Arbitration has emerged as a popular method of dispute resolution. The Arbitration and Conciliation Act, 1996 (“Act”) has now been in force for almost two decades and its objective is to provide a speedy, cost-effective dispute resolution mechanism. ·
Over a period of time, it was realised that the provisions of the Act contained various loopholes / drawbacks due to which several problems arose, particularly in ad-hoc arbitration. The problems included the following:
i. Absence of time lines to finish arbitration, delay in arbitration process and giving of arbitral award.
ii. High and non uniformity in the fees of arbitrators.
iii. Overall high costs involved in arbitration. iv. Non availability of Court’s interim reliefs in case of foreign seated arbitration, unless specifically agreed by the Parties. v. Inadequate powers of the arbitral tribunal to grant interim measures. vi. Absence of criterion to determine the independence of the arbitrators. vii. Automatic stay on execution of the award on filing of the appeal for setting aside the award. · Besides, India also witnessed some of the judgments of the Hon’ble Supreme Court of India (given under the purview of the Act) being overruled by a larger bench of the same Court. Based on the decisions and observations made by the Supreme Court and some of the High Courts, need was felt to make appropriate amendments to the Act to codify and give legislative effect to these decisions. · The Law Commission of India in its Report no. 246 suggested that there was an urgent need to revise certain provisions of the Act to overcome the problems and thus bringing more confidence to the parties to opt for arbitration as an alternative to civil litigation. · Pursuant to the Arbitration and Conciliation (Amendment) Ordinance, 2015 (“Ordinance”) promulgated by the President of India on October 23, 2015, numerous provisions of Arbitration and Conciliation Act, 1996 (“Act”) have been amended with an objective to bring the Act at par with international law and to overcome the drawbacks arising out of the existing provisions of the Act, keeping in mind the objective of the Act. · We have provided below is an elucidation and analysis of the main amendments brought by the Ordinance.
KEY AMENDMENTS
Definition of Court [Section 2(1)(e)]
Definition of the term “Court” has been amended where in case of international commercial arbitration (i.e. where one of the parties is a foreign party) seated in India, High Courts (having jurisdiction to decide the questions forming the subject-matter of the arbitration) have been given exclusive jurisdiction to provide reliefs under the Act.
Beneficial to foreign parties, as they can directly approach High Courts in the first instance itself for reliefs (such as interim reliefs, court’s assistance in taking evidence etc) under Act instead of first approaching any other civil court having grade inferior to the High Court and then appealing to the high Court from the orders.
While on one hand, the parties get the benefit of experienced judges of the High Court, on the other hand, the High Court may have to deal with a larger number of cases which may cause result in delay in providing reliefs.
Definition of International commercial arbitration [Section 2(1)(f)]
Before amendment, the definition of international commercial arbitration (where one of the parties is a foreign party), also included a party which is a company or an association or a body of individuals whose central management and control is exercised outside India.
Under the amended Act, the criteria is now restricted only to an association or body of individuals as the reference to the word “company” is deleted.
Earlier, time was spent solving the question whether or not a company is considered to be considered as foreign operated and controlled. Now, even if the central management and control of company is situated outside India, if the company is incorporated in India, it will not be considered as a foreign party.
Codifies the principle laid down by the Supreme Court in TDM Infrastructure Pvt Ltd v UE Development Pvt Ltd.
Scope of Part I of the Act– Judicial intervention in foreign seated arbitrations and territorial coverage of Part I [Insertion of a proviso to Section 2(2)]
A proviso has been added to existing section 2(2) which would imply that while Part I of the Act is applicable only when the seat of the arbitration is in India, however, unless excluded by parties under the agreement, provisions relating to interim measures (section 9) and assistance of court in taking evidence (section 27), and appeals from orders under the said provisions (section 37) will apply, even to arbitrations not seated in India.
In the judgment given in the case of Bharat Aluminium Co. V. Kaiser Aluminium Technical Service, Inc., the Supreme Court had overruled its previous own judgments given in the case of Bhatia International v. Bulk Trading S.A. and Venture Global Engineering v. Satyam Computer Service and held that Part I of the Act is not applicable to arbitrations seated outside India.
