Proposed Amendments to the (Indian) Arbitration and Conciliation Act – if it ain’t broke, don’t fix it? - Part I

In late October, the Government of India (“GoI”) published the draft Arbitration and Conciliation (Amendment) Bill, 2024 (the “Draft Bill”) for obtaining comments and feedback. The Draft Bill was released on the heels of the February 2024 report of an Expert Committee constituted by the GoI to examine the working of the (Indian) Arbitration and Conciliation Act, 1996 (the “Act”) and recommend reforms.

The stated objectives of the Draft Bill are to: (a) incentivise institutional arbitration; (b) reduce court intervention in arbitrations; and (c) ensure expeditious conclusion of arbitrations. With this in mind, the Draft Bill proposes several amendments – some incremental, while others contemplate radical changes to the arbitration regime. This post discusses certain key amendments and assesses whether they push the envelope of Indian arbitration law or are retrograde.

The Draft Bill proposes to modify the scope of Section 9 by restricting parties from approaching the court for interim measures during arbitration proceedings. This is intended to encourage reliance on arbitral tribunals for interim relief instead of courts, thereby reinforcing the autonomy and efficiency of arbitration, and reducing pendency before courts.

However, this proposed amendment may become controversial, since the availability of interim measures from courts at any stage of the arbitration proceeding constitutes critical support for such proceedings. Such relief is necessary to protect the subject matter of the arbitration in many situations, such as against third parties over whom the arbitral tribunal cannot exercise jurisdiction, or where the arbitral tribunal is non-functional. Section 9, as it stands, provides the right balance by permitting parties to approach courts for interim relief in these situations.

Further, once the arbitral tribunal is constituted, Section 9(3) mandates courts to not entertain an application for interim measures, unless the remedy provided under Section 17 (interim measures by the arbitral tribunal) is not efficacious. Courts have further limited the availability of relief after the arbitral tribunal is constituted by directing parties to approach the arbitral tribunal as long as the courts have not applied their mind to the pending application (see ArcelorMittal Nippon Steel (India) Ltd. v. Essar Bulk Terminal Ltd. (2022) 1 SCC 712).

To reduce pendency of Section 9 applications before courts, the Expert Committee had suggested inserting a new provision permitting courts to grant limited interim relief to enable parties to approach the arbitral tribunal for interim measures of protection. The Expert Committee's suggestions on amending Section 9 reflect a more balanced approach than the restrictive amendments in the Draft Bill.  

The Draft Bill proposes the insertion of a new Section 9A specifically designed for emergency arbitrations. Section 9A(3) allows an emergency award to be enforced in the same manner as if it were an order of an arbitral tribunal under Section 17(2) of the Act.

The proposed Section 9A addresses the absence of express provisions in the Act on emergency arbitration. This lack of express legislative sanction had, until recently, made the status of an emergency arbitrator, and the enforceability of their awards, a point of contention.

In 2022, the Supreme Court in Amazon.com NV Investment Holdings LLC v. Future Retail Ltd. & Ors. (2022) 1 SCC 209 held that an emergency award in an India-seated arbitration is enforceable in the same manner as an interim order of an arbitral tribunal under Section 17(2) of the Act. However, Amazon did not deal with emergency awards passed in foreign-seated arbitrations. Such awards could only be enforced by filing an application under Section 9 on the basis of the emergency award. This workaround is cumbersome, as it requires parties to petition the courts anew for relief that has already been granted by the emergency arbitrator. The absence of direct enforceability for foreign-seated emergency awards limits the efficacy of emergency reliefs. The Draft Bill now tackles this issue by amending the proviso to Section 2(2) to extend Section 9(A)(2) to foreign-seated arbitrations, thus permitting their enforcement in the same manner as emergency awards in India-seated arbitrations.

The Draft Bill now provides an efficacious enforcement route for foreign-seated emergency arbitral awards, rather than relying on their enforcement via the Section 9 route.

In 2017, a High-Level Committee recommended that appointments of arbitrators under Section 11 be done by arbitral institutions graded by the Arbitration Council of India (the “Council”) instead of the Supreme Court / High Courts. These recommendations found their way into the Act through the 2019 amendments, but the amended provisions were never brought into effect. Yet, the Draft Bill proposes more changes to Section 11 aimed at enlarging the role of the Council.

The Draft Bill adds a new proviso at several places in Section 11 requiring the party seeking appointment of an arbitrator to disclose the number and details of arbitration proceedings between it and the counterparty, and any awards passed. While the rationale behind this requirement is not explicitly stated, it seems intended to address concerns related to arbitral bias. However, the disclosure contemplated appears to be severely limited and would likely be ineffective.

The Draft Bill also proposes the deletion of Schedule IV (model schedule of fees). Instead, the Council would determine the fees of the arbitral tribunal in ad-hoc arbitrations where parties have not agreed on fees. While the idea that the fees should not be fixed by statute (which is difficult to amend) is laudable, there is no guidance provided on how the Council is supposed to fix the fees.  

The proposed amendments stop short of addressing the big-ticket issue i.e. unilateral appointment of arbitrators. The Expert Committee had suggested several changes to Section 11 to deal with unilateral appointment clauses, but these have inexplicably not found their way into the Draft Bill. A Constitution Bench of the Supreme Court has currently reserved its judgment on validity of such appointment clauses. It is important to clarify that arbitration agreements providing for unilateral appointments remain valid and enforceable, with the appointment procedure under Section 11 being followed for arbitrator appointments.

The Draft Bill provides two proposed amendment options to Section 20 which refers to the place of arbitration. In Option I, the expression “place of arbitration” in Section 20 is replaced with “seat” in sub-sections (1) and (2), and “venue” in sub-section (3). This is a welcome change, which resolves the ambiguity in the statute.

Option II on the other hand wholly recasts Section 20 and mandates that in domestic arbitration (other than international commercial arbitrations), the seat of arbitration shall be the place where the contract/arbitration agreement is executed or where the cause of action has arisen.

Option II completely takes away parties’ ability to choose the seat of arbitration, militating against the principle of party autonomy. Parties may choose a seat different from the jurisdiction where the contract was executed or the cause of action arose – and this is well-recognised post the judgment in Indus Mobile Distribution Pvt. Ltd v. Datawind Innovations Pvt. Ltd., 2017 (7) SCC 678. Option II also takes away the ability of two Indian companies to choose a foreign seat which they may prefer due to factors such as risks of delay and/ or broader intervention by Indian courts. Thus, it nullifies the Supreme Court decision in PASL Wind Solutions Private Limited v. GE Power Conversion India Private Limited, AIR 2021 SC 2517, wherein the Court permitted Indian parties to choose foreign seats, even if the subject matter of their contracts and counterparties is entirely situated within India. 

Further, Option II also provides no clarity as to choice of seat in case of international commercial arbitration. The Draft Bill is silent on whether parties are free to agree on choice of seat in case of international commercial arbitration.

The article is continued in the second part.

About the authors: Anjali Anchayil is a partner at JSA, Advocates & Solicitors.

Aiman Singh Kler is an advocate practising in the Delhi High Court.

Views expressed are personal.

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