Arbitration and Conciliation (Amendment) Bill 2018: Comments on Certain Amendments

In a previous post in this blog, we had linked readers to the Bill that is proposed to be introduced in the Parliament to amend the arbitration law in India. We had noted in the said post that we are not sure if the Bill that would be introduced in the Lok Sabha would be the same as the above Bill. In this post, we comment on certain amendments made to the Bill relating to the time-limit to complete the arbitral proceedings. 

Amendment to Section 23

Section 5 of the Amendment Bill seeks to introduce Section 23(4) in the Arbitration and Conciliation Act, 1996. The sub-section sought to be introduced reads as follows:

"(4) The statement of claim and defence under this section shall be completed within a period of six months from the date the arbitrator or all the arbitrators, as the case may be, received notice, in writing, of their appointment."

This amendment is pursuant to the recommendations by the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India to provide for a deadline of six months for the completion of exchange of pleadings and for making the twelve month period in Section 29A (introduced under the 2015 amendment law) commence from the date of completion of exchange of pleadings. The committee's recommendation was based on its finding that "[w]ith respect to domestic arbitrations, the general opinion of arbitrators is that the timelines fixed for conducting domestic arbitrations under section 29A should take effect post completion of pleadings."

Amendment to Section 29A

Section 29A inserted as a part of the 2015 amendments was criticised for being against party autonomy by imposing a condition that the arbitral proceedings were to be completed within twelve months. The High Level Committee took note of criticism. The provision has also been regarded as allowing interference and anti-institutional arbitration. The Committee observed: 

"In fact, one of the provisions of the ACA — section 29A — which was inserted by the 2015 Amendment Act, is perceived to have made arbitral institutions wary of arbitrations in India. Section 29A provides for strict timelines for completion of arbitration proceedings. This has been criticised as unduly restrictive of the conduct of arbitrations by arbitral institutions which provide for timelines for different stages of the arbitration proceedings."

In view of the criticisms, the High Level Committee recommended the following:

• Insertion of a new provision in S 29A limiting its applicability to non-international commercial arbitrations seated in India.

• The time limits under Section 29A were to run after completion of exchange of pleadings.

• The exchange of pleadings were to be complete by six months from the date of appointment.

• Pending an application to the court for extension of the time limit, the mandate of the tribunal shall continue.

• An application filed in the court under S. 29A, if not disposed of within sixty days, is deemed to have been granted.

• Prior to reducing the arbitrator's fee under Section 29A(4), the court shall give the arbitrator an opportunity of being heard. 

For these purposes, Section 6 of the Bill proposes the following:

Substitution of Section 29A(1) with the following: "(1) The award in matters other than international commercial arbitration shall be made within a period of twelve months from the date of completion of pleadings under sub-section (4) of section 23." (amended portions)

Insertion of Two provisos in Section 29A(4), after which Section 29A(4) would look like this:

"(4) If the award is not made within the period specified in sub-section (1) or the extended period specified under sub-section (3), the mandate of the arbitrator(s) shall terminate unless the Court has, either prior to or after the expiry of the period so specified, extended the period: 

Provided that while extending the period under this sub-section, if the Court finds that the proceedings have been delayed for the reasons attributable to the arbitral tribunal, then, it may order reduction of fees of arbitrator(s) by not exceeding five per cent. for each month of such delay:

Provided further that where an application under sub-section (5) is pending, the mandate of the arbitrator shall continue till the disposal of the said application: 

Provided also that the arbitrator shall be given an opportunity of being heard before the fees is reduced." (the emphasised portions are the proposed amendments)

Comments

• The drafters seem to have committed an error by failing to clarify that the six month time limit for exchange of pleadings (sought to be introduced in Section 23) would not apply to India-seated international commercial Arbitrations. The High Level Committee recommended the exclusion of the time limit in Section 29A in respect of India-seated international commercial Arbitrations and also for commencement of the one year period from the date of completion of exchange of pleadings. However, by placing the six month limit in Section 23, and without clarifying that the said provision did not apply to India-seated international commercial Arbitrations, the Bill, perhaps inadvertently, applies the six month limit to India-seated international commercial Arbitrations as well. This could not have been the intent of the drafters, and is surely not what the High Level Committee recommended since the criticisms as regards Section 29A noted by the Committee would apply even for the six month limit sought to be provided for completion of pleadings. The Bill to be introduced in the Lok Sabha needs to address this crucial defect. 

• The Bill does not contain incorporate the recommendation by the High Level Committee that in case the application to court for extension of time period is not decided within sixty days as provided, it would be deemed to have been granted. The reason for non-implementation is not known. However, consider a rare hypothetical scenario that a party or the parties together jointly apply to the court for extension of time limit with a supplementary prayer that the arbitrator fee has to be reduced by 5% per month. Assume that such an application is not decided within sixty days, would a provision similar to the one recommended by the Committee mean that the prayer for reduction of fee would be deemed to be allowed in such a case? Generally, the Government is not comfortable with such a deemed grant provision. Therefore, it is not altogether surprising that the Government did not choose to incorporate this provision. 

• The penultimate proviso proposed to be introduced in Section 29A(4) provides that the mandate of the tribunal shall continue till the application for extension of time is disposed of by the court. This provision has to be read in conjunction with Section 32 which provides that the mandate of the arbitral tribunal shall terminate if a final arbitral award is passed. Now, assume that an application is filed for extension of time limit and pending the application, by virtue of the 2018 amendments, the mandate of the tribunal continues and the arbitral award is passed. Ordinarily, by virtue of Section 32, the tribunal’s mandate would terminate. However, due to the penultimate proviso sought to be introduced to Section 29A(4), would the tribunal’s mandate continue till the arbitral application is disposed of? The Bill needs to clarify these aspects.

More on the proposed amendments in another post.