Quick Overview: Arbitration (Amendment) Ordinance, 2015

Below is Guest Post from Paavni Anand. Paavni is a fourth year student at the West Bengal National University of Juridical Sciences, Kolkata.

President Pranab Mukherjee has promulgated the Arbitration and Conciliation Amendment Ordinance, 2015 to amend the Arbitration and Conciliation Act 1996. The Ordinance is largely aimed at encouraging ease of doing business in India in a bid to promote foreign investment in India. The following major amendments have been proposed: 

1. A distinction has been made as regards to jurisdiction for international commercial arbitration, and for all other matters. For the former, the appropriate High Court shall have jurisdiction, whereas for the latter, the principal Civil Court of original jurisdiction or the High Court shall have jurisdiction. 

2. The following sections shall apply to international commercial arbitration even when the place of arbitration is not in India: 

• Section 9 which deals with interim measures by the Court, 
• Section 27 that deals with Court assistance in taking evidence, 
• Section 37(1)(a) which states than an appeal shall lie on orders granting or refusing to grant measures under Section 9, and 
• Section 37(3) which states that no second appeal shall apply in such cases 

3. In a case the arbitration agreement or certified copy thereof is not available to the party applying for reference for arbitration, such party can file an application praying the Court to call upon the other party to produce the same. 

4. If the court passes any interim measure under Section 9, the arbitral proceedings must commence within 90 days of the court doing so. 

5. No application for interim measure under Section 9 shall be entertained after the arbitral tribunal has been constituted unless the remedies under Section 17 have been rendered inefficacious. 

6. The High Court may frame rules for the purpose of determination of fees of the arbitral tribunal and the manner of its payment to the arbitral tribunal. However, such rules shall not apply to international commercial arbitration and in arbitrations where parties have agreed for determination of fees as per the rules of an arbitral institution. 

7. The provisions to ensure independence of arbitrators have been elaborated upon under Section 12. The Fifth Schedule has also been inserted enumerating certain grounds for the same. A potential arbitrator must disclose in writing circumstances such as the existence of direct or indirect, past or present relationship with any of the parties or in relation to the subject matter of the dispute which is likely to give doubts as to independence shall be disclosed. Further disclosures in writing with respect to circumstances which are likely to affect their ability to devote time towards the arbitration shall be made. The applicability of this sub-section can be waived by the parties in writing, subsequent to the dispute having arisen. 

8. Interim measures ordered by the arbitral tribunal have been delineated as follows: 

• Appointment of a guardian for a minor or person of unsound mind 
• Measures protecting goods, or amount of money, or property which is subject matter of the dispute 
• Interim injunction or appointment of receiver 
• Such other measures for protection 

9. A time limit of twelve months from the date of entry of the tribunal upon reference has been provided under Section 29A before which the award shall be made by the tribunal. Additional fees shall be provided to the tribunal if an award is made between six months. If the parties give consent to an extension, it shall be made for a further period up to six months. 

10. Fast track procedure has been instituted under Section 29B wherein parties may agree in writing to have their dispute resolved by a fast track procedure. The award shall be made within six months.There shall be no oral hearing, and decisions shall be made on the basis of written pleadings, documents, and submissions filed by the parties, along with any further information called for from the tribunal. Oral hearings shall be made if all the parties agree and the tribunal finds it necessary. A new Section 31A has been added giving specific provisions for costs regime. 

11. The ambit of setting aside an award for being in conflict with public policy under Section 34 has been broadened to include not only contravention with Section 75 or Section 81, but also if it is in contravention with the “fundamental policy of Indian law” or if it in conflict with the “most basic notions of morality or justice”. 

The ordinance is largely in line with the recommendations put forth in the 246th Report of the Law Commission of India. The amendments would be a step forward in making arbitration an easier, faster and more cost effective method of dispute resolution, especially to attract foreign investors to invest in India. 

The full text of the ordinance can be accessed below.

Indian Arbitration Act Amendment Ordinance by Ashutosh Ray

BREAKING: ARBITRATION ORDINANCE PROMULGATED

Two ordinances, one on  Constitution of Commercial Courts and another to amend the Arbitration and Conciliation Act 1996, have been promulgated by the President of India. Press Information Bureau of Government of India reports it here.

The ordinance on amendments to the Arbitration and Conciliation Act is expected to carry most of the changes recommended by the 246th Report of the Law Commission of India. See here for more information on the suggestions by the 246th  Report of the Law Commission of India.

Arbitration Amendments: Through Ordinance or Parliament Debate?

Many newspapers, here, here, here, here  and here have reported that the ordinance for change in arbitration law has been passed. The reports also mention that most of the recommendations of the Law Commission of India submitted in its 246^th Report have been incorporated. The ordinance however, is not yet publicly available.

I have learnt that the ordinance has not yet been passed as the President has not yet signed it. There is a new report stating that the amendment Bill might now be tabled in the Parliament.

