The Government of India has recently proposed a draft Amendment Bill to the Arbitration and Conciliation Act, 1996 [“Arbitration Act”]. The proposed Bill (apart from renaming the short title as “The Arbitration Act, 1996”) introduces new amendments that align with the aim of furthering the government’s objective of making India a global arbitration hub. Though the Bill introduces many key amendments on the heels of the recommendations of the Report of the Expert Committee to Examine the Working of the Arbitration Law and Recommend Reforms in the Arbitration and Conciliation Act, 1996, the present contribution shall limit its focus to two key features of the draft Bill, namely the legislative legitimisation of Appellate Arbitration and the introduction of a 30-day time limit for a tribunal to rule on a challenge to its jurisdiction.
I. Appellate Arbitral Tribunals [“AATs”]
Generally, Appellate Arbitral Tribunals serve as an appeal mechanism in arbitration where the decision of an arbitral tribunal is revisited by another tribunal, often on merits. This might bring to recollection, the hon’ble Supreme Court’s judgment in Centrotrade Minerals v. Hindustan Copper Ltd., (2020) 19 SCC 197 where the Court ruled upon the validity of Appellate Arbitration clauses under the Scheme of the Arbitration & Conciliation Act. The Court upheld such clauses, emphasizing party autonomy as a cornerstone of arbitration and further noting that the Act neither explicitly nor implicitly bars appellate arbitral mechanisms.
Appellate arbitration clauses are often opted for by the parties if their utmost priority is the correctness of the award rather than the swiftness of the proceedings. Considering this commercial prudence, institutional rules of different AATs across jurisdictions, such as the American Arbitration Association’s Optional Appellate Arbitration Rules specifically Rule A10 and the Civil Procedure Rules Appeal Procedure, provide for a review of the award on grounds of a material error of law or in the determination of a fact, and ECA Rule 28.4 provides a complete review of the facts, depending on the rules opted for by the parties.
However, on a closer look, the legislative intent of the proposed Bill is not to introduce appellate arbitration in its colloquial sense; rather, the intent is to introduce a new alternate forum replacing the courts under Section 34 of the Act. In other words, the appellate tribunal is not to sit over an award, delving into its merits; rather, the tribunal is to replace a court while hearing the appeal under the limited grounds in Section 34 of the Act.
These limited grounds of appeal are further in contrast with the English appellate arbitral regime, since section 70(2) and section 82 of the UK Arbitration Act, 1996, read together allow a party to challenge the award by any available arbitral process which includes such appellate arbitral tribunals.
The unique position of the proposed Indian regime reiterates the fact that these new AATs would be created merely to replace the courts under Section 34 and not to act in addition to them. Furthermore, the new proviso to be inserted under Section 34 states that, in the event of the parties choosing the AATs, no application under the same section shall lie in the courts, thereby confirming the mutually exclusive jurisdiction of both forums and eliminating the risk of the AATs being used as a guerrilla tactic to delay the enforcement of the award, as is the case in conventional appellate arbitrations.
The legislature might have taken cognisance of the fact that Section 34 petitions are often left in courts for years, pending adjudication, and providing an alternate forum could hasten the process and lift the burden off the already clogged-up courts. This essentially fast-tracks a Section 34 petition, which more often than not, is challenged again before the Supreme Court under Section 37.
Lastly, the proposed Amendment limits the scope of the AATs solely to institutional arbitrations, leaving ad hoc arbitrations out of its scope. The legislative wisdom for the same remains unclear, especially since the proposed Section 34A states that though the institutions are to provide for the AATs, the rules of procedure governing the same would be provided for by the Arbitration Council of India. This effectively undermines the very purpose for which institutions are typically chosen: their distinct procedural frameworks and unique grounds for challenging awards. In this case, even the grounds for challenge are prescribed by statute, and the procedural rules are dictated by the Council, rendering the role of institutions redundant. If the intent is to establish a standardized regime with minimal institutional input, the exclusion of ad hoc arbitrations becomes an even more pressing question.
II. Introduction of a 30-day time limit for ruling on jurisdictional challenges
A significant improvement introduced in the draft Amendment Bill is the establishment of a 30-day time limit for adjudicating jurisdictional challenges under Section 16(2) of the Arbitration Act. To align with this change, Section 16(5)has been amended to mandate that an arbitral tribunal decide a plea challenging its jurisdiction as a preliminary issue within 30 days. This proposed Amendment addresses the existing murky jurisprudence, where courts have differed on whether an arbitral tribunal is obligated to decide jurisdictional challenges as a preliminary issue or has the discretion to defer such decisions until the award is delivered.
The Hon’ble Supreme Court, in McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181 observed that jurisdictional questions must be determined as a preliminary ground at its very outset, before delving into the merits of the case. However, it is pertinent to note that this observation of the court was an obiter dictum, as this was not an issue before the court, and the Respondent had not even filed an application under Section 16 of the Arbitration Act.
In the following years, the court changed its stance to allow for more flexibility and discretion in arbitral proceedings in line with Article 16(3) of the United Nations Commission on International Trade Law [“UNCITRAL”] Model Law [“Model Law”], which confers discretion upon a tribunal to decide on a plea challenging its jurisdiction either as a preliminary issue or in the award on merits. The Hon’ble Supreme Court, in Maharshi Dayanand University v. Anand Coop. L/C Society Ltd., (2007) 5 SCC 295 [“Maharshi Dayanand University”], held that it is at the discretion of the arbitrator to decide whether to address jurisdiction as a preliminary issue. The only mandate is that the arbitrator must rule on the jurisdictional challenge before delivering the final award.
Various high courts, relying on the ruling in Maharshi Dayanand University, held in a string of decisions [for instance, here, here and here] that, owing to the lack of any express statutory provision mandating an arbitral tribunal to rule on a plea challenging its jurisdiction as a preliminary issue, there exists no overarching fundamental requirement for the same. However, in the authors’ opinion, the proposed Amendment, limiting the timeframe for the adjudication of the same, is a welcome and logical change. This is because it aligns with the obligation cast upon the aggrieved party under Section 16 (2), requiring challenges/objections to a tribunal’s jurisdiction to be raised at the very outset, before filing their statement of defence. However, it is paradoxical that while the Arbitration Act requires such challenges to be raised within a strict timeframe, it grants the tribunal the discretion to rule on them at any stage. This often compels the aggrieved party to endure the entire arbitration process only to contest jurisdiction after the final award, undermining arbitration’s objective of being a swift and efficient dispute resolution mechanism.
This reasoning further draws a parallel between Section 16 of the Arbitration Act and Order VII Rule 11 of the Code of Civil Procedure, 1908 [“CPC”], which mandates pre-trial adjudication. Under the CPC, it is settled law that once an application is filed under Order VII Rule 11, the court must dispose it off before proceeding with the trial of the suit. This approach ensures procedural efficiency and prevents unnecessary expenditure of time and resources.
III. Conclusion
Out of the two proposed changes addressed in this contribution, the latter one is, without question, a welcome and much-needed change. However, the introduction of the AATs, though fresh in its approach, has potential practical implications, like the emergence of two divergent regimes of conflicting jurisprudence between the courts and the AATs while deciding upon the appeals arising out of ad hoc and institutional arbitrations, respectively.
Lastly, one aspect to be kept in mind, though not of much practical importance but of technical and theoretical significance, is not to get carried away by the nomenclature of the new AATs. Though the term ‘appellate’ is used, it must be borne in mind that the tribunal is essentially hearing a ‘challenge’ to the award and not an appeal, as the nature of Section 34 is that of a challenge, not of an appeal, to begin with.
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