Consultation Paper On Review Of Working Of The Arbitration And Conciliation Act, 1996
CHAPTER I
1.1 Broad framework of the Act of 1996 and certain drawbacks experienced in its working
The Arbitration & Conciliation Act, 1996 which came into force on 22.8.96 is an Act to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards (as also define the law relating to conciliation) and matters connected therewith or incidental thereto.
The Act is based on the Model Law (a set of 36 Articles) which was drafted by a working group of the UN and was finally adopted by the U.N. Commission on International Trade Law (UNCITRAL) on June 21, 1985. The Resolution of the UN General Assembly
Recommended that all countries give due consideration to the Model Law, in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial practice.
While the Model Law was thus drafted to govern all international arbitration, the Act of 1996 stated in its preamble that
"It is expedient to make law respecting arbitration and conciliation taking into account the aforesaid Model Law and Rules."
And by sec.85 of the new Act, the old Arbitration Act, 1940 (relating to domestic arbitration) and also the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Award (Recognition and Enforcement) Act, 1961, (relating to international arbitration) were repealed, thus enabling the Act of 1996 to govern both domestic and international arbitration.
Part I of the Act entitled ''Arbitration'' is general (and contains chapters I to X) while Part II deals with ''Enforcement of Certain Foreign Awards (and Chapter I thereof deals with New York Convention Awards and Chapter II deals with Geneva Convention Awards).
Part III of the Act of 1996 deals with Conciliation with which we are not concerned in this Paper. Part IV deals with supplemental provisions.
The Act of 1996 contains three Schedules. The First Schedule refers to Convention on the Recognition and Enforcement of Foreign Arbitration Awards (see sec.44); the Second Schedule refers to the Protocol on Arbitration Clause (see sec.53) and the Third Schedule to the Convention on the execution of foreign Arbitration Awards.
Although the Model Law does not take the form of a treaty, legislators who decided to review their arbitration laws since 1985 have all given ''due consideration'' to the UNCITRAL Model Law.
Some countries adopted certain provisions of the Model Law, but considered that they could extend, simplify or liberalise the Model Law. Examples include the Netherlands in 1986 and Switzerland in 1987. Because of the specificity of their legal systems, Italy and England decided not to follow the Model Law closely. By March 31, 1999, a total of 29 countries (including Australia, Bahrain, Bermuda, Bulgaria, Canada, Cypres, Egypt, Finland, Germany, Guatemala, Hungary, India, Iran, Ireland, Kenya, Lithunia, Malta, Mexico, New Zealand, Nigeria, Oman, Peru, the Russian Federation, Scotland, Sweden, Sri Lanka, Tunisia, Ukraine, Zimbabwe along with Hong Kong, 8 American States and all 12 Canadian provinces and territories) adopted legislation based to some extent on the UNCITRAL Model Law. (see website for updating: http//www.un.or.at/uncitral) (International Commercial Arbitration by Fouchasrd, Gaillard, Goldman, 1999, page 109, para 2.5)
The importance of this gradual process of harmonization is that court decisions applying Model Law, from all the countries that have adopted or adapted it, have been published since 1992. There is thus a growing body of case law concerning the interpretation of the Model Law
1.2 Representations for amendment of the Act
Ever since the Act of 1996 came into force on 22.8.96, demands have been voiced requesting amendments to the provisions of the 1996 Act, in so far as they related to Arbitration. It was considered by the Law Commission in 1998, that it would not be appropriate to take up amendments of the Act of 1996 in haste and that it would be desirable to wait and see how the courts would grapple with the situations that might arise.
