An Overview: Amendments effected by the Arbitration & Conciliation Act, 2015

An Overview:Amendments effected by the Arbitration & Conciliation Act, 2015 Indu Malhotra Senior Advocate, Supreme Court of India

Applicability of the Amendment Act 2015 (No. 3 of 2016) • came into force with effect from 23.10.2015. • would not apply to pending arbitration proceedings, unless the parties agree otherwise. • shall apply to arbitral proceedings commenced on or after the Amendment Act, 2015 having come into force on 23.10.2015 (Clause 26) • repeals the Arbitration and Conciliation(Amendment) Ordinance 2015, Notwithstanding therepeal, any action taken under the Ordinance shall be deemed to have been taken under the 1996 Act, as amended by the Amendment Act, 2015

Key Features of the Amendment Act 2015 • Amendment to S. 2(1)(e) • In the case of international commercial arbitration, the “Court” u/S 2(1)(e) would be the High Court having jurisdiction. • In case of arbitrations other than international commercial arbitrations, the “Court” u/S 2(1)(e) would be the principal Civil Court of original jurisdiction. • Amendment to S. 2(1)(f) • provides that an arbitration would be a Domestic Arbitration, even if one of the parties to the arbitration has its central business and management outside India. Note: This amendment affirms the ruling of the Supreme Court in TDM Infrastructure Vs UE Development India P. Ltd. (2008) 14 SCC 271 and gives primacy to the place of incorporation of a company.

Interim Measures for International Commercial Arbitration even where Seat is outside IndiaDistinction between domestic arbitrations between Indian parties, international arbitrations having their seat in India and foreign-seated arbitrations affirmed. • Amendment to S. 2(2)– Proviso inserted, whereby theprovisions of Sections 9, 27, 37(1)(a) and 37(3) – i.e. provisions relating to interim measures by courts, court assistance in taking evidence, and appeals against Orders under Section 9 – are made applicable to foreign seated international commercial arbitrations. • High Court would be the court of competent jurisdiction under S.2(1)(e). • Not amenable to a challenge u/S. 34 in Part I of the Act.(Refer to S. 34(2A)

S. 2(2) provides that Part I would apply where the place of arbitration is in India. • A 3 Judge bench of the Supreme Court in Bhatia International v. Bulk Trading, (2002) 4 SCC 105, had held that since the word “only” was missing in S. 2(2), Part I would become applicable to foreign seated arbitrations also, unless excluded either expressly or impliedly by parties. As a consequence, awards passed in foreign-seated arbitrations also became vulnerable to a challenge u/S. 34 in Part I of the Act.(Venture Global) Foreign awards could be challenged under the expanded definition of “public policy”. Refer to : • ONGC vs. Saw Pipes 2003 (5) SCC 705 • ONGC vs. Western Geco 2014 (9) SCC 263

Amendment to the definition of “arbitration agreement” (S.7): • S.7 of the 1996 Act has been amended to read as follows. The re-worded S. 7(4)(b) now reads as : “an exchange of letters, telex, telegrams or other means of telecommunication including communication through electronic means which provide the record of the agreement”. Note: The amendment gives effect to the judgment of the Supreme Court in Shakti Bhog Foods v. Kala Shipping Ltd. (2009) 3 SCC 1.

S. 8 • S. 8(1) has been substituted. Reference to arbitration can be made even in case of domestic arbitrations by non-signatories to the arbitration agreement. As a consequence, “any person claiming through or under” a party to the arbitration may seek reference of a dispute, which is the subject of an arbitration agreement. The language of S. 8 has been brought in tandem with the language in S. 45 in Part II of the Act. The judgment in Chloro Controls 2013 (1) SCC 641 had recognised the applicability of the group of companies doctrine with respect to international commercial arbitrations. S.8 brought in tandem with S.45 • The enquiry by the courts will be a prima facie view determination of the existence of the arbitration agreement. • The amendment also provides that such reference has to be made notwithstanding any judgment, decree or order of the Supreme Court or any Court. The amendment overcomes the decisions which had been passed on arbitrability of the disputes by the court at the stage of S. 8. The Amendment also inserts a proviso to S. 8(2) which provides that if the original agreement / certified copy is not available, a party can file the application with a copy of the arbitration agreement. • An order refusing to refer the parties to arbitration u/S. 8 has been made appealable u/S. 37(a).