In the cases of Bhatia International and Venture Global as mentioned above, the Supreme Court had held that unless expressly or impliedly excluded by the parties, Part I of the Act applied to even a foreign seated arbitration. Thus, in cases where Part I of the Act was not expressly or impliedly excluded by the parties, foreign awards were amenable to being challenged and set aside under Section 34 of the Act. Also, interim relief could be sought from the courts in India, in aid of an arbitration seated outside India.
The law as laid down in Bhatia International and Venture Global was heavily criticized as it lead to a high degree of judicial intervention in international commercial arbitrations seated outside India. This position was finally overturned in the case of Bharat Aluminium as mentioned above. The Court held that territoriality principle of the Arbitration Act, 1996, precluded Part I from being applicable to a foreign seated arbitration, even if the agreement purports to provide that the Arbitration proceedings will be governed by the Arbitration Act, 1996.
While the judgment given in the case of Bharat Aluminium was correct when viewed from the perspective that the same drastically reduced judicial intervention in foreign arbitrations, the Law Commission felt that this was likely to be problematic where the assets of a party are located in India, and there is a likelihood that that if the party dissipate its assets in the near future, the other party will lack an efficacious remedy if the seat of the arbitration was abroad. This was for the reason that while the latter party could obtain an interim order from a foreign Court or the arbitral tribunal itself and file a civil suit to enforce the right created by the interim order, such an interim order would not be enforceable directly by filing an execution petition as it would not qualify as a “judgment” or “decree” for the purposes of sections 13 and 44A of the Code of Civil Procedure (which provide a mechanism for enforcing foreign judgments). That being the case, there was a distinct possibility that a foreign party would obtain an arbitral award in its favour only to realize that the entity against which it has to enforce the award has been stripped of its assets and has been converted into a shell company.
Therefore, the relevant provisions in the Act have been amended so as to enable the parties to approach the Indian Courts for obtaining interim reliefs in case of foreign seated arbitrations. However, the Parties do have the flexibility to exclude the provisions of Part I entirely under the agreement. 3.8 While this amendment has its advantages, there is a likelihood of the provisions being misused in situations where a party may seek for stay order from Indian Courts for the purpose of prolonging the litigation or otherwise causing impediment in foreign arbitral proceedings.
Arbitration Agreement (Section 7)
Now, an arbitration agreement can be concluded by electronic communication.
The Law Commission in its 246th report had defined the term “electronic communication” as follows: “electronic communication” means any communication that the parties make by means of data messages; “data message” means information generated, sent, received or stored by electronic, magnetic, optical or similar means, including, but not limited to, electronic data interchange (EDI), electronic mail, telegram, telex and telecopy.” However, the aforesaid definition has not been adopted.
Power to refer parties to arbitration where there is an arbitration agreement (Section 8)
If a party approaches a judicial authority despite there being an arbitration agreement, the judicial authority shall refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.
The aforesaid reference has to be made notwithstanding any judgment, decree or order of the Court, including Supreme Court and further, not only the parties to an arbitration agreement but any person claiming through or under the party to arbitration can seek reference of the dispute to arbitration under section 8.
It was held by the Gujarat High Court in the case of Union of India v. Electro Ferro Alloys (P.) Ltd that, it is not open to the court to refer the parties to arbitration as and when application is filed by a party under section 8. The court owed a duty to decide whether there is a valid agreement executed by the parties which contain an arbitration clause. When existence of a valid arbitration agreement is disputed by one of the parties, the court was duty bound to consider whether it was executed by the parties including the validity of the agreement.
As per the amendment the judicial authority shall not refer the parties to arbitration only if it finds that there does not exist an arbitration agreement. In other words, if there is an existing arbitration agreement, the judicial authority / Court cannot go into a detailed and conclusive examination of the legal validity of the arbitration agreement, which has to be left for the Arbitral Tribunal to determine and conclude.
