Saturday, August 23, 2014

Guest Post - Proposed Amendments to Arbitration Law: Part 2

[The following post is contributed by Prachi Narayan and Aditi Pal of Vinod Kothari & Company. They can be contacted respectively at and

This is a continuation of a previous post]

Powers of Tribunal and interim measures: Section 17 of the Act provides that the arbitral tribunal has the power to order interim measures of protection, unless the parties have excluded such power by agreement However, the Apex Court has held that the even though the tribunal is empowered to pass interim orders, the same cannot be enforced as orders of court as it is only section 9 of the Act, that expressly provides for courts’ powers to pass interim measures in case of arbitration. In light of the same, the Commission thus suggested amendments to section 17 that would not only provide teeth to interim orders of the arbitral tribunal but also provide for the due recognition and enforcement as “Court Orders”.

Arbitrability of fraud and complicated issues of fact: The issue of arbitrability of fraud has arisen on numerous occasions and there exist conflicting decisions of the Supreme Court on this issue. One set of decisions of the Supreme Court hold fraud and serious issues of allegations as “non-arbitrable”, while the others recently have in the interest of justice and equity expressly held them to be arbitrable. In the absence of a clear provision of the Act as to what constitutes an arbitrable issue and what does not and in order to rest the controversies, the Commission has suggested amendments to section 16 of the Act thereby making issues of fraud expressly arbitrable.

Neutrality of Arbitrators: One of the basic ingredients of any judicial or quasi-judicial adjudication is that it must be in accordance with principles of natural justice and fairness. In the context neutrality of adjudicating authorities including those of arbitrators, viz. their independence and impartiality, is critical and vital to the entire process of adjudication. Section 12(3) of the Act, provides that “An arbitrator may be challenged only if (a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality...”. However, the test is to identify such circumstances that lead or give rise to justifiable doubts with respect to conduct of the arbitrator in the arbitration proceedings. Further, there has been plethora of judgments of the Supreme Court on this subject matter saying that the independence of the arbitrators cannot be compromised at any stage of proceeding. The Commission has suggested, “There are certain minimum levels of independence and impartiality that should be required of the arbitral process regardless of the parties’ apparent agreement.” With a view to combat this issue, the Commission has suggested the following:

- Requirement of having specific disclosures by the arbitrator, at the stage of his possible appointment, regarding existence of any relationship or interest of any kind which is likely to give rise to justifiable doubts.

- Incorporation of a Schedule that would serve guide to determine whether circumstances exist which give rise to such justifiable doubts.

- Situations of family arbitrations or other arbitrations where a person commands the blind faith and trust of the parties to the dispute, despite the existence of objective “justifiable doubts” regarding his independence and impartiality.

Amendment to definition of "party": Arbitration is a consensual form of dispute resolution, with the arbitral tribunal deriving powers and authority on the basis of the “contract” or the “agreement” between the parties. Parties cannot invoke arbitration unless there exists an agreement between them. Further, this gives rise to a widespread consequence – it takes away the right of the party to the arbitration agreement to avail its remedies in a traditional courts for disputes covered by the arbitration agreement; and makes the consequent award binding, with a limited right of recourse. It is further noted here that the parties to the agreement are the ones bound by the award of the arbitrators and thus excludes from within its purview that are connected and are essential to the dispute. Taking a narrow interpretation of the term “party” to the agreement would not be satisfactory and thus the Commission has proposed to amend the definition of “party” accordingly.

Costs and Interest on sums awarded: Litigation in India is an expensive proposition and arbitration is no such exception to it. However, in order to fine-tune the same, the Commission recommended a new section to empower arbitral tribunals to award costs that are rational and realistic.

The issue on whether arbitral tribunals are authorized to award future interest is payable not only on the principal sum but also on the interest accrued till the date of the award has been a controversial one in absence of any express and clear provision/intent under the Act. The Commission has thus made efforts to clarify the scope of powers of the arbitral tribunal to award compound interest, in as much as to rationalize the default rate from the existing rate of 18% to a market based determination in line with commercial rates.

Other amendments

Place of Incorporation: An amendment has been proposed to the definition of “international commercial arbitration so that the test for determining the residence of a company is based on its place of incorporation and not the place of central management/control.

Definition of “Arbitration Agreement”:  The Commission has proposed that the arbitration agreement in question or dispute must envisage a “subject matter capable of settlement by arbitration.” This is done so as to give statutory recognition to the doctrine of arbitrability. Further amendments are suggested to extend the scope and bring within the purview those arbitration agreements also that are accomplished by way of electronic communication/means.

Forfeiture of statement of defence: Adjudication of disputes is delayed many a times due to dilatory tactics of the Respondent in communicating its statement of defence. In order to prevent this, the Commission has proposed amendments to section 25 (b) to include within the power of the arbitral tribunal the discretion to forfeit such a right of the respondent and proceed as undefended.


The Arbitration and Conciliation Act, 1996, even though in force for almost two decades, has failed in terms of its intrinsic deliverables due to inconsistencies and infirmities including those of high costs and delays. These inordinate delays as opposed to the basic objective of the Act of speedy justice put the alternative dispute regime at par with the traditional judicial regime. Even though traditional courts have to a major extent been pivotal in upholding the inherent objective of the Act, however, it often happens that arbitration related proceedings get caught up and lost in the huge list of pending cases, thereby frustrated the very object of quick alternative disputes resolution.

In order to straighten these infirmities and get in line with the international practices the amendments to the Act were indispensable and once enacted hope to surface and uphold real intent behind the alternative dispute resolution legislation.


- Prachi Narayan and Aditi Pal

No comments: