The Government of India had invited comments on the Draft Arbitration and Conciliation (Amendment) Bill, 2024 (“the Draft Bill”) which seeks to amend the Arbitration and Conciliation Act, 1996 (“the Act”). The Draft Bill is primarily based on the recommendations of the Expert Committee on Arbitration Law under the chairmanship of Dr. T.K. Vishwanathan (“Vishwanathan Committee”). The Draft Bill aligns the legal framework with contemporary developments and aims to position India as a more arbitration-friendly jurisdiction by minimizing judicial intervention, enhancing institutional arbitration mechanisms and ensuring timely dispute resolution. The notable changes that the Draft Bill seeks to introduce within the Indian Arbitration regime are enumerated below.
1. Change in Title
The Draft Bill proposes to change the title of the Act to ‘the Arbitration Act, 1996’, reflecting the legal position after the introduction of the Mediation Act, 2023.
2. Recognition of the Concept of ‘Seat’
The Draft Bill suggests a crucial change in Indian arbitration law by formally recognizing the concept of ‘seat’ – a well-established principle that has notably been absent from the current legislation. The proposed amendments to Section 20 present two distinct approaches, each with significant implications for arbitration practice.
Option I: Embracing International Standards
The first option, stemming from the Vishwanathan Committee’s recommendations, proposes a sophisticated terminological shift. It replaces “place” with “seat” in Sections 20(1) and 20(2), while substituting “venue” in Section 20(3). This change codifies the legal position established by the Supreme Court in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc.[1], bringing Indian law in line with international practice.
This option’s ramifications extend beyond mere terminology. It necessitates a fundamental restructuring of jurisdictional provisions:
- The definition of ‘Court’ moves from Section 2 to Section 2A, acknowledging the primacy of courts at the arbitral seat.
- Section 42, previously governing jurisdictional aspects, has been eliminated as redundant.
- Parties retain full autonomy to select both the seat and venue of arbitration.
Option II: An approach based on implied choice
The second option, while introducing the seat-venue distinction, takes a more controversial stance. It establishes an automatic determination of the seat based on either:
- The location where the agreement was executed, or
- The place where the cause of action arises
While parties maintain the freedom to choose the venue, the restriction on seat selection represents a significant departure from party autonomy. This approach would effectively overturn established judicial precedents and potentially limit the flexibility currently enjoyed under Indian arbitration law.
3. The Role of Institutional Arbitration
The Draft Bill marks a significant shift towards promoting institutional arbitration through several strategic amendments. A cornerstone of this transformation is the broadened definition of “arbitral institutions” under Section 2(ca). Moving away from the restrictive approach that limited such institutions to those designated by the Supreme Court or High Courts, the Draft Bill now encompasses any organization that administers arbitration proceedings under its procedural rules or as agreed upon by the parties.
This expanded definition works in tandem with the Draft Bill’s broader vision of empowering arbitral institutions. Notably, the draft legislation proposes a significant transfer of powers from courts to these institutions. These newly delegated powers include crucial administrative functions such as:
- Extending timelines for arbitral awards
- Ordering fee reductions when arbitral tribunals cause delays
- Appointing substitute arbitrators under Section 29A
In a noteworthy departure from the existing framework, the Draft Bill eliminates Section 43D, which previously authorized the Council to grade arbitral institutions. This change reflects an important shift in the Council’s role – moving away from evaluating institutions to instead focusing on guiding them through model procedural rules and guidelines. This approach aims to foster institutional development while maintaining operational autonomy.
4. Emergency Arbitration
The Draft Bill’s introduction of emergency arbitration provisions represents a significant legislative response to the Supreme Court’s landmark decision in Amazon v. Future Retail. This codification, primarily through the proposed Section 9A, formalizes the Court’s position that emergency arbitration awards are enforceable similarly to interim orders under Section 17(2) of the Act.
