Arbitration refers to the method of resolving disputes outside of a court. The alternative dispute resolution system known as arbitration involves unbiased persons chosen by mutual agreement of the parties to resolve the dispute to avoid overlong court proceedings. But, misconceptions or ignorance about the dispute resolution process exists among the population. There is a perception that there is only one type of mechanism for resolving disputes or issues, namely, the judiciary; however, there are several alternate dispute resolution mechanisms, such as arbitration, conciliation, mediation, etc. There are many advantages to using these alternative mechanisms rather than litigation in courts which has numerous disadvantages, such as the delay of the decision, strict rules and inflexibility. As globalization and transnational business transactions have increased, India’s legislature has continually developed its arbitration regime to attract more foreign investors and turn India into a major centre for international business arbitration. The current law governing India’s arbitration system, the Arbitration and Conciliation Act, 1996, was legislated based on the UNCITRAL Model Law, an international treaty model law adopted by several other countries with international trade practices.
Role of Arbitration and Conciliation Act, 1996
A dispute is governed by the rules set out in section 28 of the Arbitration and Conciliation Act, 1966, which apply to its substance. Arbitration law or arbitration rules specify the method by which an arbitral tribunal decides a dispute submitted for arbitration. Before the 2015 amendment, the council had little or no authority to apply its discretion, so it had to comply with the limits stipulated by the agreement and use of resources for gatherings. The complexity of the situation made it hard to deliver justice, as one of the sides was prone to abuse the circumstances and pressure the other, causing the other person to sign terms that ran counter to the core idea of chance or the same degree of deal intensity of both parties. The supreme court ruled in Oil and Natural Gas Corporation v. Saw Pipes Ltd that the council’s honours that conflicted with the terms of the agreement violated Section 28(3) of the Act, and courts were entitled to quash the honour under Section 34. In 2015, Section 28(3) was revised, and the council was able to exercise its prudent judgment when it passed the honours. It is not sufficient for the honour to be put aside because it conflicts with the conditions of the agreement in the Oil and Natural Gas Corporation Ltd v. Saw Pipes Ltd situation.
Moreover, merely arguing that the honour left behind by the council has a conflict with the agreement cannot be considered sufficient for the honour to be put aside. Consequently, in resolving the core issue, the arbitral council does not have to comply with the details of the contract that restrict the gathering but may use its discretion, so long as it is exercised in a sensible manner and without prejudice to the goal of promoting equity. By considering the expectation of the gathering, the council can now figure out the terms. The exchange use can also be analyzed and grasped intelligently and judiciously. The change in the law from ‘as per’ to ‘consider’ has given the council a greater level of adaptability. Despite everything, the comprehension of such goals and exchange uses must be attainable and clear for an individual of reasonable thinking. As a result of the change, the councils are now aces of the argument, while at the same time court delays have decreased.
Advancements in the Indian Arbitration Regime
The Indian Arbitration Act, 1899, was the first statute relating to arbitration enacted in India in the colonial period. It contains some unique provisions because it was modelled after the British Arbitration Act, of 1889. The act at that time was restricted to three major presidential towns- Bombay, Madras, and Calcutta. Among the salient features of the act was the requirement that the parties select the arbitrators before the arbitration agreement is concluded, i.e. they must name the arbitrators in their arbitration agreement. Since every part of the society was advancing with the advancement of commerce and trade, a proper arbitration act was needed so that disputes could be settled easily so in 1940, under the British regime, a new act was implemented called The Arbitration Act of 1940. Despite being more arbitration-centric and being applied to every part of India, it wasn’t as effective and efficient as expected. The rules and provisions were not clearly interpreted, they lacked proper implementation in terms of real sense, the shortcoming of contracts with private parties was not discussed, and the judiciary was obstructed at every stage of the arbitration process. There were multiple grounds on which the awards could be contested.
A new arbitral act was enforced in 1996, following the LPG policy which opened the doors to investors in 1991. The act of 1940 needed many amendments and reforms, as a result of which the Arbitration and Conciliation Act of 1996 took effect. It provided for international as well as national commercial arbitration and has provisions for enforcement of foreign and local awards. The act had many advances and is more in line with international and national standards. A major objective of the law is to have a speedy trial and provide a resolution of disputes through arbitration as an alternate mode of dispute resolution and, at the same time, limit judicial interference. The role of the judiciary is reduced, and therefore many disadvantages associated with judicial courts are mitigated. The act was amended two times in response to changing societal needs, once in 2015 and then again in 2019. The 2015 amendment has contributed to mitigating the deficiencies brought about by the landmark BALCO judgment of the Apex Court.
In response, a new amendment to the Arbitration Act was introduced in 2019. The new section 11(3A) permits the Supreme Court of India and the High Courts to assign arbitral institutions that were evaluated by the Arbitration Council of India according to section 43- I of the Act. Part 1A of the amendment act 2019 replaced sections 43A to 43M; adding a new section 23(4) for opportune instructions, within a time of a half year from the date of arrangement of the arbitrator(s) for domestic disputes and a year in the case of foreign disputes. The enactment of Section 42A specifies that the arbitral bodies and parties to an arbitration agreement will protect the confidentiality of all arbitration proceedings except for awards, as they must be uncovered for implementation. In the landmark case of Hindustan Construction Company Limited & Anr. V. Union of India (2019) the Supreme Court of India has rendered a remarkably foreseen judgment, which has resolved the issue of the automatic stay on the enforcement of awards. As a result, it invalidated Section 87 of the Arbitration and Conciliation Act 1996 as being “manifestly arbitrary”.
Indeed, the Amendment Act, of 2019 and judicial pronouncements in the past few years have instilled confidence amongst international players in an arbitration-friendly India, but the real challenge lies in implementing the vision. Increasing the effectiveness of arbitration and reducing judicial intervention is one of the key objectives of the Amendment Act of 2019. However, the success of the revision will be largely dependent on the implementation of the ACI and the Arbitral Institutions.
Author(s) Name: Shashwat Sinha (KIIT School of Law, Bhubaneshwar)