The definition of the word ‘party’ to an arbitration agreement has been expanded to also include persons claiming “through or under” such party which should possibly allow even non-signatories to take part in arbitral proceedings.
Interim Measures by Court (Section 9)
As per the amendment, the arbitral proceedings have to commence within 90 days from the date of the Court passing an order for interim measures before the commencement of arbitral proceedings, or within such further time as the Court may determine.
Once the arbitral tribunal has been constituted, the Court shall not entertain an application under section 9, unless the Court finds that the remedy under section 17 would not be efficacious.
The amendment ensures the timely initiation of arbitration proceedings by a party who is granted an interim measure of protection.
The amendment also reduces the role of the Court in relation to grant of interim measures once the Arbitral Tribunal has been constituted. This amendment was required for the reason that once the arbitral proceedings had begun, before granting of the award, a party had an option to approach both the Court and the Arbitral Tribunal for interim measures which would some time result in forum shopping and delays in litigation.
Prior to amendment, concurrent power to grant interim measures of protection was conferred upon court under section 9 and arbitral tribunal under section 17. The court may exercise it in respect of certain matters while the tribunal may exercise it in respect of the subject matter of the dispute. The powers were separate and cumulative. Hence, even when the application was refused by a court on merit, the matter could still be dealt with by the tribunal as it would not be res judicita.
Now, as per the amendment, the Court would entertain an application for interim measure only if it is of the opinion that the interim remedy which would be granted by the Tribunal may not be effective. It will be interesting to see the circumstances and basis on which the Courts determine whether or not the remedy which may be provided by the arbitral tribunal would be effective, particularly when the ordinance also provides wide powers to the Arbitral Tribunal for granting interim measures which are at par with the powers vested with the Court.
Appointment of arbitrators (Section 11)
Earlier, in case the parties failed to appoint an arbitrator within 30 days from the date of receipt of a request to do so from the other party, or the two appointed arbitrators failed to agree on the appointment of third arbitrator, the arbitrator had to be appointed by the Chief Justice of the High Court in case of domestic arbitrations and the Chief Justice of the Supreme Court in case of international commercial arbitration or the persons or institutions designated by the said Chief Justices. Now, the said powers have been vested with the High Court (in case of domestic arbitrations) and the Supreme Court of India (in case of international commercial arbitrations.
While considering an application for appointment of an arbitrator, the Supreme Court or the High Court has to confine itself to the examination of the existence of the arbitration agreement.
The decision of the Supreme Court or the High Court will be final and no appeal including Letters Patent Appeal shall lie against such decision.
Before appointing an arbitrator, the Supreme Court or the High Court has to first seek a disclosure in writing from the prospective arbitrator having due regard to the qualifications required by the parties to the arbitration agreement.
The Supreme Court or the High Court has to endeavour to dispose of the application as fast as possible and not later than 60 days from the date of service of notice on the opposite party.
For the purpose of determination of the fees of the arbitral tribunal, powers have been given to the High Courts to frame rules as may be necessary after taking into consideration the rates specified in Schedule IV of the Act which contains the model fee schedule of arbitrators. However, the courts will not have the aforesaid power of fixing fees in case of international commercial arbitration or in case of institutional arbitration.
In the case of Today Homes & Infrastructure Private Limited v. Ludhiana Improvement Trust and Anr., it was held by the Supreme Court that while deciding an application under section 11(6), the designated judge (Chief Justice) cannot go into detailed examination of merits of the case and existence of an arbitration agreement. He is only required to decide such preliminary issues as jurisdiction to entertain the application, the existence of a valid arbitration agreement, whether a live claim existed or not, for the purpose of appointment of an arbitrator. As per the amendment, it has now been codified that while considering an application for appointment of an arbitrator, the Supreme Court or the High Court has to confine itself to the examination of the existence of the arbitration agreement.
The timeline of 60 days within which the Courts have to appoint the arbitrators is again one of the measures adopted in reducing delay of arbitration proceedings.