Key Features of the Emergency Arbitration Framework
The proposed Section 9A establishes clear parameters for emergency arbitration:
- Emergency arbitrators can grant interim measures outlined in Section 9
- Appointments are restricted to the pre-tribunal constitution phase
- Only arbitral institutions have the authority to make such appointments
- Emergency arbitrators must follow procedures specified by the Arbitration Council of India
- Awards carry the same enforceability as interim measures under Section 17(2)
- The constituted arbitral tribunal retains the power to affirm, modify, or vacate emergency orders
Critical Gaps
Despite this progressive step, the Draft Bill leaves uncertainty regarding emergency awards from arbitrations seated outside India. A significant ambiguity emerges from the interplay between Sections 2(2) and 9A. While Section 2(2) extends Section 9A(2) to foreign-seated arbitrations, it remains unclear whether the enforcement provisions under Section 9A(3) apply to emergency awards from arbitrations seated outside India. This creates potential enforcement challenges for interim orders rendered by emergency arbitrations seated outside India.
5. Proposed Changes to Section 34 of the Act
The Draft Bill’s most transformative proposals center on Section 34, introducing three fundamental shifts that could revolutionize India’s arbitration landscape. These changes represent a comprehensive overhaul of the post-award challenge mechanism, touching upon the very foundations of arbitral award scrutiny.
a. Introduction of the Appellate Arbitral Tribunals
The Draft Bill, by introducing Section 34A, proposes to establish “Appellate Arbitral Tribunals” (AATs). This is in tandem with the Hon’ble Supreme Court dicta in Centrotrade Minerals & Metal Inc. v. Hindustan Copper Ltd.,[2] (“CMM case”) wherein the Court upheld the validity of a two-tiered arbitration clause, with a similar appellate framework as is proposed under the Draft Bill. There are some notable differences from the CMM case as by virtue of this change the Draft Bill seeks to replace courts as the only forum for adjudicating set-aside applications under Section 34. However, parties opting for AATs relinquish their right to approach courts under Section 34, thereby making AATs and Courts mutually exclusive forums. The word “appellate” appears to be a misnomer here as the role of the Appellate Tribunal is very restricted and an award can only be set aside on the grounds enumerated under Sub-section 2 and 2A of Section 34 of the Draft Bill. Under this Section, the arbitral institutions will be allowed to include in their rules an appellate mechanism to entertain applications for setting aside arbitral awards, similar to courts under Section 34 of the Act. However, as per Section 34A (2) of the Draft Bill the AATs are required to follow the procedure as would be provided by the Arbitration Council of India. It is apt to mention here that parties in the ad-hoc arbitration will not have the option of an appellate arbitration tribunal. On this aspect also, the Draft Bill departs from the CMM case which did not put such restrictions on ad-hoc arbitration.
Thus, in institutional arbitration, if the rules so provide, the appellate arbitral tribunal may have the authority to set aside awards. Consequently, courts might be deprived of their powers to annul such awards. This provision, aiming to reduce court intervention, appears beneficial to users of arbitration, especially in view of the fact that the disposal of petitions under Section 34 of the Act typically takes around two to four years. However, it also raises significant concerns, as a privately constituted appellate arbitral tribunal may not be well-positioned to adjudicate issues such as violations of public policy.
b. Change in burden of proof for the grounds
Under the present law, the grounds for challenging an arbitral award under Section 34 can be categorised into two categories. The first category encompasses grounds such as incapacity, the validity of the arbitration agreement, failure to provide a party with a full opportunity to present their case, issues of ultra petita or infra petita, and non-compliance with the parties’ agreement in constituting the arbitral tribunal and/or the arbitral procedure. The second category includes grounds such as public policy, arbitrability, and patent illegality. The present law in respect of the first category lays down that awards can be set aside “only if the party making the application establishes” these grounds for challenge and for the second category, the present law provides that the court must find if the grounds are made out.
The 2024 Draft Bill alters this position and places the burden of proof on the Applicant even for grounds such as public policy, arbitrability, and patent illegality. It lays down that for both the categories of awards can be set aside “only if the party making the application establishes” the grounds for challenge. This seems to remove the ex-officio role of courts in addressing issues of public policy, arbitrability, or patent illegality and raises concerns, particularly where broader public policy considerations in the award may go unaddressed if not raised by the Applicant.
