Changes to arbitration act to bring it on par with global practice: Experts

Some want parties to be allowed to contest award at the outset, so that it can also be scrutinsed by first appellate court and the parties can assail it as if it were a trial court decree

The Centre’s expert panel will submit its proposal for arbitration laws in July and legal experts are of the opinion that the The Arbitration and Conciliation Act, 1996 requires certain amendments to make it an alternative to customary litigation.

Recently, the Bar Council of India (BCI) made a key decision to allow foreign lawyers and law firms to practice foreign law, international law, and international arbitration matters in India on a reciprocal basis. Experts say this could be an opportunity for India to bring its arbitration laws on a par with other countries such as Singapore and the UK.

Abhinay Sharma, Managing Partner, ASL Partners, says a  big challenges today is the different approaches adopted by various courts while interpreting Section 34 of the Arbitration and Conciliation Act, 1996.

Section 34 lays down the recourse against Arbitral Award.

“Ideally, the parties ought to be given an opportunity to challenge the award in a first appeal rather than making them file an objection under Section 34 of the Act. This would make sure that even an award would become subject to scrutiny by the first appellate court and the parties will at least get an opportunity to assail the award as if it were a decree of the trial court,” he said.

In today’s circumstances, Sharma added, no matter how perverse or illegal the award is, the courts under Section 34 do not stay the award unless some percentage of the amount is deposited. “The said approach is totally contrary to customary litigation,” he said.

The Department of Legal Affairs on June 14 formed an expert committee led by former law secretary T K Vishwanathan to recommend reforms to the Arbitration and Conciliation Act, 1996.

The panel will have 15 other members.

The committee will evaluate and analyse the operation of the extant arbitration ecosystem in the country, including the working of the Arbitration and Conciliation Act, 1996, highlighting its strengths, weaknesses, and challenges vis a vis other important foreign jurisdictions.

Kartikey Mahajan, Partner, Khaitan & Co. said some of the areas of the Arbitration Act that the committee may consider as requiring some reform include incorporating express provisions for statutory recognition of emergency awards; reversing the impact of N N Global judgment; and setting out some guidelines regarding the interplay of third party funding with various stages of arbitration.  

Recently, in the judgment of N N Global, the Supreme Court held that the arbitration agreement in an unstamped agreement will not be acted upon unless the requisite stamp duty is paid. “This is a setback against the pro-arbitration approach adopted by Indian courts in the last 5-6 years. It would be nice to see this situation reverse by way of an amendment being brought in either section 7 or section 8 of the Act to make it clear that the arbitration agreement in an unstamped / insufficiently stamped contract can still be acted upon,” Mahajan said.

For emergency awards, India seated arbitral awards are enforceable in light of the Amazon v Future Retail judgment and there is no corresponding judgment for a foreign seated award.

“It would be good to have statutory recognition of this concept like in Singapore and Hong Kong with appropriate amendments to Sections 2(1)(c) and 44 of the Act for inclusion of emergency awards within the definition of domestic and foreign awards respectively,” he said.

Emergency arbitration is a mechanism that allows disputing parties to apply for emergency interim relief due to a paucity of time or an urgency pertaining to the subject matter of the dispute. A party may be required to seek interim relief, at any time after the making of an arbitral award but before it is enforced.

Section 17 of the Act provides that an arbitral tribunal can order interim measures as it deems fit unless parties expressly agree otherwise. However, Section 17 is not applicable to foreign seated arbitrations.

As regards third-party funders, Mahajan said the committee should consider bringing a fresh pair of guidelines to govern the role of third-party funders in the arbitration process.

Third-party funding (TPF) is the process whereby a party unconnected to the arbitration proceedings funds the dispute proceedings for a party in return for a share in the win.

Sameer Jain, Managing Partner, PSL Advocates & Solicitors said there are areas that require more attention in view of arbitration’s changing landscape. “Broadly, there needs to be recognition of emergency arbitrator’s awards passed by tribunals under institutional rules for enforcement. There needs to be statutory recognition of third-party funding. Areas of challenge and enforcement of arbitral awards also need to be tweaked a bit,” he said.

Giving an international perspective, Matthew Saunders, head of international arbitration at Ashurst, said reforms would be welcome for those working on international disputes with Indian clients: “Few major economies offer as much potential for growth as an international arbitration centre as India, with its ever-increasing global trade relationships, combined with a highly developed legal system and a legal profession increasingly open to international engagement.”

India is not the only country considering its arbitration law. The UK Law Commission is drawing up proposals for the reform of the Arbitration Act of England and Wales.