Even a letters patent appeal (i.e. appeals to a division bench of the High Court from a judgment, order or decree of a single judge of the same High Court) cannot be filed in case of decision of the High Court / Supreme Court with respect to appointment of arbitrators.
The Law Commission had pointed out in its Report that one of the main complaints against arbitration in India, especially ad hoc arbitration, is the high costs associated with the same – including the arbitrary, unilateral and disproportionate fixation of fees by several arbitrators. Therefore, it was suggested that there should be some mechanism to rationalise the fee structure for arbitrations.
In the case of Union of India v. Singh Builders Syndicate, it was indicated by the Supreme Court that “the cost of arbitration can be high if the arbitral tribunal consists of retired Judges… There is no doubt a prevalent opinion that the cost of arbitration becomes very high in many cases where retired Judges are arbitrators. The large number of sittings and charging of very high fees per sitting, with several add-ons, without any ceiling, have many a time resulted in the cost of arbitration approaching or even exceeding the amount involved in the dispute or the amount of the award. When an arbitrator is appointed by a court without indicating fees, either both parties or at least one party is at a disadvantage. Firstly, the parties feel constrained to agree to whatever fees is suggested by the arbitrator, even if it is high or beyond their capacity. Secondly, if a high fee is claimed by the arbitrator and one party agrees to pay such fee, the other party, who is unable to afford such fee or reluctant to pay such high fee, is put to an embarrassing position. He will not be in a position to express his reservation or objection to the high fee, owing to an apprehension that refusal by him to agree for the fee suggested by the arbitrator, may prejudice his case or create a bias in favour of the other party who readily agreed to pay the high fee.”
Now, as per the amendment, the model arbitrator’s fee schedule as laid above has been has been introduced and the High Court has been empowered to frame rules for fixation of fees and for which purpose after taking into account the model fees.
As per our understanding, till the time the High Court does not frame rules with respect to arbitrators’ fees, the model fees need not be taken into account while fixing the fees for arbitrators.
It remains to be seen how different High Courts frame rules with respect to the fees of the arbitrators. The decision of selection of Parties to submit their dispute to the jurisdiction of a particular High Court, amongst other factors, will also depend on the rules by that High Court made with respect to the fees to be charged by the arbitrators.
Challenge of award on the grounds of impartiality (Section 12)
A prospective arbitrator has to disclose in writing as per the prescribed format (a) the existence of any past or present relationship with either of the parties or the subject matter of the dispute which is likely to give rise to justifiable doubts as to his independence and impartiality; and (b) any circumstances which are likely to affect his ability to complete the entire arbitration within 12 months.
The grounds stated in Fifth Schedule shall guide in determining whether circumstances exists which give rise to justifiable doubts as to the independence or impartiality of an arbitrator.
If any of the relationships set out in the Seventh Schedule exist, the prospective arbitrator shall be ineligible for appointment, except if the ineligibility is waived after the dispute has arisen.
Detailed representations were made under the Law Commission Report with respect to the importance of neutrality of the arbitrator. Prior to amendment, the Act stated that the appointment of the arbitrator may be challenged if circumstances exists which give rise to justifiable doubts as to his independence or impartiality. There were however, no conditions to identify the circumstances which give justifiable doubts. Therefore, the fifth Schedule now provides for exhaustive list of relationships which could give rise to justifiable doubts as to the independence or impartiality of the arbitrators.
The Law Commission had also pointed out that the test is not whether, given the circumstances there is an actual bias for that would be setting the bar too high; but whether the circumstances in question give rise to any justifiable apprehensions of bias.
The guidelines of the International Bar Association have been followed for determining the conflict of interest of the arbitrators.
In the cases of Indian Oil Corporation Ltd v. Raja Transport Private Limited & Denel (Proprietary Limited) vs. Govt. Of India, Ministry of Defence, the Supreme Court held that arbitration agreements in government contracts providing that an employee of the department (usually a high official unconnected with the work or the contract) will be the arbitrator are neither void, nor unenforceable. These officers are expected to act independently and impartially. Now, however, if the arbitrator is an employee of any of the parties then he cannot act as an arbitrator.
