusion and introduction of emergency arbitration. In this context, the first change is in Section 23 of the Arbitration and Conciliation Act, 1996 which provides for inserting Section 2(1)(ea) to the Arbitration and Conciliation Act, 1996 which defines an emergency arbitrator as an arbitrator appointed under Section 9-A4 of the Act. The newly introduced Section 9-A of the Act, vide the draft bill, gives arbitral institutions the power to appoint an emergency arbitrator prior to the constitution of the Arbitral Tribunal. The orders passed by the emergency arbitrator will have the same effect as an order passed under Section 175 of the Arbitration and Conciliation Act, 1996 by an Arbitral Tribunal and can be enforced accordingly — and once a tribunal is duly constituted it has the power to confirm, modify or vacate the award of the emergency arbitrator, either in whole or in part. This is in line with most institutional rules. What would be interesting to see is if an order passed by an emergency arbitrator is put to in execution through the courts, under Section 17(2) of the Arbitration and Conciliation Act, 1996, and then at that point the finally constituted Arbitral Tribunal varies or vacates or modifies it, this would necessarily mean that the execution proceedings would have to be suspended or would be rendered infructuous. At the same time, assuming the order passed by an emergency arbitrator has been enforced and then it is varied by the Arbitral Tribunal, what will that mean? There can be no reversal of an enforcement. This will lead to a number of questions and it will be interesting to see how the courts practically approach some of these conundrums. Another question that could arise is whether the orders passed by emergency arbitrators would be appealable under Section 376 of the Arbitration and Conciliation Act, 1996. The Draft Bill is silent on this. Technically, while an order passed by an emergency arbitrator is akin to an order passed under Section 17 of the Arbitration and Conciliation Act, 1996, it ought not to be equated to one in every respect and an order passed by an emergency arbitrator ought to be non-appealable upon the constitution of the Arbitral Tribunal which should be permitted to vary it. This is because emergency awards are meant to preserve the subject-matter of the arbitration and is to stay in force for a very short duration. Given this situation, it would defeat the purpose if parties appealed orders passed by emergency arbitrators and then went through protracted rounds of litigation in the short window between an emergency award and the Arbitral Tribunal being constituted.
Either way, this is a welcome change and the need of the hour given the reliance on emergency arbitrations around the world — particularly when courts are burdened and it may be quicker to do an emergency arbitration. The legal validity of an order or award passed by an emergency arbitrator having been confirmed even for domestic arbitration.
The proposed change however only provides for arbitral institutions to appoint emergency arbitrators and is silent on their appointment in ad hoc arbitrations. This difference in approach can prove to be costly for the parties who are looking for a cheaper arbitral process by employing ad hoc arbitrations. If both institutional and ad hoc arbitrations provide for the appointment of emergency arbitrators (where for the latter institutions could merely act as appointing authorities) then the judicial burden on the courts will substantially decrease. Further, the parties will have an additional layer of autonomy where they can choose a different arbitrator for an emergency arbitration and a different one for the remaining arbitral process.
That is my seat
A new Section 2-A, which will determine the court having jurisdiction, is suggested to be included in the Arbitration and Conciliation Act, 1996. For domestic arbitrations, the court means the court having pecuniary and territorial jurisdiction over the seat of arbitration — where the seat of arbitration has been determined: (a) either through an agreement by the parties; or (b) determined by the Arbitral Tribunal in terms of Section 207 of the Arbitration and Conciliation Act, 1996. And in all other cases, the court having the pecuniary and territorial jurisdiction to decide the disputes forming the subject-matter of the arbitration, had it been a suit, will be the court for the purposes of the Arbitration and Conciliation Act, 1996. Corresponding with this, in Section 20 of the Arbitration and Conciliation Act, 1996, the word “place” has been replaced with “seat” and “venue” as appropriate. There is another formulation of Section 20 of the Arbitration and Conciliation Act, 1996, in the shape of Option II, suggested where for domestic arbitrations, what is suggested is that the seat shall be the place where the contract/arbitration agreement is executed or where the cause of action has arisen. And that the Arbitral Tribunal can meet at any venue other than the seat as well depending on various circumstances such as witnesses, documents, goods or property etc. According to us, the said Option II can cause a lot of confusion and give rise to litigation and arguments over what the juridical seat is to be and the formulation of Section 20 of the Arbitration and Conciliation Act, 1996 in Option I with suitable modifications for the use of the term “seat” where needed is a better change to consider.
