"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well." -Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Tuesday, June 8, 2010

Consultation Paper on Amendments to Arbitration Law: Further Comments on Interest Rate and Commercial Division of High Courts

On 8th April 2010, the Ministry of Law and Justice published a document titled Consultation Paper on the Amendments to Arbitration and Conciliation Act, 1996 (CP). On CP, we had four posts touching upon the following aspects:

Post I: Descriptive Analysis of the CP
Post II & III: Analysis of the First Proposal: On Section 2(2) of the Arbitration and Conciliation Act, 1996 (Act) to nullify Bhatia International
Post IV: Amendments to Section 31(7) on the default rate of interest 

This short post is deals with the following aspects
  1. Further Observations on Interest Rate under S 31(7)
  2. Proposal to amend provisions of the Act for constitution of Commercial Division of High Courts Bill, 2009
Further Observations on S 31(7):
As stated above, in our previous post, we had analysed the proposal for amending S 31(7) of the Act, reducing the interest rate from 18%. One of our observations on the said proposal was that there was no adequate justification for reducing the interest rate from 18% (the only justification of 'economic crisis' is, in our humble opinion, no justification at all when economic crises are temporary phenomena).S 31(7) is quoted below:

"(a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.

(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of eighteen per centum per annum from the date of the award to the date of payment
."

In 2001, the Law Commission, in its 176th Report observed:

"After due consideration, the Commission has felt that there is no justification for reducing the rate below 18%. Hence no amendment is necessary in section 31(7)(b)."

Even the Saraf Committee, in its report in 2005, did not find any reason to amend S 31(7). In view of the above, we fail to understand why an amendment is needed to reduce the said rate of 18%. In any case, parties are free to agree for a lesser rate of interest.

Proposal to amend provisions of the Act for constitution of Commercial Division of High Courts Bill, 2009:
In 2009, a Bill was passed in the Lok Sabha on 18 December 2009, known as the Commercial Division of High Courts Bill, 2009. We had written a post on the said Bill, which can be found here. According to the said Bill, "[a]n application under section 34 or section 36 or an appeal under section 37 of the Arbitration and Conciliation Act, 1996 shall be deemed to be a commercial dispute if the amount in dispute or claim relates to a specified value" and shall be dealt with by the Commercial Division of the High Court.

The Arbitration and Conciliation (Amendment) Bill, 2003 provided for the establishment of an Arbitration Division in the High Court of competent jurisdiction consisting of "one or more Division Benches of the High Court" and such Bench shall hear all aspects relating to challenge and execution of arbitral awards.

The Saraf Committee was in consonance with the said Bill stating the recommendation as salutary (but recommended that the provisions of S 37A ought to be modified to make it clear that the Arbitration Bench "will be a Division Bench of not less than two judges"). Broadly, on two counts, this development would prove to be advantageous. One, it would considerably save time and money of business entities. Two, it would (hopefully) lead to a bunch of judges specialised in commercial law.

* Title changed after posting

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