Analysis

Arbitration and Conciliation (Amendment) Act, 2019 Key Changes

30 August 2019

The Arbitration and Conciliation (Amendment) Act, 2019 aims to make India a more
arbitration friendly jurisdiction by strengthening the Indian arbitration regime and removing
ambiguities arising from previous amendments to the law.

India has long hoped to become a frontrunner in arbitration and emerge as the preferred seat of arbitration for contracting
parties. In 2015, the legislature introduced significant amendments (2015 Amendments) to the Arbitration and
Conciliation Act, 1996 (Arbitration Act) to strengthen the Indian arbitration regime and make it more progressive.

Subsequently, a high-level committee was set up to provide recommendations on the promotion and development of
institutional arbitration in India. Based on its recommendations, the legislature decided to further amend the Arbitration Act
by passing the Arbitration and Conciliation (Amendment) Act, 2019 (Amendment Act). These amendments have been
made with the objective of implementing an effective arbitration eco-system for commercial dispute resolution. The
Amendment Act also addresses some of the ambiguities resulting from the 2015 Amendments.

The Amendment Act has received the President's assent on 9 August 2019. All Sections have come into force from 30
August 2019 (except for Sections 2, 3, 10, 14 and 16 which are yet to be made effective).

Key Changes

(a) Arbitration Council of India

The Arbitration Council of India (Council) has been established as an independent body to promote arbitration, mediation,
conciliation and other alternative dispute redressal mechanisms. It will act as the nodal agency to drive policy/regulatory
reforms in arbitration, strengthen institutional arbitration and promote uniform standards.

The members of the Council are appointed/nominated by the Central Government and include judges, arbitration
practitioners, academicians, industry body representatives and Central Government officials.

The constitution of the Council reflects the legislature's intent to promote the focused growth of institutional arbitration in
India. However, since the Council comprises of Central Government officials and persons nominated/appointed by the
Central Government there is some concern that this may affect the neutrality of the arbitration process and lead to
increased involvement/supervision of the Central Government in arbitration which is otherwise a private dispute resolution
mechanism.

(b) Qualifications to be an Arbitrator

A new Eighth Schedule has been introduced in the Arbitration Act which provides for the qualification, experience and
norms for accreditation of arbitrators. Advocates enrolled under the Indian Advocates Act, 1961, persons with law degrees
who have been officers in government/autonomous bodies, public sector undertakings, private sector and certain other
technical professionals such as chartered accountants, company secretaries and engineers with requisite experience can
be appointed as arbitrators under the Schedule. Additionally, arbitrators are required to be fair, impartial, conversant with
relevant laws and principles of natural justice and capable of delivering a reasoned and enforceable arbitral award.

The qualifications provided under the Amendment Act formally mandate the normative criteria typically used by parties
while appointing arbitrators and therefore ensure a basic check on the quality of arbitrators engaged in India-seated
arbitrations. However, it remains to be seen how courts interpret the subjective qualifications of fairness, impartiality, legal
knowledge and capability to write awards and if any arbitrator is disqualified or arbitral award set aside on this ground.

Further, while the Schedule allows advocates enrolled under the Advocates Act and persons with law degrees who have
been officers in public/private sector to be accredited as arbitrators, it is unclear if eminent advocates enrolled outside of
India can be appointed as arbitrators in India-seated arbitrations. If appointment of foreign advocates as arbitrators is
prohibited, it is likely to disincentivize foreign parties from choosing India as a seat of arbitration.

(c) Appointment of Arbitrators

The Amendment Act has modified Section 11 of the Arbitration Act relating to appointment of arbitrators by courts
pursuant to an application by a party. The amendment allows the Supreme Court (in cases of international commercial
arbitrations) and the High Courts (in cases of other arbitrations) to delegate appointment of arbitrators to arbitral
institutions graded by the Council or in its absence, a panel of arbitrators. Such appointment of arbitrator must be
completed within 30 days from the application being made by the parties. Further, the arbitral institutions or panel of
arbitrators have the power to determine the fees of the arbitrators, subject to the rates specified in the Fourth Schedule of
the Arbitration Act.

Delegation of the courts' power to appoint arbitrators together with the reduction in timelines for such appointment is a
positive step towards expediting arbitration proceedings. Further, this amendment is in consonance with practices
followed in other arbitration friendly jurisdictions such as Hong Kong and Singapore.

(d) Timeline for Completing Arbitrations

The Amendment Act has amended Section 29A of the Arbitration Act to alter the timelines for completing arbitrations.
Under the amended section, all parties must file their statement of claim and statement of defence within six months from
the date of receipt of notice of appointment of arbitrators. Upon completion of pleadings, arbitration is required to be
completed within 12 months therefrom, extendable by another 6 months by mutual consent of the parties. If arbitration is
not completed within 18 months from the date of completion of pleadings the court's permission is required for the
arbitration to continue. Additionally, while any application for extension of timeline is pending before the court, the
mandate of the arbitrators has specifically been allowed to continue.

