Arbitration amendments and Indian High Courts: The story so far

Arbitration and Conciliation

Dr. Amit George

The passage of the Arbitration and Conciliation (Amendment) Act, 2015 (“Amendment Act”) marked the culmination of a long-drawn and convoluted process of bringing about vital necessary changes to the Arbitration and Conciliation Act, 1996 (“1996 Act”). The ground-breaking nature of the amendments brought into effect, and the potential far-reaching repercussions that they entailed for the arbitration regime in particular and the commercial law landscape in general, were immediately apparent.

However, much as the proof of the pudding is in the eating, in the Indian context the efficacy of any statutory enactment and its ultimate impact is heavily dependent on the interpretation that the Courts place upon its provisions. This truth is starkly evident in the backdrop of the 1996 Act.1

Therefore, today, more than a year since its provisions were brought into effect, it is important to review the treatment of the provisions of the Amendment Act by the judiciary to discern its true impact on the country’s arbitration regime.

Though not intended as an extensive critique of the various judgments it examines, this article attempts to provide a brief overview of the important judicial decisions in connection with the Amendment Act.

Applicability of the Amendment Act

When the Arbitration and Conciliation (Amendment) Ordinance, 2015 (‘Ordinance”) was promulgated on 23rd October in 2015, the lack of a provision therein clarifying the issue of prospective or retrospective applicability of its provisions, had raised immediate concern.

The High Court of Madras in Delphi TVS Diesel Systems Ltd2, while dealing with the Ordinance, had perceptively noted with palpable disquiet the potential chaos that any ambiguity or confusion in the applicability of the amended provisions introduced by the Amendment Act to pending3 arbitration proceedings would entail. However, the attempt to remedy this obvious oversight in the Ordinance, and to instil a sense of certainty, by incorporating section 264 in the Amendment Act has not succeeded.

The text of the section has subsequently resulted in varied interpretations and occasioned a cacophony of contrasting decisions by the High Courts. One of the first such decisions was that of a Single Judge of the High Court of Calcutta in Electrosteel Castings Ltd. v. Reacon Engineers (India) Private Ltd.5 wherein it was held that the provisions of the Amendment Act, in that case the amended section 36, would not apply to pending arbitration or court proceedings.

A similar view was taken by another Single Judge in Nitya Ranjan Jena6 However, soon thereafter, a Division Bench of the very same High Court in Tufan Chatterjee7 took a markedly different view in as much as it held that while the Amendment Act would not apply to proceedings pending before an arbitrator, the Amendment Act would definitely apply to all pending court proceedings.

These dichotomous views continue across, and within, the various High Courts.

The High Court of Madras in New Tirupur Area Development Corporation8 held that the provisions introduced by means of the Amendment Act shall apply to petitions pending under Section 34 of the Act. However, in a subsequent decision of the same High Court in Jumbo Bags Ltd9, it was held that the amended provisions introduced by the Amendment Act would not in any manner apply to pending proceedings.

A Single Judge of the High Court of Bombay in Rendezvous Sports World10 has taken the view that the amended section 36 shall apply to proceedings pending before Courts. However, in a recent decision of another Single Judge of the very same High Court in The Board of Trustees of The Port of Mumbai11 it has been held that the provisions of the Amendment Act, in that case the amended section 34, would not apply to pending proceedings.

A Single Judge of the High Court of Delhi in ICI-SOMA12 and subsequently in Raffles Design International India Private Limited & Ors.13 while dealing with the amended section 36 in both cases, opined that the provisions of the Amendment Act would apply to pending proceedings.

However, another Single Judge in Krishan Radhu14, while dealing with the amended section 8, took a view to the contrary. Recently, a Division Bench of the High Court of Delhi in Ardee Infrastructure Pvt. Ltd.15 has unequivocally held that the provisions of the Amendment Act, in that case the amended sections 34 and 36, would not apply to pending proceedings if they, in any manner, disturbed any vested rights under the 1996 Act.

The High Court of Madhya Pradesh in Pragat Akshay Urja Ltd. Company16 and the High Court of Tripura in Subhash Podder & Ors.17 have taken the view that the amended provisions introduced by the Amendment Act would not apply to pending proceedings.

The High Court of Gujarat has added another dimension to the debate with its conclusion in OCI Corporation18 that the Amendment Act would not apply to pending proceedings if they fell within Part-I of the 1996 Act but on the other hand would apply to pending proceedings commenced outside India which would fall outside the purview of Part-I of the 1996 Act.

To complete the narrative, it is important to take note of the decision of the High Court of Delhi in Madhava Hytech-Rani (JV)19 wherein it was held that a clause in a contract which provided that the arbitration proceedings were to be governed by the provisions of the 1996 Act “or any statutory modification or re-enactment thereof”, would result in the applicability of the Amendment Act to pending proceedings in as much as the parties had expressly agreed so and section 26 of the Amendment Act also permitted such an exception based on an agreement between the parties. 

Independence and Impartiality provisions pertaining to Arbitrators

The provisions of the Amendment Act imposing exhaustive and stringent requirements for determining eligibility to be appointed as an arbitrator, as exemplified in Schedule V and VII, have been enthusiastically implemented by the Courts.