Quite recently, representations have come before the Commission pointing out that in certain areas, the courts have found great difficulty in the interpretation or implementation of the some of the provisions of the Act. It has been stated that in several cases, parties have been deprived of a right to seek prompt interim relief pending proceedings in international arbitration agreements, where the seat of arbitration is outside India. This, it is said, has resulted in the Indian parties not being able to obtain any interim orders before commencement of international arbitration or during or after conclusion of the proceedings, from Indian courts. In several cases the awards might ultimately remain only on paper, at the end of the day. This has led to conflicting judgments in the High Courts. Likewise divergent views have been expressed as to the stage at which jurisdictional issues could be decided and also as to whether orders of the Chief Justice of India or his nominee or that of the Chief Justice of the High Court or his nominee, as the case may be, appointing arbitrators -- should be treated as administrative orders or as judicial orders. It has also been pointed out that where the arbitrator rejects objections relating to jurisdiction or rejects pleas of bias, by way of interim decision, no immediate right of appeal is provided and parties have to go ahead with the arbitration proceedings till the award is made. Even thereafter, the objection relating to bias is not included in the list of grounds specified in Sec. 34 or under Sec. 37 (2). It has again been pointed out that while an appeal is permitted where the award deals with a dispute not contemplated by or not falling within the terms of the submission or matters beyond the scope of the submission for arbitration, no appeal is provided in a case where the arbitrator omits or refuses, in spite of an application under sec.33(4) to decide an issue which definitely arises out of the pleadings of the parties. Several other drawbacks have been pointed out in various representations. The Commission felt that the Bar, the litigants and other arbitral institutions might have experienced other difficulties and might be waiting for an opportune time to seek appropriate amendments.
In the light of the above, the Commission felt that now, five years after the enactment of the legislation, it was appropriate to review its working by obtaining further views from all concerned and propose the requisite amendments to the Act.
1.3 Objectives of the 1996 Act -- speedy arbitration and least court intervention:-
The 1996 Act was the result of recommendations for reform, particularly in the matter of speeding up the arbitration process and reducing intervention by the court. In Guru Nanak Foundation Vs. Rattan Singh (AIR 1981 SC 2075)(at 2076-77), the Supreme Court while referring to the 1940 Act observed that "the way in which the proceedings under the Act are conducted and without an exception challenged in courts, has made lawyers laugh and legal philosophers weep" in view of "unending prolixity, at every stage providing a legal trap to the unwary." The Public Accounts Committee of the Lok Sabha had also commented adversely about arbitration in India (9th Rep. 1977-78 pp 201-202). The matter came up before the Law Commission in its 76th Report, which recommended certain amendments, e.g., a proviso should be inserted in section 28 of the Act of 1940 forbidding in respect of the time for making the award an extension beyond one year, except for special and adequate reasons to be recorded.
In Food Corporation of India Vs. Joginderpal (AIR 1981 SC 2075)(at 2076-77), the Supreme Court observed that the law of arbitration must be ''simple, less technical and more responsible to the actual reality of the situations'', ''responsive to the canons of justice and fair play."
A reading of the 1996 Act shows that speedy arbitration and least court intervention are its main objectives. In fact sec.5 of the Act declares:
"Sec.5: Notwithstanding anything contained in any other law for the time being in force, in matters covered by this Part (i.e. Part I), no judicial authority shall intervene except where so provided in this Part."
This basic provision is found globally in the laws of all the countries which have adopted the UNCITRAL Model
The provisions as to waiving objections etc. contained in Sections 4, 12, 13(4), 16(5), 19(1) and 25 amply demonstrate that the objective is to see that the disputes are not unduly prolonged. In fact, the UNICTRAL Model, wherever it permitted intervention by court, by way of appeal, before the passing of the award, left it to the arbitrator, to proceed or not to proceed further. This was intended to see that the appeal proceedings are not allowed to be unreasonably delayed.
1.4 Necessity to adhere to the objectives of speedy disposal and least court intervention.
It is, therefore, necessary to bear in mind that the proposed amendments do not result in permitting parties to prolong the arbitration proceedings unnecessarily. While considering the need for amendments, the Commission has therefore not deviated from this main objective of the Act except to the extent that the UNCITRAL Model has itself permitted intervention, such as where issues going to the root of the arbitration proceedings are decided. While dealing with such exceptional issues, the Commission has also kept in mind the manner in which the new statutes in other countries, which have adopted the UNCITRAL Model either wholly or partly, tackled the issues and the manner in which they have balanced the objectives of least court intervention and the final disposal of preliminary questions which go to the root of the arbitration proceedings, by way of appeal to...
To continue reading
Request your trial