Supreme Court to reconsider Bhatia

The Hindu reports that the Supreme Court has constituted a five judge bench to reconsider the decision in Bhatia International v. Bulk Trading S.A. (Bhatia International). As we have discussed in several posts in the past, the Supreme Court's interpretation of Section 2(2) of the Arbitration and Conciliation Act, 1996 has been at the root of a chain of cases that have had severe adverse impact on the institution of arbitration in India.  This decision, by making Part I of the Act (and the powers under it, like the power to set aside an award under Section 34) applicable to arbitrations held outside India, rendered the Indian approach to arbitration extremely parochial. Some problems arising out of the decision, especially in the context of investment treaty arbitration was discussed here. Also, we had reported here how a Calcutta High Court decision following Bhatia had resulted in India being dragged into its first ever investment arbitration by an Australian investor.

The decision to reconsider Bhatia is a welcome one. Recently, the Government proposed overcoming the effects of Bhatia through legislative action. However, now the judiciary appears to be willing to clean up the mess that is its own creation.

The decision of the constitutional bench in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., which will finally decide the fate of Bhatia (and with it, the fate of arbitration in India) is eagerly awaited.

Proposed amendments to Section 2(2) - The need for further revision: Guest Post by Adithya Reddy

Following is a guest post by Adithya Reddy. Mr. Reddy is an alumnus of NUJS and a practising advocate at Madras High Court. He argues that the proposed extension of Section 27 of the Arbitration and Conciliation Act to arbitrations seated outside India is unnecessary and erroneous.


The Ministry of Law and Justice in its Consultation Paper on the proposed amendments to Arbitration Act, expectedly, criticized the decision of the Supreme Court in Bhatia International vs. Bulk Trading, (2002) 4 SCC 105 and recommended statutory change to overcome its dictum that “in absence of the word ‘only’ in Section 2(2), Part I of the Act would apply to arbitration held outside India, so long as the law of India governed the contract”. The paper suggests that Section 2(2) of the Act be amended as follows:


“(2) This part shall apply only where the place of arbitration is in India.

Provided that provisions of Sections 9 and 27 shall also apply to international commercial arbitration where the place of arbitration is not in India if an award made in such place is enforceable and recognized under Part II of this Act.”

Ban on foreign lawyers – another nail in the coffin of India’s international arbitration dreams

Some Indian students at Oxford have started a blog called Critical Twenties which discusses a wide range of topics from sports to law. They were kind enough to invite me to send a few guest posts.


My first post in Critical Twenties discusses how India's ban on foreign lawyers impacts its attempts at becoming an international arbitration destination. I suggest that an exception be made so that foreign lawyers can appear before international arbitral tribunals proceeding in India. I believe, without this, no amount of amendment to arbitration law will really serve the goal of making India a preferred seat of arbitration.

BCI invites comments on proposed amendments to the Arbitration and Conciliation Act

In previous posts, we had highlighted the proposed amendments to the Arbitration and Conciliation Act, 1996. The Bar Council of India has invited comments on the matter from the general public. The comments can be emailed to feedback@barcouncilofindia.org with "Arbitration and Conciliation Act" in the subject line. More details can be found here.

Recent Developments on the Scope of S. 11 Jurisdiction: Guest Post by Niranjan V.

We are happy to publish here a guest post by Niranjan V. Niranjan is a final year student of law at National Law School of India University Bangalore. He is a Rhodes Scholar elect for the present academic year and will proceed to read for BCL at Oxford University. The following is the text of Niranjan's post. We express our sincere gratitude to Niranjan for this post.

It is no surprise that the Government of India released a Consultation Paper in April 2010, proposing (effectively) a new Arbitration Act. In its short history of fourteen years, the Arbitration and Conciliation Act, 1996, has attracted strong criticism, especially on account of a series of well known Supreme Court decisions that are said to have interpreted the Act widely. As these decisions themselves are too well-known to require discussion, the purpose of this post is to highlight interesting developments arising out of one of these – SBP v. Patel Engineering, AIR 2006 SC 540.

New Arbitration Law in the offing for UAE

The UAE Ministry of Economy has released a draft of the Federal Arbitration Law for consultation, which, replacing the provisions of the Civil Procedure Code regarding arbitration, is likely to be enacted within a year, with minor amendments and absent strong objections.

The scope of this proposed law is quite wide, covering arbitrations governed by UAE procedural law as well as rules of the arbitral centre under which arbitration is being conducted. UAE has, as yet, not adopted the UNCITRAL Model Law on International Commercial Arbitration and the draft law is largely based on the Egyptian arbitration law.

Bhatia will survive the amendments: Anyone in mood for a bet?