There has been a sea-change in the judicial approach to employees of one of the parties, particularly PSU’s, acting as arbitrators in disputes involving their employers.

The High Court of Delhi in Assignia-VIL JV20 refused to allow serving employees of the PSU in question to be appointed as arbitrators even though the contract expressly permitted this.

Several other High Courts have since followed suit21. The High Court of Patna in SDB- SPS (JV)22 has in fact gone to the extent of declaring various sections of the Bihar Public Works Contracts Disputes Arbitration Tribunal Act, 2008 to be bad in law and unenforceable for the reason that they were found to be in conflict with the independence and impartiality provisions of the Amendment Act23.

A more permissive view has however been taken with regard to former employees with various High Courts upholding appointments, with certain caveats, of former employees of one of the parties as arbitrators under the Amendment Act23.

A noteworthy decision of the High Court of Delhi in Dream Valley Farms Private Ltd. and Ors.24 relied on the Amendment Act to unseat an arbitrator who was simultaneously enjoying appointment as an arbitrator in over 27 pending arbitration cases pertaining to one of the parties to the dispute, and having been so appointed by that very party. By doing so, the High Court invoked the inherent bar against ‘captive arbitrators’ that has been introduced by means of item nos. 22 & 24 of Schedule V of the Amendment Act.

Scope of examination under Section 11

The scope of examination while considering a petition for appointment of an arbitrator in a petition under section 11 of the 1996 Act extended to the issues falling within the “first and second categories” as identified by the Supreme Court in National Insurance Company Ltd.25

These issues often involved extremely contested determinations relating to limitation, accord and satisfaction etc. However, while interpreting the amended section 11 as introduced by the Amendment Act, the High Court of Delhi in Picasso Digital Media Pvt. Ltd.26 and in Jindal Stainless Ltd.27 has signalled a significant shift in this position. The High Court held that the scope of examination by the Court at the stage of deciding whether to appoint an arbitrator is now confined only to the existence of the arbitration agreement, and issues such as accord and satisfaction, misrepresentation etc. are to be examined by the arbitrator so appointed.

Enforcement of Interim Orders passed by the Arbitral Tribunal

Under the 1996 Act, the power of an arbitral tribunal to pass interim orders under section 17 was much more limited as compared to the comparable powers of the Court under section 9.

After the amendment to section 17, the Arbitral Tribunal has been conferred with powers on par with a Court to pass orders for interim measures. These interim orders have also been made enforceable in the same manner as if they were orders of a Court.

However, the High Court of Kerala in Pradeep K.N.28 has added a significant caveat to the exercise of these powers under the amended section 17 by holding that any use of force by the Tribunal to enforce and put its interim order in motion without the intervention of the Court, such as by directly ordering repossession of vehicles through appointment of a local commissioner, would be illegal and would be treated as a violation of Article 21 of the Constitution of India in as much as such an exercise can only be performed by the Court in the exercise of its sovereign function.

Scope of Judicial Interference in Awards

In relation to domestic awards, the High Court of Delhi in Rail Land Development Authority29 has noticed the somewhat incongruous situation prevailing under the amended section 34 that pertains to award challenge proceedings, in as much as a very narrow meaning has been ascribed to the expression ‘Public Policy of India’. At the same time, the amended section 34 has introduced the ‘patent illegality’ standard while challenging an award.

That the scope of judicial interference while dealing with award challenge proceedings does not seem to have seen a marked change from the 1996 Act is exemplified by the judgment of the High Court of Bombay in The Board of Trustees (supra) wherein an arbitral award was set aside after a review on the merits with the Court observing that the ultimate conclusion would have remained the same under both the 1996 Act as also the Amendment Act.

While still on the topic of challenge proceedings to domestic awards, it may be noted that the High Court of Patna in Bihar Rajya Bhumi Vikas Bank Samiti30 has held that the requirement of issuance of a prior notice to the other party by a party desirous of challenging an arbitral award, as prescribed by the amended Section 34, is mandatory in nature and thus the failure to do so would render the award challenge invalid on this ground.

In relation to the regime of challenge to foreign awards, the Amendment Act has ushered in a significant change as noted by the High Court of Delhi in XSTRATA Coal Marketing AG31 in as much as the scope of the defense of public policy when trying to resist enforcement of a foreign award has been significantly whittled down.

Conclusion

A conspectus of the various judgments rendered in the context of the Amendment Act would reveal that the issue of applicability remains unresolved on account of the discordant views expressed by different Courts. The preponderant view though, seems to be that the Amendment Act would not be applicable to pending proceedings, unless of course the parties have agreed otherwise.

Wherever the amended provisions have been implemented however, the results have been almost uniformly positive. A strict interpretation of the independence and impartiality provisions in the Amendment Act by the Courts has undoubtedly contributed to greater professionalism in the conduct of arbitration proceedings. The scope of objections to appointment of arbitrators at the threshold, which otherwise resulted in mini-trials on hotly contested issues before the Courts, has also been significantly narrowed down.