By allowing the parties to waive the categories of ineligibility of the arbitrator as set in the Seventh Schedule, real and genuine party autonomy has been respected. As pointed out by the Law Commission, this could be in situations of family arbitrations or other arbitrations where a person commands the blind faith and trust of the parties to the dispute, despite the existence of objective “justifiable doubts” regarding his independence and impartiality. 8.9 Certain circumstances which are prescribed under the Fifth Schedule and the Seventh Schedule to the Act give rise to justifiable doubts as to the independence or impartiality of an arbitrator may require some more clarity. For example, as per the said Schedules, an arbitrator may not be regarded as independent if the arbitrator’s law firm which has a “significant commercial relationship” with one of the parties or a close family member of the arbitrator has “significant financial interest” in one of the parties. The terms “significant commercial relationship” and significant financial interest have not been defined and hence may be susceptible to varied interpretations.
Power to grant interim reliefs by Arbitral Tribunal (Section 17)
Prior to the amendments, the tribunal had powers to grant interim measures only for limited matters and also there was no mechanism laid for judicial enforcement of interim orders passed by the arbitral tribunal. As per the amended section 17, the said limitations have been cured. Now, the tribunal has the same powers to make orders for interim measures as the Court has under sub-clause section 9.
It has now been explicitly stated that the arbitral tribunal now has the power to grant interim measures even after making of the arbitral award.
Will reduce the burden of the Courts.
Time limit for arbitral award (Section 29A – New Section)
A new section, i.e. section 29A that the arbitral tribunal has to give award within 12 months from the date the arbitral tribunal enters upon the reference.
Parties may by consent extend the period for a further period not exceeding 6 months.
If the award is not made within the prescribed time period of 12 months or within the mutually extended period, the mandate of the arbitrator(s) shall terminate unless the time period has been extended by the Court, on an application by either party only for sufficient cause and on such terms and conditions as may be imposed by the Court.
An extension application shall be disposed of by the Court as expeditiously as possible and it shall endeavour to dispose of the matter within a period of 60 days from the date of service of notice on the opposite party.
While granting the extension, if the Court finds that proceedings have been delayed for reasons attributable to the arbitral tribunal, then it may order a reduction of fees of arbitrator(s) not exceeding 5 per cent for each month of such delay.
While extending the period, the Court can substitute one or all of the arbitrators while extending the period and in the event of such substitution, the arbitral proceedings shall continue from the stage already reached and on the basis of the evidence and material already on record, and arbitrator(s) appointed under the said provision shall be deemed to have received the said evidence and material.
The Law Commission had pointed out that the experience of arbitrating in India has been largely unsatisfactory. In ad hoc arbitrations, fees are charged “per sitting” basis (with sometimes two/three sittings in a day in the same dispute and between the same parties), dates are usually spread out over a long period of time, and proceedings continue for years – which results in increase of costs, and denial of justice to the aggrieved party. There is ingrained in the Indian system a culture of frequent adjournments where arbitration is treated as secondary by the lawyers, with priority being given to court matters. Further, the Courts have already indicated that delay in passing an award can lead to such an award getting set aside.
The time limit of 12 months for the arbitrators to give award will ensure that the arbitrators proceedings are conducted expeditiously and the same will reduce the overall costs in litigating.
The parties to an arbitration agreement may (before or at the time of the appointment of arbitral tribunal), agree in writing to have their dispute resolved by a fast track procedure in which the award has to be made by the arbitrator within a period of 6 months from the date the tribunal enters reference.
The fast track procedure to be followed by an arbitral tribunal provides that the dispute shall be decided on the basis of written pleadings, documents and submissions filed by the parties without any oral hearings. An oral hearing may be held only on a request made by all the parties or if it is considered necessary by the arbitral tribunal for clarifying certain issues.
The fees payable to the arbitrator and the manner of payment of the fees shall be such as may be agreed between the arbitrator and the parties.
Resolving disputes within 6 months is a major benefit for the Parties. However, the flip side being that there are no oral hearings unless a request is made by all the parties or if it is considered necessary by the arbitral tribunal for clarifying certain issues.