S. 9 • The 2015 Amendment has made the following three significant changes in S.9:- • Interim measures can be sought from the courts in India even with respect to a foreign-seated international commercial arbitration as provided by the newly inserted Proviso to S. 2(2). • Under the un-amended Act, there was no time limit provided for initiation of arbitral proceedings where a party had sought and obtained interim measures from the Court u/S. 9. In Firm Ashok Traders (2004) 3 SCC 155, the Supreme Court held that the parties must invoke arbitration proceedings within a ‘reasonable time’ of an order passed u/S. 9. The amended Act now incorporates sub-section (2) in S. 9 which provides that where a party has before the commencement of arbitral proceedings, moved the Court for interim measures, the arbitral proceedings shall be commenced within a period of 90 days of such order, or such time as the Court may determine. • The amended Act has inserted sub-section (3) which provides that after the arbitral tribunal is constituted, the Court shall not entertain an application under sub-section (1), unless the Court finds the remedy u/S. 17 is not efficacious.

S. 11 • A seven judge Constitution Bench of the Supreme Court in SBP v. Patel Engineering Ltd (2005) 8 SCC 618 had held that the power to appoint an arbitrator(s) under S. 11 is a judicial power. In State of W.B. v. Associated Contractors, (2015) 1 SCC 32 the power exercised by the Chief Justice under S. 11 was held not to be exercised by the “Court” as defined in S. 2(1)(e) of the 1996 Act, and as such would not have precedential value. In SBP v. Patel Engineering Ltd (2005) 8 SCC 618 followed by National Insurance Co. Ltd.v. BogaraPolyfab, (2009) 1 SCC 267 the Supreme Court held that: • The Chief Justice/ designate must determine: • whether the party making the application has approached the appropriate High Court • whether there is an arbitration agreement, and • whether the party who has applied u/S. 11 of the Act, is a party to such an arbitration agreement. • The Chief Justice/ designate may choose to decide: 1. Whether the claim is a dead (long time barred) claim or a live claim • Whether the parties have concluded the contract/ transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection 3. The Chief Justice/ his designate should leave the following issues to be exclusively decided by the arbitral tribunal: 1. Whether the claim make falls within the arbitration clause 2. Merits or any claim involved in the arbitration

S.11 • S. 11 (4), (5), (6) have been amended, and the reference to Chief Justice has been substituted by Supreme Court, or High Court, or any person / institution designated by such Court. • The 2015 Amendment Act makes the decision u/S. 11 as that of the Supreme Court/ High Court, and not the Chief Justice. • The 2015 Amendment introduces two new sub-sections viz. S. 11 (6A) and (6B). S. 11(6A) provides that when an application for appointment of an arbitrator is filed before the Supreme Court, or the High Court, the Court shall, notwithstanding any judgment, decree or order of any Court, confine itself to look into the question of existence of the arbitration agreement.

S. 11 • S. 11(6B), the delegation by the Supreme Court/ High Court of the function to appoint an arbitrator(s) to “any person or institution designated by him” would not a delegation of judicial power. • Sub-section (7) of S. 11 has been amended to incorporate necessary changes for the term Chief Justice with the Supreme Court / High Court. It further provides that the decision of the Court / designate is final, and no appeal including a Letters Patent Appeal shall lie against such decision. [Refer Feurst Day Lawson Ltd. v. Jindal Exports Ltd., (2011) 8 SCC 333] • S. 11(8) stipulates that before appointing an arbitrator, the Supreme Court/ High Court shall seek a disclosure in writing from the prospective arbitrator in terms of S. 12(1). As per Explanation 2 to S. 12(1)(b), the disclosure is required to be made in the statutory form in the Sixth Schedule. The Court/ designate shall while making the appointment must have due regard to : • the qualifications required for the arbitrator in the agreement; and • the contents of the disclosure, and other considerations likely to secure the appointment of an independent and impartial arbitrator. • The newly inserted S. 11(13) provides that an application u/S. 11 shall be decided expeditiously by the Supreme Court / High Court, or the designate of the Court, and an endeavor shall be made to dispose it within 60 days. • The Amendment Act also incorporates sub-section (14) in S. 11 with respect to determination of fees of the arbitral tribunal and the manner of payment. The Fourth Schedule provides that the fees of an arbitrator has to be proportionate to the amount of claim made before the arbitral tribunal. The Fourth Schedule provides a table of indicative fees, which is proportionate to the claim made, with a cap of Rs. 30 lacs, and not in terms of the hearings/ sittings of the arbitral tribunal. The High Courts may frame rules in light thereof.

