Tuesday, May 4, 2010

Some proposed amendments to the Arbitration and Conciliation Act (Part I)

This post is a short comment on some of the proposed amendments to the Arbitration and Conciliation Act, 1996 discussed here in which the Law Ministry has attempted to nullify the effect of some Supreme Court judgments and reinforce some others. LegallyIndia has discussed the ramifications of some of these amendments. Some further issues are discussed here.

The Venture case discussed in the earlier post based its decision on the landmark, yet controversial judgment of the Supreme Court in Bhatia International v. Bulk Trading S. A., (2002) 4 SCC 105. The Court held, inter alia, on an interpretation of section 2(2) of the Act that Part I of the Act applies to arbitration taking place outside India as well. The reasoning of the Court was based on the omission of the word "only" from clause (2) of section 2, which was present in the corresponding provision in the UNCITRAL Model Law on International Commercial Arbitration on which this Act was based. The proposed amendment to section 2(2), although not inserting the word "only", brings it more into line with the UNCITRAL Model Law, thus negating the reasoning in Bhatia, to that extent. This being the argument on which the Court based its decision, undermines the decision itself, thus leaving the Venture decision, too, without legal basis.

An important aspect of the Venture decision, other than applying Part I of the Act to arbitration held outside India was applying the ratio in ONGC v. SAW Pipes, (2003) 5 SCC 705. The Court in Venture held that to test if a foreign award is contrary to public policy, the criteria laid down in SAW Pipes would be applicable. The SAW Pipes judgment, rendered in context of a domestic award, expressly excluded applicability of this "broad view" of public policy from foreign awards. The test for the same was laid down in Renusagar Power Corporation v. General Electric Co., AIR 1994 SC 860, which adhered to the "narrow view" of public policy. The new amendments to the Act clearly define public policy in the context of domestic as well as foreign awards in Explanation 2 to section 34. This gives statutory backing to what was held in Renusagar and relied on in SAW Pipes. Further, a proposed new section 34A inserts the new ground for domestic awards introduced in SAW Pipes as "patent illegality". The words used in the amendment are "error which is apparent on the face of the arbitral award giving rise to a substantial question of law". This section is applicable only in case of arbitrations other than international arbitrations. However, a reading the newly inserted definitions of "domestic arbitration" and "international arbitration" indicates that all arbitrations held in India, even if one of the parties is not Indian. Therefore a broad meaning of the term "public policy" is attracted whenever an arbitration is held in India. Here, too, the decision in Venture stands to lose effect if the aforementioned amendments are enacted into law.

Another important amendment, this time reinforcing a Supreme Court judgment, S. B. P. & Co. v. Patel Engineering Ltd., AIR 2006 SC 450, replaced the term "Chief Justice" with "High Court" and "Chief Justice of India" with "Supreme Court". This decision, too was controversial, overruling a 3 judge bench decision in Konkan Railway Corporation v. Mehul Construction Co., (2000) 7 SCC 201 and a Constitutional Bench decision in Konkan Railway Corporation v. Rani Construction Co., AIR 2002 SC 778 and with a strong dissent by Justice Thakker.

The question in all these cases was the nature of authority of the Chief Justice under section 11 of the Act in appointing arbitrators. The Konkan Railway cases held that it was an administrative function whereas Patel Engineering overturned them, holding it to be a judicial function. This matter would not be in controversy any longer, after substitution of the Chief Justice with the High Court and Supreme Court in the Act. However, the distinction between the office of the Chief Justice and the Court he presides over, which was stressed on in Patel Engineering, becomes irrelevant as the function is no more vested in the Chief Justice.

The amendments proposed are several in number, and many of them might have far reaching consequences for arbitration in India. These will be discussed in further posts.


  1. Another post on the same topic by Mihir Naniwadekar may be found at http://legaldevelopments.blogspot.com/2010/05/consultation-paper-on-arbitration.html

  2. I think this post and the one by Deepak on 'Anyone in mood for a bet' proceed on the incorrect assumption that the word 'only' has not been inserted. I believe you have consulted the Bill tabled in the Rajya Sabha in 2003 and mistakenly thought of that as being the draft proposal.


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