Absence / limited number of oral hearings and a tight schedule of 6 months will prove to be quite cost effective as the parties are saved from the heavy expenses incurred on paying fees to counsel as well as arbitrators for each meeting.
May be ideally used in cases where the amount involved is not very substantial.
Interest on Award from the date of award till the date of payment (Section 31(7)(b))
For the period commencing from the date of award to the date of payment by the party, a sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of 2 % higher than the current rate of interest prevalent on the date of award.
The expression “current rate of interest” under the Interest Act has been defined to mean the highest of the maximum rates at which interest may be paid on different classes of deposits (other than those maintained in savings account or those maintained by charitable or religious institutions) by different classes of scheduled banks in accordance with the directions given or issued to banking companies generally by the Reserve Bank of India under the Banking Regulation Act, 1949 (10 of 1949).
Prior to the amendment, a sum directed to be paid by an arbitral award shall, unless the award otherwise directed, carried interest at the rate of 18% per annum from the date of the award to the date of payment. The Law Commission of India had recommended doing away with the 18% rate (which was too penal) and adopting a market based determination in line with commercial realities.
Now, as per the amendment, the payment of interest at a rate of 2 % higher than the current rate of interest prevalent on the date of award has tone down the aforesaid rigorous provisions. However, considering that the intention of the Legislature to keep the rate so high was to deter the parties from not obeying the award of the arbitral tribunal and making the payment as per the directions, the new interest rate may not prove to be very effective in that regard.
Regime for Costs – (Section 31A – New Section)
In relation to any arbitration proceeding, or arbitration related Court proceedings under any of the provisions of this Act, the Court or the arbitral tribunal shall have the discretion to determine the liability to pay costs, the amount and also when such costs are to be paid, notwithstanding the provisions of the CPC.
The “costs” mean reasonable costs relating to: i. The fees and expenses of the arbitrators, courts and witnesses; ii. Legal fees and expenses; iii. Any administration fees of the institution supervising the arbitration; and iv. Any other expenses incurred in connection with the arbitral or Court proceedings and the arbitral award.
If the Court or arbitral tribunal decides to make order as to payment of costs:as a general rule, the unsuccessful party will be ordered to pay costs to the successful party; or · the Court or the arbitral tribunal may however make a different order after recording the reasons in writing.
In determining the costs, the Court or the tribunal shall have regard to all the circumstances, including: i. The conduct of all the parties; ii. Whether a party has partly succeeded in the case; iii. Whether the party has made a frivolous counter claim leading to delay in disposal of the arbitral proceedings; iv. Whether any reasonable offer to settle the dispute has been made by a party and refused by the other.
The Court or the arbitral tribunal may make any order under this section including the order that party shall pay the following: i. A proportion of another party’s costs; ii. A stated amount in respect of another party’s costs; iii. Costs from or until a certain date only; iv. Costs incurred before the proceedings have begun; v. Costs relating to particular steps taken in the proceedings; vi. Costs relating to only a distinct part of the proceedings; vii. Interest on costs from or until a certain date.
An agreement between parties regarding the liability to pay whole or part of the costs of the arbitration in any event shall be only valid if such agreement is made after the dispute in question has arisen.
The Cost involved in arbitration is one of the major factors in determining whether or not to opt for arbitration in the first place. Unlike a civil litigation, the parties have to bear the high fees charged by arbitrators, administration fees in case of institutional arbitration and expenses incurred on venues. At several times, even when the award is made in favour of a party, the overall expenses incurred on arbitration proceedings dilute the value of the award to a substantial extent and despite spending so much money and time in arbitration proceedings, the Party who has the lost the case may still have the remedy of approaching the High Court to set aside the award.
The Law Commission suggested that as a rule, it is just to allocate costs in a manner which reflects the parties’ relative success and failure in the arbitration, unless special circumstances warrant an exception or the parties otherwise agree (only after the dispute has arisen between them).