Section 9 or Section 17 — What should you choose?
Another addition to the powers of the Arbitral Tribunal can be seen through the proposed insertion of Section 17(da) to the Act. This provision allows the Arbitral Tribunal to either confirm, modify or vacate the ad interim reliefs granted under Section 98 of the Arbitration and Conciliation Act, 1996 by courts. This will help in clarifying an area that is somewhat unclear as to the extent to which an Arbitral Tribunal while considering an application under Section 17 of the Arbitration and Conciliation Act, 1996 can vary the order passed by a court in an application under Section 9 of the Arbitration and Conciliation Act, 1996. As per the ruling of the Supreme Court in Arcelor Mittal Nippon Steel (India) Ltd. v. Essar Bulk Terminal Ltd.9, once the Arbitral Tribunal is constituted, the Court can only take up applications under Section 9(1) of the Arbitration and Conciliation Act, 1996 in furtherance of the exception carved out under Section 9(3) of the Arbitration and Conciliation Act, 1996. Section 9(3) of the Arbitration and Conciliation Act, 1996 provides that a Court can entertain applications under Section 9 of the Arbitration and Conciliation Act, 1996 even when the Arbitral Tribunal is seisin of the matter only if the court finds that there are extant circumstances which can render the interim relief provided by the Arbitral Tribunal under Section 17 of the Arbitration and Conciliation Act, 1996 inefficacious. The Draft Bill also proposes to delete Section 9(3) of the Arbitration and Conciliation Act, 1996 and do away with this exception. Further, the Draft Bill has proposed to limit the jurisdiction of the courts under Section 9(1) of the Arbitration and Conciliation Act, 1996 to provide interim reliefs only before the commencement of arbitral proceedings or after the making of the award and remove this option during the arbitration. This change is problematic since it is sometimes required for parties to approach courts even during arbitration if (as the current regime recognises) the Arbitral Tribunal is unable to grant an efficacious remedy.
Form and content of awards
The Draft Bill proposes to amend Section 3110 of the Arbitration and Conciliation Act, 1996 by introducing Section 31(2-A) to the Act. The said new insertion lists mandatory inclusions of an arbitral award, which, inter alia, include findings relating to the capacity of the parties, validity of the arbitration agreement and the subject-matter being arbitrable — all elements of Section 3411 of the Arbitration and Conciliation Act, 1996. This is likely suggested in order to obviate arguments on these very points in an appeal preferred under Section 34 of the Arbitration and Conciliation Act, 1996.
Claim? Arbitrate. Appeal? Also, Arbitrate?
The Draft Bill also introduces an appellate Arbitral Tribunal for the first time in the Indian arbitration regime. A new Section 34-A to the Act is proposed which provides for an appellate Arbitral Tribunal to be formed by arbitral institutions. There is not much that the Draft Bill says about this other than its function. Another insertion is proposed in Section 34 of the Arbitration and Conciliation Act, 1996 in the shape of Section 34(1-A) which provides that the parties are free to choose whether they want to opt for the appellate Arbitral Tribunal or the courts to decide their application under Section 34 of the Arbitration and Conciliation Act, 1996. Once the parties choose to file their appeal under Section 34 of the Arbitration and Conciliation Act, 1996 before an appellate Arbitral Tribunal, then they cannot approach the courts to do the same. However, the opposite is not provided. The eventual appeal under Section 37 of the Arbitration and Conciliation Act, 1996 against an order passed under Section 34 of the Arbitration and Conciliation Act, 1996 will be heard by Court, irrespective of the adjudicator of the appeal under Section 34 of the Arbitration and Conciliation Act, 1996 (whether Court or the appellate Arbitral Tribunal). We do not think the introduction of a two-tiered appeal system is a good idea at all — this will only further prolong execution of an award and add another layer upon layer to an already prolonged and protracted process. It will also lead to further uncertainty in the system, provide for two parallel mechanisms in courts and appellate Arbitral Tribunals, encourage forum shopping, question the contours of what Appellate Arbitral Tribunals can do versus courts, set in one more layer prior to reaching the fruits of the award.
