"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.

Saturday, October 20, 2018

Opportunity of Hearing to Arbitrators? Arbitration & Conciliation (Amendment) Bill 2018

We had done several posts (see here, here, here, and here) critiquing various aspects of the Arbitration & Conciliation(Amendment) Bill, 2018 (2018 Bill) that is to be taken up by the Rajya Sabha in the coming winter session.In this relatively short post, we discuss a proposed amendment that requires reconsideration.

Section 6(b) of the 2018 Bill proposes two provisos to Section 29A(4) of the Arbitration and Conciliation Act, 1996 (1996 Act), one of which is the focus of this post. This proviso grants an opportunity of hearing to the arbitrator/ arbitral tribunal in the reduction of fee. It reads: “Provided also that the arbitrator shall be given an opportunity of being heard before the fees is reduced.”

To provide a brief background, the 1996 Act was amended in 2015 wherein Section 29A was introduced. Section 29A(1) fixed a period of twelve months from the date the tribunal enters upon reference to pass the arbitral award. Section 29A(3) provides for extension of up to six months based on agreement between the parties. Section 29A(4) provides that in case the award is not made within twelve months or the extended period, the court can order the termination of the arbitrator’s mandate.

Proviso to Section 29A(4) states that in extending the period, if the court finds that the tribunal was responsible for the delay, the court could reduce the fee of the tribunal. It is in respect of this proviso that the further provisos are sought to be added.  The 2018 Bill in adding a proviso seeks to grant the arbitrator/ tribunal an opportunity of hearing while considering whether to reduce the fee or not. 

This provision has been made pursuant to the recommendations of the Hon’ble Mr. Justice (Retd.) Srikrishna Committee. The relevant portion of the Report reads:

The Committee is also of the view that the power of the court in the provisos to section 29(4) and (6) to substitute the arbitrator(s) or order a reduction in the fees of the arbitrators when hearing an application for extension under section 29(5) is rather peculiar. These provisions ought to be modified, as the arbitrator is not being heard before he / she is penalised, as only the parties to the arbitration are before the court. Even if such an opportunity were to be afforded, practically, it would lead to problems affecting the integrity of the arbitral process. Arbitrators would be wary of being foisted with a reduction in fees and have a perverse incentive to rush through proceedings to render the award within the stipulated time period. Further, if an application for reduction of fees of the arbitral tribunal were to be denied and an extension granted, it would strain relations between the tribunal and the party applying for the same. The punitive nature of these provisions may also act as a deterrent for reputed arbitrators from accepting domestic arbitrations...  There also exist no provisions empowering the court to order a reduction of the fees of the arbitrator… A new sub-section should be inserted in section 29A providing that where the court seeks to reduce the fees of the arbitrator(s), sufficient opportunity should be given to such arbitrator(s) to be heard.”

The recommendation seeks to protect the interest of the arbitrator/ tribunal when it comes to reduction of fee. 

It is submitted that if this amendment is implemented, it would only lower the position of the arbitrator/ arbitral tribunal to the level of a party to the arbitral proceedings. Section 36 of the 1996 Act treats an award almost equivalent to the decree of a civil court. Although the arbitrator is a creation of the contract, the jurisdiction exercised is nearly the same as that of a District Court or of the original side of a Chartered High Court. The arbitrator/ tribunal is not even a necessary or a proper party in the proceedings relating to setting aside awards: it is sufficient if the record of the tribunal is handed over to the court. Given all these aspects, it is not correct to lower the position of the arbitral tribunal to that of a party in the proceedings. Therefore, it is not in the right spirit of the law to make the arbitrator a party to the proceedings. For the same reasons, it is not correct for the court to reduce the fee of the arbitrator. Would the court reduce the salary of judges if the proceedings drag on due to repeated adjournments?

If proceedings are pending before courts under Section 29A, parties would rarely seek reduction by withholding certain documents evidencing delay on their part since the other side would be likely to use such suppression of documents against the first party in the court or in the arbitral proceedings. If the arbitrator considers such reduction to be unreasonable, she could very well stop acting as the arbitrator. Hence, by the very nature of the proceedings, the arbitrator's interests are duly protected.  

In view of the above, the following can be done:
  • The proviso to Section 29A(4) can be deleted.
  • Instead, the Council to be established under Part IA of the 1996 Act could frame rules to the effect that grading of arbitrators should be on the basis of whether the arbitrators are able to strictly comply with the time limits provided in Section 29A.
  • If the amendments are passed without considering these aspects, courts should construe this proviso to provide an opportunity of hearing to arbitrators only in exceptional cases. 

More on the 2018 Amendments in another post.

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