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

I had discussed in a previous post some of the proposed amendments to the Arbitration and Conciliation Act. Interesting posts on the same topic have appeared on the Law and Legal Developments Blog and the Practical Academic Blog. In this post, I discuss some more of the proposed amendments.

An important provision in the Arbitration Amendment Bill is the widened scope of “domestic arbitration”. The definition of “domestic arbitration” proposes to include, as section 2(1)(ea), “international arbitration” and “international commercial arbitration” where the place of arbitration is in India.

This departs from the present position which did not include within the scope of domestic arbitration, an arbitration taking place in India between two foreign parties, or two parties, both of which have place of business outside India. This present position is similar to the law in Switzerland. The amendment, however, marks a clear departure from the UNCITRAL Model Law which, in Article 1(3), defines international arbitration.

Thus electing to arbitrate in India would mean that all the provisions of Part I of the Arbitration and Conciliation Act, 1996 would apply to international arbitrations seated in India, as was envisaged by the Supreme Court in Bhatia International v. Bulk Trading S. A.

This amendment could have implications for the lex arbitri, or the law governing arbitration which applies to the arbitration proceedings and arbitral procedure. Often, parties may agree to a separate seat of arbitration (locus arbitri) and separate law governing the arbitration (lex arbitri). That is, the law governing arbitration (lex arbitri) need not be the law of the seat of arbitration (lex loci arbitri). If parties do not make a choice of lex arbitri, though there is a presumption in favour of lex loci arbitri, the same is not cast in stone. However, for an arbitration seated in India, it appears that it would be mandatory to follow Indian law of arbitration.

Though the autonomy of parties in respect of lex arbitri has been curtailed, this freedom appears to have been preserved in respect of substantive law under which the dispute is to be adjudicated. Usually in domestic arbitrations, the parties are bound by the substantive laws of the country. However, despite bringing international arbitrations held in India under the definition of “domestic arbitration”, Indian substantive law is not made mandatorily applicable to these disputes. Section 28(1A), as proposed, which discusses the substantive law of the dispute, gives paramountcy to the will of the parties as expressed in their contract. Failing agreement by the parties, the power lies with the arbitral tribunal to make a choice of law. Moreover, as mentioned in an earlier post, the public policy standards for setting aside awards from international arbitrations held in India remains different from that for setting aside other domestic awards.

Moreover, as the applicability of Part I (except Sections 8, 9and 27) to arbitrations held outside India stands excluded as discussed in a previous post, it appears that it is no more tenable to consider awards rendered outside India, even in non-convention countries as domestic awards. So, it may be argued that the “lacuna in law” that the judgment in Bhatia feared in this regard is set to come true. However, I have strong reservations to the “lacuna in law” argument of Bhatia. Judgments in Renusagar Power Co. v. General Electric Co. and ONGC v SAW Pipes make express references to principles of Common Law regarding enforcement of foreign judgments and awards. In the face of “lacuna” in Indian statutory law, these principles can provide useful guidance. Moreover, the intention of the Parliament to base recognition and enforcement of awards on a system of reciprocity is evident in the text of Section 45 itself.