The amended Section 29A makes the revised timelines mandatory only for arbitrations where all parties are Indian. These
timelines are not binding, but only recommendatory for international commercial arbitrations.

This amendment, though well-intentioned, lacks clarity in certain respects. The timeline of six months for filing the
statements of claim and defence would compel parties to file their case on jurisdiction, other preliminary issues and
substantive issues at the outset. Parties would not have the option to bifurcate arbitration proceedings into two stages the
first stage, being initial pleadings and award on preliminary/jurisdictional issues and then, if required, the second stage,
comprising of pleadings and award on substantive issues. This could result in inflexibility in the arbitration proceedings
and escalated costs for the parties.

A statutory time limit for completion of arbitration is a unique aspect of arbitration in India and has helped India gain some
traction as a seat of arbitration. Removal of this time limit for international commercial arbitration is likely to influence
foreign parties to opt for a seat outside of India in jurisdictions having a more advanced arbitration regime and a reputation
for expeditious court proceedings relating to arbitration.

(e) 2015 Amendments Applicable Only Prospectively

The Amendment Act has inserted a new section clarifying that the 2015 Amendments are applicable only to (a)
arbitrations commenced on or after the date from which the 2015 Amendments came into force, i.e., 23 October 2015;
and (b) court proceedings arising out of or in relation to these arbitration proceedings. It has been clarified that the 2015
Amendments neither apply to arbitrations commenced before 23 October 2015 nor to court proceedings arising from such
arbitrations, even if the court proceedings were filed after the commencement of the 2015 Amendments.

This amendment is a significant change and has far reaching consequences:

- The amendment negates the Supreme Court's decision in Board of Control for Cricket in India v Kochi Cricket Pvt. Ltd.
where the court had held that the 2015 Amendments would apply to all court proceedings commenced on and after 23
October 2015 even if the court proceedings pertained to arbitrations commenced before such date.

Prior to the 2015 Amendments, the Arbitration Act provided for an automatic stay on the execution of a domestic award
while a petition challenging such award was pending before a court. The 2015 Amendments did away with this automatic
stay on execution of a domestic award under challenge and limited the scope of judicial interference in an arbitral award.
Therefore, pursuant to Kochi Cricket judgement, even for arbitrations which had commenced before 23 October 2015, the
applications for execution of arbitral awards were being filed parallelly with applications for setting aside of such awards.
The Amendment Act has dealt a death blow to such execution proceedings which will have to be discontinued since the
2015 Amendments have now been made applicable only prospectively.

- The 2015 Amendments had also modified the grounds for setting aside domestic awards and removed 'patent illegality'
as a ground for setting aside arbitral awards in international commercial arbitration. Given the prospective application of
the 2015 Amendments, this issue too would likely be reagitated in numerous challenge proceedings pending before the
courts, rendering the time and effort already expended by parties and courts in these proceedings futile.

(f) Other Amendments

- The grounds for setting aside a domestic arbitral award under Section 34 of the Arbitration Act have been amended. It is
now provided that a party seeking to set aside an award on the ground of incapacity or fraud, must furnish proof that
forms part of the arbitral tribunal's record. This amendment will prevent parties raising such issues as an afterthought to
stall execution of an award. It will also prevent courts from acting as courts of first instance while determining the issue of
setting aside of an arbitral award on this ground.

- The Amendment Act expressly reinforces the principle of confidentiality of all arbitral proceedings with the only exception
being where disclosure is necessary for implementation and enforcement of the award. It also provides immunity to
arbitrators for their actions and omissions done in good faith.

Conclusion

The changes introduced by the Amendment Act have received mixed reactions from stakeholders. Amendments such as
delegation of the court's power to appoint arbitrators, express provision for confidentiality, immunity to arbitrators, proof of
incapacity or fraud for setting aside an award and continuation of an arbitrator's mandate pending application for
extension of the arbitration timeline are progressive and commensurate with the objective of making India a more
arbitration friendly jurisdiction. On the other hand, the amendment removing the mandatory timeline for international
commercial arbitrations seated in India is likely to negatively impact India's perception as an attractive seat for arbitration.

Further, certain amendments such as constitution of the Council, the wide powers entrusted to it and the prospective
applicability of the 2015 Amendments may create some uncertainty, at least in the short term, in respect of ongoing and
new arbitrations and related court proceedings. The effectiveness and success of these amendments will ultimately
depend on how these amendments are implemented by the Central Government and interpreted by the judiciary.

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