S. 12 • The amended S. 12contains two Schedules that enlist various grounds for challenge of an arbitrator. • Sub-section (1) in S. 12 has been substituted. Makes a written disclosure mandatory by a prospective arbitrator or any circumstances in the Form specified in Schedule VI. • such as, the existence either direct or indirect, of any past or present relationship with or interest in any of the parties, or in relation to the subject matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubt as to his independence or impartiality; and • which are likely to affect his ability to devote sufficient time to complete the entire arbitration within 12 months. • new sub-section (5) has been inserted, which by a non-obstante clause provides that notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties, counsel, or the subject matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator.However, the parties may waive the applicability of this sub-section by an express agreement in writing, after disputes have arisen between them.

Stricter rules on bias and conflict of interest have been introduced. • Fifth Schedule has been added which contains the guiding circumstances that may give rise to justifiable doubts as to the independence and impartiality of arbitrators. • The Seventh Schedule to the Amendment Act sets out circumstances that will render a person ineligible to be appointed as arbitrator. The applicability of this provision can only be waived by parties by an agreement in writing after disputes have arisen.

S. 14 • S. 14(1) has been amended to make provision for appointment of a substitute arbitrator, where the mandate of an arbitrator is terminated, where there is a failure or impossibility of an arbitrator to act. Note: A similar provision is available in S. 15(2) which provides for termination of mandate where an arbitrator withdraws from office, or pursuant to an agreement of the parties.

S. 17 S. 17 has been completely substituted. • Sub-section (1) incorporates provisions of S. 9(1) to empower the arbitral tribunal to make orders for interim measures during the arbitral proceedings, or after the making of the award but before it is enforced u/S. 36. An order passed u/S. 17 is appealable u/S. 37(2)(b) of the 1996 Act. • Section 17(2) provides that an order of the arbitral tribunal shall be deemed to be an order of the Court, and shall be enforceable under the CPC.

Amendments to S. 23, S. 24, S. 25 & S. 28 • A new sub-section 2A has been inserted in S. 23, which provides that the respondent may submit a counter claim / set-off, which shall be adjudicated by the same arbitral tribunal, if it falls within the scope of the arbitration agreement. • S. 24 has been amended to insert a second proviso which stipulates that the arbitral tribunal shallhold oral hearings on a day to day basis, and not grant adjournments unless sufficient cause is made out, and may impose costs including exemplary costs if adjournment is sought without sufficient cause. • S. 25(b) has been amended which provides that the arbitral tribunal shall have the discretion to treat the right of the respondent to file statement of defence as having been forfeited, if it is not filed as per directions given u/S. 23(1). • Sub-section (3) in S. 28 has been substituted to provide that the tribunal while deciding and making the award, shall in all cases take into account the terms of the contract and the trade usages applicable to the transaction.

S. 29A – new provision incorporated S 29A provides a time limit for making the arbitral award. It provides that the award shall be made within 12 months from the date the arbitrator(s) enters upon reference. • Parties may by consent extend the period by a further period of 6months. Any further extension can only be made by the Court. • The Court may impose actual or exemplary costs upon any of the parties under this section. • The Court may order reduction of fees of arbitrator(s) upto 5% for each month of delay, if the delay is attributable to the arbitrator(s). • Court may substitute one or all the arbitrators. If one or all the arbitrators are substituted, the arbitral proceedings shall continue from the stage already reached, and on the basis of evidence and material on record. • Application for extension filed before court shall be disposed of expeditiously, and an endeavour be made to dispose of within 60 days from date of service of notice on the opposite party.

S. 29B : Fast Track Procedure S. 29B grants statutory recognition to the fast track procedure for arbitrations. The salient features of fast track procedure are : • the dispute will be decided by a sole arbitrator; • the dispute will be decided on the basis of written pleadings, without any oral hearing; • oral hearing will be granted only if all the parties make a request, or if the arbitrator considers it necessary for clarification; • the award under the section shall be made within 6 months.