6. Making arbitral mechanisms more efficient
The lack of finality of arbitral awards due to constant court interventions and the consequent delays have been a problem in the Indian arbitration landscape. The Draft Bill takes several steps to address this issue-
A. Introduction of Timelines for dealing with various applications:
- Application for interim measures – Under the present act, the arbitral proceedings have to be commenced within 90 days from the date on which the Court passes its order on an application filed for interim measures under Section 9. The Draft Bill proposes to change the starting point of the 90-day period to the date of filing of an application under Section 9, thus, reducing the time for initiation of arbitral proceedings and opening up the possibility of initiation of arbitral proceedings even before any order on such an application is passed or before such an application is disposed of.
- Application for appointment of arbitrator(s) – Under the present act, no period of limitation is prescribed for such an application and consequently, a period of three years was considered as the limitation period, in line with Article 137 of the First Schedule of the Limitation Act, 1963. The Supreme Court, in BSNL v. Nortel Networks (India) (P) Ltd.,[3] had expressed concerns about this unduly long period and the Draft Bill seeks to make alterations in this regard. It provides that an application for appointment of arbitrators shall be filed within 60 days from the failure or refusal of appointment of arbitrator(s).
- Appeal against an order – Section 37 of the Act also does not prescribe any limitation period for filing an appeal. The Draft Bill proposes a limitation period of 60 days from the receipt of the order through the insertion of Section 37 (1A).
- Reference to Arbitration – The Draft Bill proposes an outer limit of 60 days for the Court to dispose of an application for reference to arbitration under Section 8, where there is an arbitration agreement, through the insertion of Section 8(4).
- Plea against the jurisdiction of an arbitral tribunal – The Draft Bill states that the tribunal must decide any jurisdiction challenge as a preliminary issue within 30 days of the application, unless it records reasons in writing to address it later. However, the Draft Bill does not provide for an appeal mechanism against a tribunal’s rejection of a jurisdictional challenge, despite the Vishwanathan Committee’s recommendation to that effect. While this ensures the continuity of the arbitral process, it forces an unwilling/ reluctant party to continue with the arbitration.B. Reducing Court intervention during the arbitration (Section 9)
Section 9 of the Act allows a party to approach the court for an interim measure before, during, or after arbitral proceedings. The Draft Bill introduces significant changes to this recourse. It amends Section 9 to state that parties can approach the court for interim measures either before the commencement of arbitral proceedings or after the making of the arbitral award, but before it is enforced. Consequently, during the arbitral process, parties must seek interim relief solely from the arbitral tribunal.
Additionally, the Draft Bill omits Section 9(3), which previously allowed courts to entertain applications for interim relief if seeking it from the arbitral tribunal was not efficacious. While this omission aims to reduce court intervention and clarify that only the arbitral tribunal can grant interim relief during proceedings, it also removes the flexibility for parties to approach the court when exceptional circumstances arise. This change, though intended to streamline the arbitration process, may limit the options available to parties in urgent situations.
C. Increasing the likelihood of enforcement of awards
The Draft Bill proposes the insertion of Section 31 (2A), mandating an arbitral award to include statements confirming the following-
- Capacity of Parties to arbitrate
- Validity of arbitration agreement under the applicable law
- Parties were given notice of appointment of the tribunal and were able to present their case
- The composition of the arbitral tribunal was in accordance with the parties’ agreement
- The arbitration procedure was in accordance with the parties’ agreement
- The subject-matter of the dispute was arbitrable under Indian law
- The award dealt with disputes falling within the terms of the arbitration agreement.D. Addressing the “Due Process Paranoia”
The Vishwanathan Committee expressed apprehensions regarding delay tactics used by parties in the form of repeated due process challenges. It took note of the Singapore Court of Appeal’s dictum in China Machine New Energy Corporation v Jaguar Energy Guatemala LLC and another,[4] wherein it was recognised that a party’s right to “full opportunity” to present its case is not unlimited and is “impliedly limited by considerations of reasonableness and fairness.” The Draft Bill accepts this position and proposes to modify the term “full opportunity” under Section 18 to “fair and reasonable opportunity”.
