NPAC’s Arbitration Review: New Confidentiality provision in the Indian Arbitration Act

Bar & Bench September 30 2019
Avlokita RaJvi, Tejas Karia, Amee Rana

One of the popular attributes of arbitration as a preferred dispute resolution mechanism is the confidentiality of its proceedings. Confidentiality places an obligation on the parties, arbitrators and all the other people involved in the arbitration process to not disclose any information regarding any aspect of the arbitration proceedings. Prior to the Arbitration and Conciliation (Amendment) Act, 2019 (2019 Amendment), confidentiality as a concept was statutorily applicable only in conciliation under Section 75 of the Arbitration and Conciliation Act, 1996 (Arbitration Act), apart from the wide obligation imposed on advocates/attorneys to keep all the communications/advice/documents etc. confidential with regard to a case under Section 126 of the Indian Evidence Act, 1872.

A high-level committee chaired by Justice B. N.Srikrishna (Retd.) (HLC) suggested reforms for improving institutional arbitration in India and strengthening the Arbitration Act including providing for confidentiality of arbitral proceedings unless disclosure is required by legal duty, to protect or enforce a legal right, or to enforce or challenge an award before a Court or judicial authority.

However, Section 42A introduced by the 2019 Amendment, mirrors the language of Section 75 of the Arbitration Act relating to confidentiality in conciliation, instead of adopting the proposal of HLC. It provides that notwithstanding anything contained in any other law for the time being in force, the arbitrator, the arbitral institution and the parties to the arbitration agreement shall maintain the confidentiality of all arbitral proceedings except award where its disclosure is necessary for the purpose of implementation and enforcement of the award. This was a clear departure from the language proposed by HLC.

While stipulating confidentiality in the Arbitration Act is a welcome step, the language of Section 42A regarding the exception to maintaining confidentiality is likely to raise certain issues, which would require judicial interpretation.

The only exception provided in Section 42A of the Arbitration Act is limited to the disclosure of award for its implementation and enforcement. The natural corollary to this is that nothing that has transpired in an arbitration proceeding (including the pleadings filed, evidence-led and arguments advanced etc.) can be relied upon in the Court proceedings.

Usually, the parties specifically provide for confidentiality in their agreement or select institutional rules providing for the same if they were conscious of the requirement. Given that Section 42A begins with a non-obstante clause with respect to any law and not unless otherwise agreed between the parties as provided in many other provisions of the Arbitration Act, it makes this provision mandatory for the parties to follow by taking away party autonomy.

The HLC had carefully considered the consequences and proposed the language anticipating the requirement of disclosure: (i) by legal duty; (ii) to protect or enforce a legal right; or (iii) to enforce or challenge an award before a Court or judicial authority. Despite that, Section 42A carves a limited exception for implementation and enforcement of an award. The exception fails to take into account many instances, which would require disclosure of the arbitration proceedings, such as:

(i) An application under Section 9 of the Arbitration Act for interim measures during the pendency of arbitration;
(ii) An application under Section 14 of the Arbitration Act for termination of the mandate of an arbitrator;
(iii) Appeal against an order under Section 17 of the Arbitration Act for interim measures granted by the arbitral tribunal;
(iv) Contempt for non-compliance of the interim measures granted by the tribunal under Section 17 of the Arbitration Act;
(v) An application under Section 27 of the Arbitration Act for the assistance of Court for evidence before the arbitral tribunal;
(vi) Application for the challenge of the Award under Section 34 of the Arbitration Act;
(vii) Anti-arbitration injunction suit;
(viii) Sharing information with the experts;
(ix) Third-party funding;
(x) Consolidation of parallel arbitrations;
(xi) Disclosure to stock exchanges for listed entities;
(xii) By the statutory auditors in the balance sheet to provide contingent liability; and
(xiii) Disclosure to the third parties that may be affected by the outcome of the
arbitration.

As is evident from the above examples, the language of Section 42A of the Arbitration Act may pose multiple challenges and judicial intervention may be required in order to plug these loopholes.

As regards who would be bound by the confidentiality under Section 42A of the Arbitration Act, it only provides for a limited list of entities. The provision does not recognize the following entities, which can also breach confidentiality:

(i) Witnesses (fact or expert);
(ii) Transcribers;
(iii) Tribunal Secretary;
(iv) Hearing room facility service providers; and
(v) Third-party funder.

Further, Section 43K of the Arbitration Act enables the Arbitration Council of India to maintain an electronic depository of arbitral awards and such other records related thereto in such manner as may be specified by the regulations. It will be interesting to see the interplay between Section42A providing for confidentiality and Section 43K providing for depository once it is notified and regulations are framed in that regard. HLC had contemplated this conflict and recommended that in order to maintain confidentiality, only Courts may access the depository for the limited purpose of accessing the arbitral award. However, this recommendation was ignored and finds no mention under Section 43K.

Another significant omission under the provision is that there is no consequence for non-compliance of Section 42A. At present, there is no real check to effectively implement confidentiality obligations and some critics may argue that this provision is not mandatory, but directory in nature.

In light of the above, although it is clear that the introduction of Section 42A will help in promoting arbitration in India, there would be some hurdles in ensuring that it is given its intended effect. It will have to be seen how Courts while enforcing this provision, interpret the lacunae in the language of Section 42A of the Arbitration Act.

Tejas Karia is a Partner & Head-Arbitration at Shardul Amarchand Mangaldas & Co and Member of the NPAC Delhi Advisory Committee along with Avlokita Rajvi and Amee Rana are Senior Associates at the firm.

Members of the Nani Palkivala Arbitration Arbitration Centre (NPAC) will be writing a weekly column for Bar & Bench analyzing the latest developments on the law of arbitration.