Partial setting aside and formulation of grounds of challenge
The Draft Bill provides for setting aside an arbitral award either in its entirety or in part. The proposed change is in the form of a bifurcation of Section 34(2) of the Arbitration and Conciliation Act, 1996 into Sections 34(2) and (2-A). While the former provides for grounds which will lead to setting aside the arbitral award in its entirety, the latter lists the grounds which provide for setting aside the arbitral award in part. This is in line with the Delhi High Court’s ruling in NHAI v. Trichy Thanjavur Expressway Ltd.12, which not only batted for partial setting aside of arbitral awards but also acknowledged the proviso to Section 34(2)(a)(iv) of the Arbitration and Conciliation Act, 1996 to suggest that such a partial setting aside of awards is permitted. Further, in case the award is partially set aside, Section 34(7) of the Act is proposed to provide for a remand to the Arbitral Tribunal to decide the issues on which the award has been set aside and in the remand process, the Arbitral Tribunal will be bound by the findings of the original arbitral award which have not been set aside.
Further, the Draft Bill proposes that before adjudicating a challenge under Section 34 of the Arbitration and Conciliation Act, 1996, specific grounds must be formulated by the court or the Appellate Arbitral Tribunal, as the case may be, upon which the challenge rests and the Court or the appellate Arbitral Tribunal must examine whether these grounds are made out. It is unclear how this change will play out in practicality since it seems like an unnecessary two-step process of first formulating and deciding if grounds are made out, which is precisely what the courts while adjudicating an appeal under Section 34 of the Arbitration and Conciliation Act, 1996 would require to do anyway — albeit, in this new process, the Court itself will choose or formulate the relevant grounds much like it would do with framing of issues.
Further institutionalisation
The Draft Bill seeks to advance the cause of making India an arbitration hub of the world by further institutionalising the process of arbitration in India. In the existing regime, an “arbitral institution”, defined under Section 2(ca) of the Arbitration and Conciliation Act, 1996, needed to be designated by the Supreme Court or a High Court. The Draft Bill seeks to amend the said definition and include all such institutions which can conduct arbitration proceedings, under its aegis as per its own rules and procedures, within its ambit. This is a liberal process of recognising institutions and perhaps a welcome one.
The Draft Bill further empowers the arbitral institutions. For instance, the Draft Bill proposes to amend Section 29-A13 of the Arbitration and Conciliation Act, 1996 and give the power to arbitral institutions (while also retaining it with courts) to extend the time period within which an award is to be made. Institutions are also proposed to be empowered with the authority to substitute arbitrators. The arbitral institutions will share these powers with the courts but the proposed change will substantially decrease the judicial burden, and result in according a greater credibility to arbitral institutions while also freeing up courts from some of these relatively more administrative matters.
Costs beware
There is an amendment to Section 31-A14 of the Arbitration and Conciliation Act, 1996, which deals with regime of costs under the Arbitration and Conciliation Act, 1996. This proposed change is twofold — firstly, now even a frivolous claim and not only a frivolous counterclaim, as is the extant regime, is brought within the ambit of the provisions; and secondly, the requirement that the frivolous claim or frivolous counterclaim led to the delay in the disposal of arbitral proceedings is done away with. These proposed changes are an attempt to dissuade the parties from raising frivolous claims and counterclaims or to suffer costs as a consequence.
No agreement to arbitrate? Please check again
In the extant regime under the Arbitration and Conciliation Act, 1996, an order rejecting an application filed under Section 1115 of the Arbitration and Conciliation Act, 1996 could not be appealed against. The Draft Bill proposes to do away with this and provides an insertion in Section 37 of the Arbitration and Conciliation Act, 1996 in the shape of Section 37(1)(aa) to the Act to provide for an appeal against the order rejecting the appointment of arbitrator. This will lessen the burden on the Supreme Court since a rejection of an application under Section 11 often results in a challenge under Article 136 of the Constitution of India16 by way of a special leave petition.