7. Other measures reflecting contemporary realities
A. Online Dispute Resolution
The Draft Bill reflects the technological changes that have occurred in the post-pandemic world. It proposes to bring arbitration conducted via audio-visual means under the definition of arbitration by inserting section 2(1) (aa) in the Draft Bill. Accordingly, by virtue of Section 7(4)(a) and Section 31(5), the Draft Bill also proposes to recognise the digital signing of a document containing an arbitration agreement and an arbitral award, respectively.
B. New Grounds to Appeal under Section 37
The Draft Bill also proposes to include the order refusing to appoint an arbitrator as a ground for appeal by inserting Section 37(aa).
C. Changes in the Interest Rate
The Draft Bill proposes to amend the rate of interest payable on the sum under an arbitral award as per Section 31(7)(b) of the Act. The current provision, which prescribes an interest rate of “two per cent higher than the current rate of interest prevalent on the date of the award,” is sought to be amended with “three per cent higher than the prevailing repo rate of the Reserve Bank of India as on the date of the award.”
D. Omission of fourth schedule –
The Draft Bill also proposes to omit the fourth schedule of the Act. The fourth schedule of the Act deals with fees of arbitrators. The Draft Bill proposes to remove the whole schedule and, instead of this, proposes to amend Section 11(14) and Section 11(A) of the Act. Through this, the Draft Bill proposes that the fees of the arbitrators shall be determined by their respective arbitral institutions and in case of ad-hoc arbitration, fees to be determined by the Arbitration Council of India.
E. Stamping of Awards
The Draft Bill proposes that arbitral awards must be duly stamped by the arbitral tribunal. This is a significant change from the prevailing practice, where parties often wait to pay stamp duty until after the setting aside proceedings have concluded or until enforcement proceedings are commenced.
Conclusion: A Positive step towards promoting arbitration
The Draft Bill represents a watershed moment in India’s arbitration journey. Through its comprehensive reforms, the Draft Bill attempts to address longstanding challenges in Indian arbitration law. The proposed changes reflect three clear priorities: strengthening institutional arbitration, enhancing efficiency, and reducing judicial intervention.
The Draft Bill’s ambitious scope is evident in its transformative proposals, from the formal recognition of emergency arbitration to the revolutionary introduction of Appellate Arbitral Tribunals. The emphasis on institutional arbitration, coupled with the broader powers granted to arbitral institutions, signals a decisive shift away from ad-hoc arbitration towards a more structured institutional framework.
Particularly noteworthy are the Draft Bill’s efforts to address practical challenges that have historically plagued Indian arbitration. As per a report of the World Bank on ‘Ease of doing business’, resolving a civil dispute in India takes 1,420 days, much longer than in China (452 days) and Russia (307 days).
The introduction of strict timelines, the streamlining of challenge procedures, and the recognition of technological advancements through provisions for online dispute resolution demonstrate a pragmatic approach to modern dispute resolution needs, which could certainly aid towards improving India’s ease of doing business as well.
However, certain aspects of the Draft Bill require further consideration. The ambiguity surrounding interim orders passed by foreign-seated arbitral tribunals, the potential implications of restricting seat selection under Option II of Section 20, and the powers of an appellate tribunal to address issues regarding violations of public policy could certainly create challenges in implementation.
Despite these concerns, the Draft Bill represents a significant stride towards positioning India as a preferred arbitration destination. It would be interesting to note how the provisions of the Draft Bill would be adopted after the comments of the public. If the Draft Bill is adopted, its success will ultimately depend on effective implementation and the arbitration community’s ability to adapt to these substantial changes. As India continues its journey towards becoming a global arbitration hub, this Draft Bill could serve as a crucial stepping stone in that direction.
[1] (2012) 9 SCC 552
[2] AIR 2020 SC 3163
[3] (2021) 5 SCC 738.
[4] [2020] SGCA 12, Civil Appeal No 94 of 2018 28 February 2020.