S. 31(7)Interest and Costs S. 31(7)(b) of the 1996 Act has been substituted by the Amendment Act, 2015. The 1996 Act had provided a statutory rate of 18% Interest, for the post-award period, unless the award otherwise directs. Under the 2015 Amendment Act, unless the award otherwise directs, the arbitral award shall carry Interest @ 2% p.a. higher than the rate of interest prevailing on the date of the award. Costs u/S. 31A • S. 31A provides an extensive regime of Costs which the Court or arbitral tribunal, shall have the discretion to determine.

S. 34 The 2015 Amendment inserts two new Explanations in S. 34(2)(b), and the earlier Explanation stands substituted. The earlier Explanation to S. 34(2)(b) provided that an award is in conflict with the Public Policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of S. 75 or S. 81. The amended Explanation 1 to S. 34(2)(b) clarifies that an award would be in conflict with public policy of India, only if : • The making of the award was induced or affected by fraud or corruption or was in violation of S. 75 or S. 81; or • In contravention with fundamental policy of Indian law; or • In conflict with the most basic notions of morality or justice. Explanation 2 has been inserted which clarifies that a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.

S. 34 contd. • A new provision i.e. sub-section (2A) has been inserted in S. 34 which provides that an arbitral award arising out of arbitrations other thaninternational commercial arbitrations may also be set aside if the court finds that the award is vitiated by patent illegality appearing on the face of the award. • The proviso to the said provision states that an award shall not be set aside merely on the ground of an erroneous application of law or by re-appreciation of evidence. • A new sub-section (5) has been inserted in S. 34 which provides that it is now mandatory for a party to issue prior notice to the other party before filing an application u/S. 34. • A new sub-section (6) has been inserted which provides that an application u/S. 34 shall be disposed of expeditiously and in any event, within a period of 1 year from the date on which the notice was served upon the other party.

S. 36 : Enforcement of Arbitral Award under Part-I S. 36 stands completely substituted. • S. 36(1) provides that where the time for filing objections u/S. 34 has expired, the award shall become enforceable as a decree of the court. • S. 36(2) provides that filing of an application u/S. 34 shall not by itself render the award unenforceable, unless the court grants stay of the award. • S. 36(3) provides that the court may impose such conditions for grant of stay of the award for reasons to be recorded in writing. A proviso has been inserted which states that the court will have due regard to the provisions for grant of stay of a money decree under CPC. Note: The effect of the decision is to overcome the judgments in National Aluminium Co v. Pressteel & Fabrication, (2004) 1 SCC 540,NBCC v. Lloyd Insulation India Ltd. (2005) 2 SCC 367 and Morgan Securities v. Modi Rubber Ltd. (2006) 12 SCC 642.

S. 37 : Appealable Orders The 2015 Amendment provides that an order u/S. 8 refusing to refer parties to arbitration is appealable u/S. 37(1)(a) of the 1996 Act.

Amendment to Part-II of the 1996 Act The 2015 Amendment has amended Explanations to S. 48: The earlier Explanation to S. 48(2)(b) provided that an award is in conflict with the Public Policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of S. 75 or S. 81. The amended Explanation 1 to S. 48(2)(b) clarifies that an award would be in conflict with public policy of India, only if : • The making of the award was induced or affected by fraud or corruption or was in violation of S. 75 or S. 81; or • In contravention with fundamental policy of Indian law; or • In conflict with the most basic notions of morality or justice. Explanation 2 has been inserted which clarifies that a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute. Note: Amendments to S. 48 is consistent with the position articulated in ShriLalMahal Ltd. v. ProgettoGrano Spa, (2014) 2 SCC 433, with the added clarification that the test of contravention of fundamental policy of Indian law will not entail a review on the merits. Amendment to Explanation to S. 56 provides that the “Court” for the purposes of Chapter II of the 1996 Act would be High Court having Original jurisdiction to decide the questions forming the subject matter of the arbitral award if the same had been the subject matter of a suit on its original civil jurisdiction and in other cases, in the High Court having jurisdiction to hear appeals from decrees of courts subordinate to such High Court. S. 57 has been amended on similar lines as S. 48.

An Overview: Amendments effected by the Arbitration & Conciliation Act, 2015