"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.

Thursday, August 28, 2014

Part V of the Comments on the Law Commission's 246th Report: Amendment to Arbitration and Conciliation Act, 1996

We continue with our endeavour of commenting bit by bit on the Law Commission's 246th Report proposing amendments to the Arbitration and Conciliation Act 1996.

Form and Content of Arbitration Agreement:
The amendments as regards Section 7 of the 1996 Act concerning arbitration agreement can be grouped into two aspects:

(1) Amendment to S 7(1) recommending addition of "concerning a subject matter capable of settlement by arbitration" clarifies that the arbitration agreement should be in respect of a dispute that is arbitrable.

(2) Section 7 has been amended to include the amendments introduced into the UNCITRAL Model Law in 2006 regarding form and content of the arbitration agreement. Clauses 3A, 3B and its Explanation are imports from the Model Law. 

These amendments further dilute the form requirement of arbitration agreement by bringing it in line with international practice. These amendments to form requirements have also been recommended to be added in several jurisdictions. See, for instance, What Constitutes an "Agreement in Writing" in International Commercial Arbitration? Conflicts Between the New York Convention and the Federal Arbitration Act, 48 Stanford Journal of International Law 47, 89-90 (2012). Further it is only logical that the amendments introduced to the Model Law are incorporated in the 1996 Act considering that the latter was adopted from the former. 

While  the idea of incorporation of the 2006 amendments is good, it is to be noted that the proposed amendments to S. 7 are in a haphazard manner. For instance, Cl. 3A states what constitutes a written arbitration agreement but Cl. 4 also states what constitutes a written arbitration agreement although both cover different aspects. Hence, it would do good to merge Clauses 3A and 4.

Amendments on Reference by Court of a Dispute to Arbitration:
The amendments to Section 8 are important primarily because they would go a long way in reforming the existing law and eliminating confusions. These amendments deal with four different aspects:

(1) Amendments to S 8(2) address a practical problem. Often, only one of the contracting parties retain the original contract/ arbitration agreement while the other(s) retain a copy of the same. Hence, the the amendment empowers the applicant to submit a copy of the arbitration agreement accompanied by an affidavit calling upon the other party to produce the original/ duly certified copy in possession of the other party.

(2) What amounted to "first statement on the substance of the dispute" was confusing. The proposed amendment provides in an Explanation that a pleading filed in relation to an interim application shall not be a first statement on the substance of the dispute. Thus, this would mean that even if such a pleading does not even refer to the existence of an arbitration agreement, nevertheless court would refer a matter to arbitration if the first pleading on the substance of the dispute mentions its existence.

(3) Section 8 has been amended to refer to arbitration only those parties who were parties (or those claiming under them) to the arbitration agreement. Further, the proviso states that no reference can be made where necessary parties to the action are not parties to the arbitration agreement. This clarifies the Sukanya Holdings decision of the Supreme Court and at the same time eliminates misuse of the holding by impleading a party in the action when it is not "necessary" to do so. The determination as to whether a party is a necessary party would be as per the provisions contained in Order 1 Rule 10(2) of the Code of Civil Procedure, 1908.

(4) The second proviso to Section 8 would state that the judicial authority will not refer the matter to arbitration if it finds that the arbitration agreement does not exist or is null and void. Unlike Section 45, the amendment restricts refusal to refer only on the grounds that the arbitration agreement does not exist of that the arbitration agreement is null and void but not on the grounds that the same became inoperable or incapable of being performed. Thus, in the latter two cases, the court need not finally determine the question. Further, it states that the scope of the decision making is only "prima facie". Thus, if the authority is prima facie satisfied that the arbitration agreement exists or is not null and void,  the same is sufficient to refer the matter to arbitration which shall determine the question de novo and in full. If the authority finds that the arbitration agreement does not exists or that it is null and void, the determination of the judicial authority is final. However, the amendment also proposes to make an order refusing reference to arbitration as an appealable order under S. 37(1)(a).

This amendment has the potential to cause confusion on when a judicial authority would be prima facie satisfied and might require judicial exposition akin to Boghara Polyfab.

Previous Parts of the topic under discussion can be read from the following links: Part IPart IIPart III, Part IV.
More on the Report in the next few posts.

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