Report On the Arbitration And Conciliation (Amendment) Bill, 2001
LAW COMMISSION OF INDIA
ONE HUNDRED AND SEVENTY SIXTH REPORT ON THE ARBITRATION AND CONCILIATION (AMENDMENT) BILL, 2001
CHAPTER I
Broad framework of the Arbitration and Conciliation Act, 1996 and certain drawbacks experienced in its working
At the request of Shri Arun Jaitley, Hon''ble Minister for Law, Justice & Company Affairs, Law Commission has taken up the review of the Indian Arbitration and Conciliation Act, 1996 and is proposing various amendments as suggested in this Report.
1.1 The Arbitration & Conciliation Act, 1996 is an Act to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards as also to define the law relating to conciliation and for matters connected therewith or incidental thereto. It came into force on 22.8.1996 and is deemed to have come into force on 25.1.96 (vide M/s Fuerst Day Lawson Ltd. v. Jindal Exports Ltd., 2001 (3) SCALE 708).
The Act is based on the Model Law (a set of 36 Articles) which was drafted to govern all international arbitrations 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 envisages that all countries should give due consideration to the Model Law, in view of the desirability of uniformity of the law on arbitral procedures and the specific needs of international commercial practice. It is also stated in the Preamble of Act of 1996: "it is expedient to make law respecting arbitration and conciliation, taking into account the aforesaid Model Law...".
The Act of 1996 covers both international and domestic arbitration, i.e., where at least one party is not an Indian national and also arbitrations where both parties are Indian nationals respectively. By virtue of sec. 85 of the 1996 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Act, 1937 and the Foreign Award (Recognition and Enforcement) Act, 1961, (relating to international arbitration) were repealed, thus enabling the Act of 1996 to govern both domestic and international arbitrations.
1.2 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 of part II 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 report. Part IV deals with supplementary provisions. The Act 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
Protocol on Arbitration Clauses (see sec.53) and the Third Schedule to the Convention on the Execution of Foreign Arbitration Awards.
In this Report we are concerned only with Part I of the 1996 Act which deals with arbitration in India and not with Part II and Part III of the Act.
Although the Model Law does not take the form of a treaty, legislators of various countries 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 alongwith Hong Kong, 8 American States and all 12 Canadian provinces and territories) adopted legislation based to some extent on the UNCITRAL Model Law (see International Commercial Arbitration by Fouchard, Gaillard, Goldman, 1999, page 109, para 2.5; also website for updating:http//www.un.or.at/uncitral).
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 (See CLOUT, available on Website http://www.ur.or at/uncitral and CLOUT XXII Y.B.Com. Arb. 297-300 (1997)(Fouchard, ibid, p.109, para 2.5).
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 Foundations 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 to be dealt by the Law Commission in its 76th Report, which recommended certain amendments, including a proviso to be inserted in section 28 of the Act of 1940 forbidding, an extension beyond one year, in respect of the time for making the award except for special and adequate reasons to be recorded.
The Supreme Court in Food Corporation of India Vs. Joginderpal (AIR 1981 SC 2075at 2076-77) 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''.
1.3 Speedy disposal and least Court intervention are the basis of 1996 Act
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 (Part I), no judicial authority shall intervene except where so provided in this Part."
This basic provision is found 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, 14(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 pending the appeal. This was intended to see that the appeal proceedings are not allowed to be unreasonably delayed.
It is, therefore, necessary to emphasize 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. The Commission has rejected quite a lot of proposals that have been made before it as it felt that the said proposals would certainly contribute to the delay in arbitration proceedings.
1.4 Representations regarding drawbacks in the Act:
Ever since the Act of 1996 came into force, requests have been voiced for amendments in 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.
1.5 Representations regarding grounds for interference by the Courts after making of the award:
Quite recently, representations have come before the Commission pointing out that the UNCITRAL Model was mainly intended to enable various countries to have a common model for ''international commercial arbitration'' and the Indian Act, 1996 has made provisions similar to the model law and made applicable to, what we may call, cases of purely domestic arbitration between Indian nationals and that this has given rise to some difficulties in the implementation of the Act. Certain problems which surfaced after 1996 have also been placed before us.
1.6 In this report, the words "PURELY DOMESTIC ARBITRATION BETWEEN INDIAN NATIONALS'' are used to refer to arbitration where NONE of the parties is (i) an individual who is a national of, or habitually resident in, any country other than India, or (ii) a body Corporate which is incorporated in any country other than India; or (iii) a company or an association or a body of individuals whose central management and control is exercised in any country other than India, and its words "INTERNATIONAL ARBITRATION" is used where at least one of the above mentioned parties/bodies is in a country other than India. This is done as a matter of convenience. This should not be confused with the proposed definition of the term ''domestic arbitration'' in section 2(1)(ea).
The grounds for objecting an award under sec.34 and Sec. 37 are now made common to purely domestic awards as well as international arbitration awards. It has been suggested that the principle of least court interference of the award may be a fine principle for international arbitration awards but having regard to Indian conditions and the fact that several awards are passed in India as between Indian nationals sometimes by lay men who are not well acquainted with law, the interference with such awards should not be as restricted as they are in the matter of international arbitrations. This suggestion will be considered at the appropriate stage. The...
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