About time?
The Draft Bill seeks to provide strict and mandatory timelines for the various processes involved in arbitral proceedings. Firstly, the Draft Bill proposes to amend Section 817 of the Arbitration and Conciliation Act, 1996 by introducing Section 8(4) to the Act to ensure that an application under the said provision is disposed of by the courts within sixty days from the date of its filing. As per the existing regime, no timeline was specified for disposal of applications under Section 8 of the Arbitration and Conciliation Act, 1996.
Secondly, the Draft Bill seeks to introduce a significant change in Section 9 of the Arbitration and Conciliation Act, 1996. As per the existing regime, arbitral proceedings were to commence within ninety days from the order providing an interim relief or as the Court may determine. However, as per the proposed change, the arbitral proceedings are to commence within ninety days from the date of the application filed under Section 9 of the Arbitration and Conciliation Act, 1996. However, this change can lead to an anomalous consequence. Take for instance a situation where the application under Section 9 of the Arbitration and Conciliation Act, 1996 takes more than ninety days to be disposed of and an interim relief is granted by the Arbitral Tribunal so formed. In such a case the Court’s order passed later in time may not be in line with the Arbitral Tribunal’s order, leading to inconsistent and even conflicting decrees or directions. On the other hand, if the Court is unable to decide the application within ninety days and the arbitral proceedings commence anyway, then the application under Section 9 becomes redundant or merely a process to trigger the commencement of arbitral proceedings. Alternatively, if the Court does not decide the application filed under Section 9 of the Arbitration and Conciliation Act, 1996 within the stipulated ninety days, then the Court will forward the same to the Arbitral Tribunal. This can lead to delay in deciding matters which require urgent reliefs since the first phase of adjudication will be before the Court followed by a fresh consideration by the Arbitral Tribunal. Further, in practice, parties tend to settle and resolve their disputes once the interim relief under Section 9 of the Arbitration and Conciliation Act, 1996 is accorded by the Court. However, if the proposed change finds its way to the statute, then, there is a possibility that the settlement may be challenged by one of the parties on the ground that the statutory requirement of commencing the arbitral proceedings, after ninety days of filing the application under Section 9 of the Arbitration and Conciliation Act, 1996, was not met.
Thirdly, the Draft Bill proposes to amend Section 11 of the Arbitration and Conciliation Act, 1996 and seeks to introduce a timeline of sixty days, from the failure or refusal to appoint arbitrators, for filing an application for the appointment of arbitrators. This is a welcome change since as per the Supreme Court’s ruling in BSNL v. Nortel Networks India (P) Ltd.18, the extant timeline for filing an application under Section 11 of the Arbitration and Conciliation Act, 1996 was three years, which led to unnecessary delays in appointment of arbitrators.
Fourthly, the Draft Bill seeks to mandate the Arbitral Tribunal to adjudicate and decide issues of jurisdiction, under Section 1619 of the Arbitration and Conciliation Act, 1996, within thirty days from the date of the application under the said provision. While the arbitrators have been given autonomy to postpone the adjudication of these issues at a later point in time, they must record the reasons for the said postponement.
Fifthly, the stringent timelines also extend to appellate proceedings. The Draft Bill proposes to amend Section 37 of the Arbitration and Conciliation Act, 1996 and introduce a stipulated timeline of sixty days, from the date of receipt of an order which is being appealed against, to file an appeal. This provision is proposed to be in the nature of a non obstante clause and thus, the provisions of the Limitation Act, 196320 (Limitation Act) and the Supreme Court’s decision in State of Maharashtra v. Borse Bros. Engineers & Contractors (P) Ltd.21, is outdone. The Supreme Court’s ruling in Borse Bros. case22 lead to the creation of three different timelines for preferring an appeal under Section 37 of the Arbitration and Conciliation Act, 1996. The said ruling provided that in matters where the dispute is commercial in nature and is thus, governed by the Commercial Courts Act, 201523 (Commercial Courts Act) the limitation period for preferring an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 is sixty days, from the date of the order under challenge, as per Section 13(1-A)24 of the Commercial Courts Act. Further, for matters where the dispute is not governed by the Commercial Courts Act, the limitation period for preferring an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 was thirty days and ninety days for intra-court and inter-court appeals, as per the provisions of the Limitation Act. This trichotomy is proposed to be done away with by providing for a universal timeline for preferring appeals under Section 37 of the Arbitration and Conciliation Act, 1996.