Rukmini had discussed in a previous post how the proposed amendments to the Arbitration and Conciliation Act would negate the basis of the decision in Bhatia. It just dawned on me what a bench of the Honourable Supreme Court of India is likely to say if confronted with the S. 2(2) as proposed to be amended. Well, as Justice Holmes puts it, study of law concerns nothing but “prophecies of what the courts will do”. So here goes my prediction.

Some background to the prediction:

The text of S. 2(2) [unamended] reads: "This Part shall apply where the place of arbitration is in India". The Supreme Court in Bhatia held that this is not equivalent to "This Part shall apply only where the place of arbitration is in India". 

The Section, after the proposed amendment will read, “2.(2) (a) Save as otherwise provided in clause (b), this Part shall apply where the place of arbitration is in India. (b) Sections 8, 9 and 27 of this Part shall apply to international arbitration (whether commercial or not) where the place of arbitration is outside India or where such place is not specified in the arbitration agreement.” It is pertinent to note that though the consultation paper proposes the addition of the word "only", the Bill as it stands now reads the way I have quoted.

What a reasonable reader would infer:

In this context the word "reasonable" has been used as we use it in the context of "reasonable man". This is not to attribute unreasonability to honourable courts for adopting a different reading from what I call the "reasonable reader" would adopt.

To a reasonable reader it would appear from the insertion of the words "Save as otherwise provided in clause (b)" and from the fact that S.2(2)(b) makes Sections 8, 9 and 27 applicable specifically to arbitrations held outside India as well, that provisions of Part I other than those named in S.2(2)(b) will not apply to arbitrations held outside India.

But, the reasonable reader is not much of an assistance when it comes to predicting judicial behaviour in context of arbitration in India. I would say that a reasonable reader would, while reading unamended Section 2(2), have supplied the word "only" and confined the application of Part I to arbitrations held in India alone.

What those exercising exclusionary reasons will say - the prediction:

I remember studying in jurisprudence that a court of law exercises exclusionary reason. That is, once a matter is decided by it, the reasons agitated before it become irrelevant and the only reason for the validity of a legal proposition becomes the fact that it has been upheld by the authority. So, our reasonable reader and her reasoning will no more be relevant except for academic purposes the day a court exercises its exclusionary reason. Here is my prediction on what the courts will say and based on what reasons:

"Even while amending Section 2(2), the legislature has not included the word "only". If the legislature, which was fully aware of the decision in Bhatia and the fact that the decision hinged on the absence of the word "only" in S.2(2) did not insert the word "only" even during its amending exercise, no legislative intent can be inferred that the statute depart from the position laid down in Bhatia. This takes us to the question of what the effect of the amendment is. It is our considered view that while adhering to the position in Bhatia, the legislature additionally provided for mandatory application of Sections 8, 9 and 27. Therefore, the current position of law in this regard is - (i) Whole of part I applies mandatorily where the place of arbitration is in India; (ii) All provisions of Part I except Sections 8, 9 and 27 apply to arbitrations held outside India if not specifically excluded by the contract between the parties; (iii) Sections 8, 9 and 27 apply mandatorily to all arbitrations whether held in India or abroad."

Any one in mood for a bet? I will enter into the bet only if the agreement to bet is NOT governed by the laws of India (or any other country where wagers are unenforceable) AND any disputes arising out of or in connection with the bet are subject to arbitration with its seat outside India AND lex arbitri not being Indian law.

Ireland, Scotland pass new arbitration laws

President Mary McAleese of Ireland signed the Arbitration Act  2010 on 8th March 2010.  The Act is to come into force on 8th June 2010. The final version of the Bill can be found here.


Another recent legislation on arbitration, Arbitration (Scotland) Act, 2010 can be found here.

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.

Australia to overhaul its arbitration law

In a previous post, we had discussed some proposed amendments to the Arbitration and Conciliation Act. India appears to be not the only country currently engaged in the exercise of completely overhauling its arbitration laws. On 7th May (Friday), the Office of the Attorney General for Australia published a press release welcoming the decision by the Standing Committee of the Attorneys - General to adopt uniform national laws on domestic arbitration. 

Under the current Australian framework, international arbitration is governed by the International Arbitration Act, 1974, a federal statute, and domestic arbitration is governed by the Commercial Arbitration Act (CCA), as adopted by each of the six States and two Territories. Though some uniform provisions have been incorporated into the CCA through amendments of 1984 and 1993, the provisions of CAA vary largely from one State to another.

The new Model Commercial Arbitration Bill is based on the UNCITRAL Model Law and its adoption by all the States and Territories is expected to result in uniformity not only between the arbitration laws of different provinces but also between the legal frameworks governing international and domestic arbitrations.

The text of the Model Bill does not appear to have been made available to the public yet. It is interesting to note that the adoption of the Model Bill has followed an announcement by the Commonwealth and the New South Wales Government of the establishment of a dedicated international dispute resolution center based in Sydney.

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.