Stiches to the Glitches in the Arbitration Act

The Government of India has felicitously recognized the shortcomings in the arbitration ecosystem and constituted an expert committee for examining the working of arbitration law in India and recommending reforms in the Arbitration and Conciliation Act, 1996.

The Government from time to time has responded to the concerns and suggestions of the stakeholders, inasmuch as the Arbitration Act has been amended thrice in the last 10 years. It is a testament to the intent of the Government to enhance user experience and ameliorate the arbitration regime in India. However, in reality, international participation has somehow eluded the arbitration spectrum and the domestic players too have sporadically scouted for more arbitration-friendly jurisdictions other than India.

With many erudite and experienced practitioners and academicians having jumped on the bandwagon, I too pen down some suggestions and reforms for the committee’s consideration. With mounting pressure on the courts and mushrooming of arbitration-related cases, specialized arbitration tribunals like NCLT, NCDRC, or NGT should be created, which deal exclusively with arbitration matters under Sections 9, 11, 34, 36 etc. Although it comes with its fair share of criticism, but tribunalisation will go a long way in saving judicial time, ensuring fast disposal of cases, and ensuring consistency in judicial pronouncements.

The legislature should also endeavour to check and curb the proliferation of petitions for the appointment of arbitrators through necessary amendments to Section 11, such as mandating the agreed procedure for appointment of arbitrators to be followed before approaching the Court under Section 11 unless there are exceptional reasons for departing from the agreed procedure as per the settled principles. Although the sanctity of procedure for appointment has been emphasized by the Supreme Court in a number of cases, but the parties often take recourse to Section 11 without exhausting the prescribed procedure, resulting in avoidable delays in constitution of tribunal and relative uncertainty.

Even the scope of pre-referral jurisdiction exercised by court under Section 11 has swung like a pendulum in the past decade to now stop at the “limited scrutiny, through the eye of the needle”. The 2015 Arbitration Amendment Act had added sub-section (6A) to Section 11 confining the examination to the existence of an arbitration agreement, but this was later omitted in the 2019 Amendment Act. Albeit the deletion of sub-section (6A) is yet to be notified, the Supreme Court, through its recent judicial pronouncements, has virtually given effect to it and held that, “The restricted and limited review is to check and protect parties from being forced to arbitrate when the matter is demonstrably “non-arbitrable” and to cut off the deadwood.”. This has given rise to some confusion and consternation, that must be redressed by clearly providing for the scope of scrutiny and powers under Section 11.

Section 12(5) of the Act needs to be amended to enlarge the scope of proviso and include the concept of ‘implied waiver’ or ‘waiver by conduct’, such that the voluntary participation by a party in the arbitration proceedings sans contest or objection and/or unreasonable delay in bringing a challenge shall constitute waiver of the ineligibility under Section 12(5) of the Act. ‘Redfern and Hunter on International Arbitration’ states that, “In common law jurisdictions, the concept of waiver is well established: a party may not ‘lie in ambush’ with an objection to await the decision of the tribunal.”. Concomitantly, there should be a time limit to apply to the court for termination of mandate under Section 14 of the Arbitration Act to ensure that such pleas are not taken belatedly with a view to derail the arbitration.

At the risk of antagonizing the arbitration proponents, I feel that Section 34 ought to permit review or appeal on substantive merits of the award. Even though the legislature and the Courts have narrowed down the grounds to challenge an award in lines with the global trend, there has to be some balance between judicial restraint and judicial interference. To recall the words of Lord Mustill, “It is no good complaining that judges must keep right out of arbitration. For arbitration cannot flourish unless the judges are ready and waiting at the door, if only rarely allowed into the room.”. The contours of interference under Section 34 can be made conditional on agreement between the parties, as done in UK, Australia and New Zealand. The parties may choose to waive their right to any form of appeal or review against the award or enlarge the scope of interference under Section 34. At the same time, the Act must be amended to allow the Court to vary or modify the arbitral award, so as to be able to do substantial justice between the parties. The 1996 English Arbitration Act as well as the New Zealand Arbitration Act empowers the Courts to confirm, vary, remit or set aside the award, in whole or in part. Though the Supreme Court did so in many cases, but declined to take such recourse in ‘NHAI v. M. Hakeem, (2021) 9 SCC 1’.

At the same time, the process of enforcement of domestic arbitral awards must be expedited, and extricated from the procedural and administrative bottlenecks. Opportunistic objections to the validity or merits of the award at the stage of execution such as ineligibility of the arbitrator, lack of jurisdiction of the Tribunal etc. should be legislatively overruled. The judgment of Delhi High Court in ‘Hindustan Zinc Ltd. vs. National Research Development Corporation; 2023 SCC OnLine Del 330’ is quite instructive on this. The execution of award should also be freed from the fetters of payment of stamp duty, especially when the enforcement mechanism in India is an uphill task and the stamp duty regime varies across different states. Notably, the Arbitration Act does not mandate payment of such stamp duty on the arbitral awards, however, the Indian Stamp Act, 1899 does.

The Indian Arbitration Act could take inspiration from its English or Australian counterparts and confer statutory recognition to the principle of consolidation of arbitral proceedings with the consent of parties, where there is a common question of law or fact, or the rights of the parties are in respect of or arise out of the same transaction or series of transactions, and ilk. The Courts have not shied away from ordering composite reference or consolidating proceedings in appropriate cases and expounded the guidelines to be followed in such cases. Lastly, the directions issued by the Supreme Court in ‘ONGC vs. Afcons; Arbitration Petition (Civil) No. 5 of 2022’ apropos the interpretation of Fourth Schedule, ought to be statutorily incorporated as notes to the Fourth Schedule of the Arbitration Act.

The legislature may consider codifying the possible solution suggested by the Supreme Court for curtailing the endless fee disputes, i.e. recusal by the Arbitrator if no consensus can be reached about fees. The parties, counsels and the Arbitrators squabbling over fee makes for a very unedifying spectacle. It is very galling indeed. The Fourth Schedule should also provide for stage-wise remittance of the arbitral fees, as contemplated under Schedule F of the Delhi International Arbitration Centre (DIAC) (Administrative Cost and Arbitrators Fees) Rules, 2018. Many a time, the proceedings are settled, terminated or put in abeyance before closure, or the Tribunal is reconstituted, and in all such situations, the arbitral fees is not refunded after substantial fees having already been paid by the parties.

It was once famously said by Benjamin Franklin, founding father of the United States and an outstanding polymath that, “When will mankind be convinced and agree to settle their difficulties by arbitration?”. Little did he know that the Government of India would be faced with the same dilemma more than three centuries later. The Government and the Courts have shown the resolve and commitment to streamline and speed up the arbitration process. But reforms in the law alone may not suffice. No system can work satisfactorily unless those who man it are men and women of integrity and rectitude. I would expect the lawyers, arbitrators and parties to act with greater dignity and urgency. It should not be seen as an opportunity to make hay, while it shines (lasts). Love for the lucre should be within reasonable bounds.

Abhishek Gupta is an Advocate based out of New Delhi appearing in various courts, including the Supreme Court of India. He can be reached at abhishek_1509@hotmail.com.