Practice of parties and practitioners has evinced that stringent timelines have not resulted in an increased efficacy of arbitral processes. Disputes involving complex question of fact and law cannot be adjudicated in the same time as disputes involving a simpler application of a commercial principle. The introduction of Section 29-A to the Arbitration and Conciliation Act, 1996 did not only provide for a mandatory timeline for arbitrators to commence and complete arbitration proceedings but also provided for extension of the same timeline by the courts. As a matter of practice, another round of court litigation was added. The courts have more often than not considered statutory timelines under the Arbitration and Conciliation Act, 1996 to be directory and not mandatory in nature even in respect of other provisions. Therefore, it is advisable to have all statutory timelines of a directory nature to avoid unnecessary hassle to the parties where they have to rush and knock the Court’s doors for extensions.
Business made easy?
No conciliation in the title, since yes mediation
The Draft Bill proposes to drop the word “conciliation” from the title. This is in line with the recent Mediation Act, 202325 (Mediation Act) which seeks to include conciliation as a method of mediation but the amendments to the Arbitration and Conciliation Act, 1996 through Section 6126 and the Sixth Schedule27 to the Mediation Act, which provide for the deletion of all references to “conciliation” has not yet come into force. If these changes come into effect, then the Arbitration and Conciliation Act, 1996 will only be confined to arbitration.
Digitally yours
The Draft Bill validates a digitally signed arbitration agreement under Section 728 of the Arbitration and Conciliation Act, 1996. This welcome change saves the parties from the hassle of physically signing agreements. However, the Arbitration and Conciliation Act, 1996 does not specify the formality required around digital signatures. Does it mean soft signatures or digitally obtained ones through vendors such as e-Mudra, which uses one’s Aadhaar number to validate and authenticate signatures or do the digital signatures require more credentials of the parties signing it, should be clarified.
Virtual reality of arbitral hearings and what this does for online dispute resolution (ODR)
Further, the Draft Bill seeks to recognise and acknowledge arbitrations conducted entirely, or in part, through the use of audio-visual electronic means. This is a classic example of law following reality since after Covid-19, online hearings have become par for the course both in courts and in arbitrations. Until now, whilst online proceedings became the new normal, the Arbitration and Conciliation Act, 1996 did not formally provide for online proceedings. This proposed change is a welcome one — in more ways than one. Apart from recognising online hearings, it also legitimises the work of various ODR institutions such as Sama, Presolv360 and JustAct which routinely conduct arbitrations through online platforms. Such online dispute resolution or ODR mechanisms are preferred by banks and corporations which have disputes in large numbers since the arbitrations are adjudicated only on documents and the practices of a trial, which take a substantial amount of time, are done away with. However, some parties, who do not prefer resolution of disputes in an online mechanism, tend to create hurdles in virtually conducting arbitration proceedings. Such potential challenges are eliminated by the statutory recognition of online arbitration processes. This also follows suit from the recent judicial trend in recognising arbitral appointments by ODR institutions in the face of challenges calling them unilateral29. The National Institution for Transforming India (NITI) Aayog in its recent report titled “Designing the Future of Dispute Resolution — The ODR Policy Plan for India ”30 has batted for the implementation of ODR mechanisms in the Indian arbitration regime and Securities and Exchange Board of India (SEBI) has also introduced a Master Circular for Online Dispute Resolution dated 31-7-202331 which mandates resolution of disputes by employing ODR mechanisms. Therefore, responding to the need of the hour and accepting this change in the manner of conducting proceedings, the Draft Bill validates this technological paradigm shift.