The position with regard to the scope of award challenge proceedings pertaining to domestic awards is however more mixed, with the ‘challenge benchmark’ under the 1996 Act remaining  seemingly unchanged even after the coming into force of the Amendment Act and the amendments in this regard therefore becoming more of a matter of semantics rather than representing any actual change.

It is hoped that this outlook changes in future decisions in as much it is important to note that ‘patent illegality’ standard in the amended Section 34 has been circumscribed with the rider that there shall not be any review of application of the law by the arbitrator or any re-appreciation of evidence by the Court.

In the months to come it will be interesting to note how the judicial approach on the aforesaid issues evolves further, as also how the Courts deal with other provisions of the Amendment Act such as the provision in the amended Section 34 that fixes a time limit of one year from the date of service of the advance notice on the other party for disposal of the award challenge petition by the Court.

(Dr. Amit George is a Delhi-based advocate. He has appeared as counsel in some of the cases cited in this column)

Footnotes

1. For instance, the Supreme Court while strictly construing the timeline for award challenge proceedings under the 1996 Act in Union of India v. Popular Construction Co. [(2001) 8 SCC 470] saved a repeat of the morass that prevailed under the old regime as a result of long delayed challenges to awards being liberally entertained by Courts. Another well-known, and more controversial, example is the widened meaning given to the expression ‘Public Policy of India’ by the Supreme Court in ONGC Ltd. v. Saw Pipes. Ltd. [(2003) 5 SCC 705] and in ONGC v. Western Geco International Ltd. [(2014) 9 SCC 263] which greatly expanded the scope of judicial interference while dealing with award challenge proceedings.]
2. Order dated 24.11.2015 in W.P. No. 37355 of 2015
3. Pending’ in this sense refers to arbitral proceedings that commenced before 23rd October, 2015 i.e. the date on which the provisions of the Amendment Act came into force. Section 21 of the 1996 Act defines the date of commencement as being the date on which a request for a dispute to be referred to arbitration is received by the non-referring party.
4. “Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act.
5. (2016) 2 CALLT 277 (HC)
6. G.A. No. 145 of 2016 with A.P. No. 15 of 2016 decided on 02.03.2016
7. 2016 (6) ARBLR 147 (Cal)
8. A. No. 7674 of 2015 in O.P No. 931 of 2015 decided on 26.01.2016
9. 2016 (3) CTC 769
10. Chamber Summons No. 1530 of 2015 in Execution Application (L) No. 2481 of 2015 decided on 08.08.2016
11. Arbitration Petition No. 868 of 2012 decided on 23.12.2016
12. OMP (ENF) (Comm.) No. 73/2016 decided on 16.09.2016
13. 234 (2016) DLT 349
14. CS (OS) No. 3281 of 2014 decided on 19.12.2016
15. FAO (OS) No. 221/2016 decided on 06.01.2017
16. 2016 (3 )MPLJ 334
17. Arbitration Petition No. 14 of 2016 decided on 15.09.2016
18. Misc. Civil Application (for Transfer) No. 2969 of 2016 decided on 11.11.2016
19. Arbitration Petition No. 159 of 2016 decided on 19.12.2016
20. 230 (2016) DLT 235
21. The High Court of Guwahati in Panihati Rubber Limited v. The Principal Chief Engineer, Northeast Frontier Railway & Ors. [Arbitration Petition No. 12 of 2011 decided on 15.03.2016], the High Court of Mumbai in Microvision Technologies Pvt. Ltd. v. Micro & Small Enterprises Facilitation Council & Ors. [Arbitration Petition No. 43 of 2016 decided on 16.12.2016], the High Court of Patna in Kumar & Kumar Associates v. The Union of India & Ors. [Civil Writ Jurisdiction Case No. 2308 of 2014 decided on 27.07.2016], the High Court of Rajasthan in Flexo Foam Pvt. Ltd. v. Rajasthan State Road Transport Corporation [S.B. Arbitration Application No. 65/2012 decided on 03.06.2016], and the High Court of Jharkhand in Alternative for India Development v. The State of Jharkhand & Ors. [2016(4) J.L.J.R. 477], have all adopted a similar stand.
22. Request Case No. 14 of 2016 decided on 20.10.2016
23. See the decisions of the High Court of Punjab and Haryana in Reliance Infrastructure Ltd. v. Haryana Power Generation Corporation Ltd. [Arbitration Case No. 166 of 2016 decided on 27.10.2016], the High Court of Delhi in Hindustan Construction Co. Ltd. v. IRCON International Ltd. [Arbitration Petition No. 596 of 2016 decided on 22.11.2016], and the High Court of Madras in Offshore Infrastructure Limited v. Bharat Heavy Electricals Limited & Ors. [O.P. No. 466 of 2016 decided on 09.12.2016].
24. Arbitration Petition No. 635 of 2016 decided on 19.10.2016
25. (2009) 1 SCC 267
26. Arbitration Petition No. 22 of 2016 decided on 19.10.2016
27. Arbitration Petition No. 347 of 2016 decided on 14.12.2016
28. AIR 2016 Ker 211
29. 2016 X AD (Delhi) 19
30. Letters Patent Appeal No. 1841 of 2016 decided on 28.10.2016
31. 2016 IX AD(Delhi) 617