The new section which exhaustively gives far reaching powers to both Court and Arbitral Tribunal will prove to be an efficient deterrent against frivolous conduct of the Parties and merit less litigation.
The discretion vested in the Court and the Tribunal to determine when such costs are to be paid, including ordering for costs incurred before proceedings, costs relating to particular steps taken in proceedings and also interest on costs is a big step taken to ensure the Parties become adopt a disciplined approach in conducting their case.
While the parties have got the discretion to decide that a particular party may bear whole or part the costs to the exclusion of the other, but such determination will be valid only after the dispute has arisen. The rationale behind the same may be that before the dispute and without knowing what the dispute is about, the parties are not in a position to understand the implications of their decisions as to costs and any such pre mature determination may cause serious prejudice. However, it needs more clarity as to before what time after the dispute has arisen that the parties can determine how much proportion and by which party the costs have to be borne.
Setting aside of arbitral award (Section 34)
It has been clarified that an award is in conflict with the public policy of India only if: i. the award was induced or affected by fraud or corruption or in violation of section 75 (confidentiality) or section 81 (admissibility of evidence of conciliation proceedings in other proceedings) ii. is in contravention with the fundamental policy of Indian law or iii. is in conflict with the most basic notions of morality and justice;
No review on merits can be done by a court for determining whether the award is in contravention with the fundamental policy of India.
An award in a domestic arbitration (i.e. arbitration between Indian parties) can be set aside if it is vitiated by patent illegality appearing on the face of the award. However, it has been clarified that an award shall not be set aside merely on the ground of erroneous application of the law or by re appreciation of evidence.
An application for setting aside an award can only be filed before a Court after issuing prior notice to the other party and courts must endeavour to dispose of such application expeditiously and not later than one year from the date on which the notice is served on the other party.
In Oil and Natural Gas Corporation Ltd v. Saw Pipes Ltd, the Supreme Court had held that the expression “public policy of India” must be given a wider meaning. The award could be set aside if it is contrary to fundamental policy of India or interest of India or justice or morality or if it is patently illegal (i.e. illegality must go the root of the matter). Award could also be set aside if is it is so unfair that it shocks the conscience of the court.
In the judgment passed by the Supreme Court on July 3, 2013 in the case of Shri Lal Mehra v/s Progetto Grano SPA, it has been held that enforcement of foreign award (award given in an arbitration whose seat is outside India) would be refused only it would be contrary to (i) fundamental policy of Indian Law, or (ii) the interests of India, or (iii) justice or morality. In the said judgment, the apex court has overruled its own decision in the case of Phulchand Exports Limited and held that there was a difference between the scope of the term “public policy” as a ground for objection to the enforceability of a foreign award under Section 48 of the said Act and a domestic award under section 34 of the Act and that the expansive construction accorded to the term “public policy” in Saw Pipes cannot apply to the use of the same term “public policy of India” in section 48(2)(b).
It was pointed out by Law Commission that the legitimacy of judicial intervention in the case of a purely domestic award is far more than in cases where a court is examining the correctness of a foreign award or a domestic award in an international commercial arbitration; and hence it was recommended that the ground of patent illegality should be restricted to purely domestic awards only and not to international commercial arbitration seated in India or foreign seated arbitration.
Based on the aforesaid judgment of the Supreme Court and the Law Commission’s recommendation, it has now been codified that the award be set aside on the ground of patent illegality only in the case of domestic arbitrations and not international commercial arbitrations.
The time line of 1 year for disposing off the appeal from arbitral award is also a major step in expeditious completion of litigation.
Stay on Enforcement of award (Section 36)
Unless the Court grants a stay of the operation of the award on a separate application requesting a stay, mere filing of an application to set aside the arbitral award will not render the award unenforceable.
While deciding application for stay, the Court may impose such conditions as it deems fit.
Prior to the amendment, if a party filed an application with the Court challenging the arbitral award, it would lead to an automatic stay of award and the same defeated the objective of arbitration. Now, party challenging the award will be required to file a separate application for stay of the award.
An order refusing to refer parties to arbitration under section 8 is also appealable now.
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