Model arbitration agreement
There are a number of changes which the Draft Bill proposes to bring forth with respect to the Arbitration Council. While majority of these changes are procedural in nature, one of the newly added responsibilities of the Arbitration Council is to provide for model arbitration agreements which can be referred to and used by the parties before submitting their disputes to arbitration. As long as these model arbitration agreements and the reliance to be placed by parties upon them is discretionary and voluntary in nature, the proposed change can aid and assist parties while framing their arbitration agreements. However, if the model arbitration agreement or its provisions are made mandatory, then the essential room to manoeuvre and to add to and amend the language of the arbitration clause in order to include all essential elements parties wish to include completely goes away. This militates against the need for arbitration to remain a consent-based regime.
Increased interest
A commercial change proposed by the Draft Bill comes through an amendment to Section 31 of the Arbitration and Conciliation Act, 1996. The extant Section 31 of the Arbitration and Conciliation Act, 1996 provided that, unless the arbitral award provides otherwise, the award will carry interest at the rate of two percent higher than the current rate of interest prevalent on the date of the award. However, the Draft Bill changes the provision to now provide for interest at the rate of three per cent higher than the prevailing repo rate of the Reserve Bank of India. This will result in arbitral awards, which do not provide for a rate of interest, to carry interest at the rate of 9.5% (as the repo rate is currently at 6.5%), which is a substantial increase from the current regime. This change can incentivise parties to choose India as their seat of arbitration, however, at the cost of the award-debtor incurring a larger debt.
Conclusion
This Draft Bill has some hits and perhaps more misses. There is a fear that this is leading to over-regulation. Arbitration is a party-based dispute resolution mechanism, and its uniqueness and exclusivity lie not only in party autonomy but also self-regulation by the parties and the Arbitral Tribunals. Arbitration as a mechanism is best evolved through Arbitral Tribunals and their practices. There is no gainsaying that statutory mandates are required to ensure a smooth and consistent arbitral process, however, these mandates should be in the form of flexible boundaries and not rigid structures.
*Partner, Dispute Resolution, Trilegal and her team. Author can be reached at: shalaka.patil@trilegal.com.
**Associate, Trilegal. Author can be reached at: amaan.rahman@trilegal.com.
1. Arbitration and Conciliation Act, 1996.
3. Arbitration and Conciliation Act, 1996, S. 2.
4. Arbitration and Conciliation Act, 1996, S. 9-A.
5. Arbitration and Conciliation Act, 1996, S. 17.
6. Arbitration and Conciliation Act, 1996, S. 37.
7. Arbitration and Conciliation Act, 1996, S. 20.
8. Arbitration and Conciliation Act, 1996, S. 9.
10. Arbitration and Conciliation Act, 1996, S. 31.
11. Arbitration and Conciliation Act, 1996, S. 34.
13. Arbitration and Conciliation Act, 1996, S. 29-A.
14. Arbitration and Conciliation Act, 1996, S. 31-A.
15. Arbitration and Conciliation Act, 1996, S. 11.
16. Constitution of India, Art. 136.
17. Arbitration and Conciliation Act, 1996, S. 8.
19. Arbitration and Conciliation Act, 1996, S. 16.
23. Commercial Courts Act, 2015.
24. Commercial Courts Act, 2015, S. 13(1-A).
26. Mediation Act, 2023, S. 61.
27. Mediation Act, 2023, Sch. 6.
28. Arbitration and Conciliation Act, 1996, S. 7.
29. Moneywise Financial Services v. Cellugen Biotech (P) Ltd., Execution (Comm.) 262 / 23 (Ld. Commercial Court 1, Saket) order dated January 5, 2024; Retail (P) Ltd. v. Ugro Capital Ltd., Com. A.A. No. 297 / 2022 (Ld. CCH-85 Commercial Court, Bengaluru), order dated September 5, 2022; Nalini Gupta v. Ugro Capital Ltd., OMP (COMM.) No. 13 / 24 (Ld. Commercial Court 8, Tis Hazari), order dated April 19, 2024.
30. NITI Aayog Expert Committee on ODR, ”Designing the Future of Dispute Resolution — The ODR Policy Plan for India“ (October 2021).
31. Securities and Exchange Board of India, Master Circular, Online Resolution of Disputes, SEBI/HO/OIAE/OIAE IAD-1/P/CIR/2023/145 (Issued on 31-7-2023).
