Reforming the Indian Arbitration Law: 10 Cautionary Notes and 21 Practical Suggestions

A letter has been penned by Advocates Tariq Khan and Aditya Singh Chauhan, submitting some recommendations for reforms to the current arbitration law for the consideration of the committee (“Committee”) headed by Dr TK Vishwanathan, constituted by the Ministry of Law and Justice for recommending reforms to the Arbitration and Conciliation Act, 1996 (“1996 Act”). It suggests that the current law, the 1996 Act, is adequate; it is the honest enforcement of law which plagues arbitration in India.

In view of the above, 10 cautionary notes are listed in the letter, which are summarized below:

1. A balanced approach should be adopted while accounting for both the stakeholder interests and the objective to make India a global hub of arbitration;

2. A pro-arbitration approach should be adopted while keeping in mind the ground realities of the Indian legal system so as to ensure that the reforms are effective;

3. The unintended and inevitable impact of the reforms should be accounted for and lessons learnt from the impact of the past amendments should be kept in mind;

4. The suggested amendments should, as far as possible, not be substantial. They should be clarificatory in nature or aim to correct any inconsistencies in the law;

5. The suggested amendments should not be detailed so as to cover aspects best left for the institutional rules to address, as a contrary approach may take away from the flexibility of arbitration;

6. The suggested amendments should only cover those aspects of the 1996 Act which absolutely require a change, while also ensuring that the law does not become rigid;

7. The arbitrator should not be left to the mercy of the statute for every minute aspect, which could be an unintended consequence of having a comprehensive statute;

8. Steps must be taken to increase institutional involvement and reduce court intervention;

9. The 1996 Act, for most part, should not substantially depart from the UNCITRAL Model Law on International Commercial Arbitration, 1985; and

10. Some of the key features of the world’s leading arbitral seats ought to be considered, albeit with due consideration of whether they are suitable to be extrapolated to India.

While keeping in mind the above cautionary notes, the letter makes 21 suggestions for bringing reforms to the arbitration law in India by amending the 1996 Act, as summarized below:

1. Section (2)(2) of the 1996 Act may clarify that “international commercial arbitration” is not confined to the party-centric definition provided under Section 2(1)(f).

2. A refusal to refer parties to arbitration under Section 8 can be appealed under Section 37(1)(a). However, a similar refusal under Section 11 is immune to judicial review via appeal. To achieve parity, both provisions may be aligned.

3. Where there is prima facie evidence of an arbitration agreement, parties may not be stopped from seeking interim reliefs under Section 9 or arbitrator appointments under Section 11 simply due to non-stamping or insufficient stamping of the agreement.

4. Parties should be barred from seeking pre-arbitral interim relief from courts if emergency arbitration is available through institutional rules, unless the remedy through arbitration is ineffective and court intervention is essential. Additionally, the possibility of restricting unsuccessful parties from approaching courts for post-award interim relief or allowing courts to exercise discretion judiciously should be explored.

5. Arbitrator appointments should be done by institutions. The amendments to Section 11 by the Arbitration and Conciliation (Amendment) Act, 2019 should be notified.

6. Subject to the requirement of Section 42B being satisfied, parties should be allowed to recover the fees from an arbitrator where non-disclosure or inadequate disclosure results in either termination of his mandate or annulment of the award by the seat court.

7. Interim orders arising out of emergency arbitrations should be given statutory recognition by bringing necessary amendments to Section 17.

8. A sub-clause may be inserted to Section 29 stating that unless parties agree otherwise, if a minority opinion is made available within fifteen days of the receipt of the decision of the majority, it shall be appended to the award.

9. The parties may be required to present their case under Sections 34, 36 and 48 within a set number of hearings/period of time, determined by the court on a case-to-case basis.

10. The ground of “patent illegality” for setting aside arbitral awards should be removed.

11. An appeal should only be permitted under Section 37(1)(c) where a court sets aside an award under Section 34(2), and not otherwise.

12. Unless otherwise agreed by the parties, Section 42A should extend the duty of confidentiality to all arbitral participants and allow the parties to opt-out.

13. The term “furnishes proof” in Section 48(1) should be replaced with “establishes on the basis of the record of the arbitral tribunal.”

14. A provision should be inserted to ensure that confidentiality of arbitration is protected even in arbitration-related court proceedings.

15. A provision should be inserted to recognize/permit third-party funding in international commercial arbitrations seated in India.

16. A provision should be inserted to enforce interim and emergency orders passed in foreign-seated arbitrations under Part II of the 1996 Act.

17. A provision should be inserted in Part II of the 1996 Act to clarify that Indian parties can choose a foreign seat. It may be discussed if some reasonable or significant foreign nexus in the contract should be required for Indian parties to choose a foreign seat.

18. A schedule may be inserted to the 1996 Act, listing all the reciprocating territories notified by the Central Government under Section 44(b) (and updated periodically).

19. A schedule may also be inserted to the 1996 Act containing a table listing all the various limitation periods (including for Section 37) applicable under its provisions.

20. Parties should not be allowed to circumvent mandatory obligations to attempt amicable settlement by treating them as merely a formality.

21. The position that enforcement of foreign awards is not subject to payment of stamp duty, should be codified.

The letter is an attempt to assist the Committee in narrowing down the suggestions grounded in the basic tenets of arbitration law and in line with the spirit of the 1996 Act which should be deliberated upon and, if required, included in its final report.

Author Tariq Khan is an advocate practicing in India and can be reached at advocate.tariqkhan@gmail.com.

Author Aditya Singh Chauhan is an advocate practicing in Indian courts.

[Read Letter]