NPAC's Arbitration Review: Future of foreign arbitrators in India - Perception vs. Reality

Bar & Bench October 7 2019
arbitration

Shashank Garg

The Arbitration & Conciliation (Amendment) Act, 2019 (2019 Amendment) has ushered in a new era for institutional arbitration in India. Not only does the 2019 Amendment establish the Arbitration Council of India (ACI) under Part I-A, it also empowers the High Courts and the Supreme Court to designate the graded arbitral institutions for performing several crucial functions such as appointing the arbitrator under Section 11(3-A). This change in dynamics, while a welcome move in some ways, has certainly given rise to a number of challenges to be figured out, especially with respect to identifying the future of foreign arbitrators in arbitrations seated in India.

Who can be an arbitrator? – The interpretative dilemma

The 2019 Amendment has brought in a regime[1] where all the arbitral institutions in the country will now be graded by the ACI, which is a Council established to develop institutional arbitration in India. The ACI will also be responsible for recognizing the professional institutes providing accreditation of the arbitrators as per Section 43D(2). The minimum qualifications, experience, and norms for accreditation of arbitrations are specified in the newly added Schedule Eight to the Act, which has become the subject of intense scrutiny lately, due to it having seemingly excluded all foreign arbitrators. The Schedule provides that ‘a person shall not be qualified to be an arbitrator unless s/he satisfies at least one of the nine criteria as listed…’

Lingard and Bhat[2] view the first four criteria as indicative: an advocate, a chartered accountant, a cost account, and, a company secretary - all in the context of the Indian laws; the remaining five similarly require an Indian qualification with the only exception being the criteria for a person with ‘relevant scientific or technical expertise’ which could seemingly accommodate foreign arbitrators. This view, however, is debatable in the eyes of many and further clarification is being demanded from all relevant quarters.

Grade-Designate-Empanel-Appoint: The Circle of debate

From the above, a logical chain is reasonably inferable. The High Courts and the Supreme Court can only designate arbitral institutions that have been graded by the ACI. The ACI, in turn, has specifically listed criteria for grading of these institutions and arbitrators. The arbitral institutions, by virtue of the 2019 Amendment, can only empanel arbitrators eligible as per Schedule Eight in order to comply with the grading requirements of the ACI which could potentially lead to a complete exclusion of foreign arbitrators on account of a plain reading of the Eighth Schedule.

While it is trite to mention that no such bar for foreign arbitrators arise in cases of institutional international arbitrations and neither in cases of ad-hoc arbitration where the parties have agreed to appoint the arbitrators as per their choice of procedure; this interpretative dilemma, nonetheless, has cast a shadow over the future of the foreign arbitrators in Indian-seated international arbitrations and in domestic arbitrations, especially in case of an S. 11 application seeking appointment of arbitrators by the Court.

S. 11 and appointment of arbitrators

Party autonomy is the corner-stone of International Arbitration. S. 11 of the 1996 Act recognizes the same and leaves it up to the parties to decide upon a procedure to appoint the arbitrators of their choice (S. 11(1)). It is only in case of an absence of a procedure or a failure to agree to the procedure of appointment, do the parties resort to an S. 11 application to the court for the appointment of the arbitrator. As seen, this could mean the effective ouster of foreign arbitrators. However, a closer reading of S. 11(9) of the 1996 Act indicates that in international commercial arbitrations where a sole arbitrator or the third arbitrator is to be appointed, the designated arbitral institution may appoint an arbitrator of a neutral nationality where the parties belong to different nationalities.

While this may seem contrary or counter-intuitive to the narrow interpretation attributed to the Eighth Schedule, this sub-section has a significant role to play in order to identify the involvement of the foreign arbitrators in India-seated arbitrations. Schedule 8 is essentially in Part I of the Arbitration & Conciliation Act, 1996 and therefore, in the view of the author, it may be impossible to exclude foreign arbitrators from the panel of these institutions which shall be used for appointment under S. 11 in case of an International Arbitration.

Solving the conundrum - A combined reading of S. 11, Eighth Schedule and the A.K. Balaji Judgment

In 2018, the Supreme Court rendered a significant judgment in the case of Bar Council of India v. A.K. Balaji & Ors.[3] and held that

there is no absolute right of the foreign lawyer to conduct arbitration proceedings in respect of … international commercial arbitration. If the Rules of Institutional Arbitration apply or the matter is covered by the provisions of the Arbitration Act, foreign lawyers may not be debarred from conducting arbitration proceedings arising out of international commercial arbitration in view of Sections 32 and 33 of the Advocates Act. However, they will be governed by a code of conduct applicable to the legal profession in India.”

It is a major ruling which clearly lays down that a foreign practitioner or an arbitrator will be eligible to arbitrate in any International Commercial Arbitration. Justice Indu Malhotra, in a recent address at a panel discussion held by the Indian Arbitration Forum (IAF), had referred to this judgment to dispel any incorrect notions regarding the 2019 Amendment with respect to foreign arbitrators and their involvement going ahead. Moreover, this judgment, when read in consonance with party autonomy principles under S. 11(1) & the neutral nationality endeavour under S. 11(9) of the 1996 Act, clearly indicates that there is no bar with respect to appointing an arbitrator of any nationality.

The Law Minister, Sh. Ravi Shankar Prasad, in a recent address at Faculty of Law, Manav Rachna University, responded to a few apprehensions surrounding the 2019 Amendment Act and clarified his vision, stating that “India should not accept imperialism in the field of arbitration. The best would be when Indian arbitrators are sought globally. We want India to become a hub of international arbitration and this does not mean that we are against foreign Arbitrators in any manner.” This view of the Law Minister, does not in any form, reflect a notion that there will be a restriction on the appointment of foreign arbitrators. If anything, it is reflective of the Government’s vision to improve the quality of arbitrators in the country while allowing for the practice of appointment of foreign arbitrators to continue, specifically in institutional international commercial arbitrations as well as in all cases where party autonomy prevails and parties are agreeable as to the procedure and appointments under S. 11(2). The benefit of this will be extended to domestic arbitrations as well, where the parties may choose to appoint a foreign national as an arbitrator.

The highly contentious Schedule Eight, when read against this background, could give way to participation of foreign nationals as arbitrators if criterion (ix) is interpreted to its widest possible connotation. Such a concerted interpretative approach would continue to render the participation of foreign nationals as arbitrators in India-seated International Commercial Arbitrations and in domestic arbitrations, a practical reality upholding the essence of party-autonomy, and help reinforce the vision of making India a hub of international arbitration. It is believed that Govt. of India currently is mulling over this issue and caustic concern of the foreign arbitrators by stating the obvious which has not been put out in the open in 2019 Amendment Act i.e., to state that Schedule Eight is applicable to only Indian arbitrators as the entire premise of these amendments is to control the mushrooming of Arbitral Institutions in India and enhance the quality of arbitrators who till date have had no defined standards.

[1] The relevant sections have not been notified as yet.

[2] Nicholas Lingard & Rohit Bhat, India’s arbitration rollercoaster: The 2019 Amendment, Global Arbitration Review, 23 August, 2019. Accessible at: https://globalarbitrationreview.com/article/1196629/india%E2%80%99s-arbitration-rollercoaster-the-2019-amendment

[3] (2018) 5 SCC 379

About the author: Shashank Garg is a Partner at Advani & Company and a member of NPAC Advisory Council. He was assisted by Yashraj Samant, a final year student of MNLU.

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