A comparitive study on the effectiveness on the Arbitration Amendment

bill,2010

A SELF STUDY FOR THE FOR THE SUBJECT

ALTERNATIVE DISPUTE RESOLUTION

SUBMITTED BY

Ms. Pranali Munshaw (Roll No. 08BAL043)

Semester – VI (B.A.LL.B.)

UNDER THE GUIDANCE OF

Dr. Purvi Pokhariyal

Submitted to

INSTITUTE OF LAW
NIRMA UNIVERSITY, AHMEDABAD

ACADEMIC YEAR (2010-11)

 INDEX

Introduction

Nature & scope of study

Objective of the study

Research methodology

Significance of the Topic

Review of the study

Conclusion

Bibliography
INTRODUCTION

The Ministry of Law & Justice, Government of India has released a Consultation Paper
on proposed amendments to the Arbitration & Conciliation Act, 1996 (the “1996 Act”)
on 08th April 2010, inviting comments and suggestions.
The Arbitration & Conciliation Act, 1996 was subjected to a comprehensive review by
the Law Commission of India and many amendments were recommended to the Act as
per its 176th Report. The Government after considering the recommendations, decided to
accept almost all the recommendations and accordingly the Arbitration and Conciliation
(Amendment) Bill 2003 was introduced in Rajya Sabha on 22nd December, 2003. The
Bill was then referred to the Departmental Related Standing Committee and the
Committee was of the view that the provisions of the Bill gave room for excessive
intervention by the Courts in the arbitration proceedings and further expressed the view
that since many provisions of the Bill were contentious, the Bill may be withdrawn and a
fresh legislation may be brought after considering the recommendations of the
Committee. Therefore the said Bill was withdrawn from the Rajya Sabha. At that time it
was decided that a new legislation will be brought in Parliament after undertaking an in
depth examination of the various recommendations of the Committee.

In the meanwhile some difficulties in the applicability of the Act have been noticed as the
Supreme Court and High Courts have interpreted many provisions of the Act and while
doing so they have also realized some lacunas in the Act which lead to conflicting views,
some of which even defeated the main object of the legislation. Therefore by the
Consultation Paper, amendments are proposed to remove the difficulties and lacunas in
the Act so that ADR method may become more popular and object of enacting
Arbitration law may be achieved.
The proposed changes to the Arbitration and Conciliation Act, 1996, as contained in the
Consultation Paper, seek to answer the critics by attempting to bring the Indian setup in
tune with the international expectations. The proposed changes are introduced to bring in
a more positive and supportive attitude towards arbitration and to promote institutional
arbitration, which will entail India to become one of the leading centres of arbitration.
PROPOSED AMENDMENTS:

(A) Application of Part I – Section 2(2)

(B) Amendment in Section 11
(C) Amendment in Section 12
(D) Amendment in Section 28
(E) Amendment in Section 31 (7)(b) regarding rate of interest

(F) Amendment in Section 34 for providing meaning of “public policy of

India” and for harmonising it with Sections 13 and 16
(G) Insertion of new Section 34A
(H) Substitution of Section 36
(I) Arbitration relates to Commercial Disputes of specified value
(J) Suggestion for Insertion of provision for implied arbitration agreement in
commercial contract of high consideration value

It may be pointed out that for inserting aforesaid provisions in the Arbitration & Conciliation
Act, 1996, many provisions of the Act including Section 7 (which deals with arbitration
agreement), Section 8, Section 2(1)(b) have to be amended.

COMMENTS ON PROPOSED AMENDMENTS:

The consequential changes on the Arbitration & conciliation Act, 1996, based on the
proposed amendments will bring in changes to Sections 2(1)(e), 2(2), 11, 12(1), 28(3),
31(7)(b), 34(2)(b) and Explanation and 36. It would also insert a new Sec. 34A.
The proposed changes also empower the Central Government to prescribe by rules
guidelines on conflict of interest on the lines of IBA guidelines for Sec. 12(1). The effect
of “Commercial Division of High Courts Bill, 2009” will also bring in consequential
changes in the Act.
The insertion of provision for implied arbitration agreement in commercial contract of
high consideration value will bring in changes for Sections 2(1)(b), 7 and 8.
The proposed amendments are highly essential and will help to get over various
conflicting decisions rendered on the interpretation of some of the sections of the Act by
various High Courts and the apex court. The proposed changes will also promote
institutional arbitration, which is highly necessary to improve professionalism and
efficiency in the arbitration system. The proposed changes will also help to get over the
criticism that “arbitration is one thing in India and another for the rest of the world”. It is
high time that the laws are made suitable to cater the requirements of global trade and
commerce. There has been widespread criticism in the international arbitration
community that many decisions runs contrary to the spirit of the New York Convention.
As a result of this many foreign investors continued to select a seat outside India for
arbitration, so as to mitigate against the risk of interference by the Indian courts.
We would like to propose a few more changes, so that the Act would provide a self
contained code for ADR making it fast and effective and making it less prone to Court
interventions. The parties signing the arbitration agreement or who relies on the
Arbitration & Conciliation Act, 1996 should be instilled with the faith and confidence
that the dispute resolution process will be guided by fair-play and universally recognized
principles.

ADDITIONAL CHANGES PROPOSED

Amendment in Section 2(1)(e)

Amendment in Section 37

Amendment in Section 9

Amendment in Section 17

Amendment in Section 32

Suggestion for Insertion of provision for implied arbitration agreement in

commercial contract of high consideration value

http://www.arbitrationindia.org/pdf/suggestions_arbitrationamendment_2010.pdf

Proposed Amendments to the Arbitration Act Consultation Paper released

by the Law Ministry
 The Arbitration and Conciliation Act, enacted in 1996 with a view to provide an
efficient forum to resolve disputes outside the formal judicial framework is set for a
major overhaul. The Law Ministry, Government of India has released a consultation
paper on the amendments to the Arbitration Act. Speaking at the release of the
consultation paper, Law Minister Moily said "Arbitration should not be continuation of
the courts. The idea should be resolving the issue at the earliest."
In a press release issued by the Law Ministry on April 7, 2010, the Ministry has
acknowledged the need to address the lacunas in the existing Arbitration Act framework.
The press release states that “The Supreme Court and High Courts have interpreted many
provisions of the Act and while doing so they have also realized some lacunas in the Act
which leads to conflicting views. Further, in some cases, courts have interpreted the
provisions of the Act in such a way which defeats the main object of such legislation.
Therefore, it becomes necessary to remove the difficulties and lacunas in the Act so that
ADR method may become more popular and object of enacting Arbitration law may be
achieved.”
Prior to proposing any amendments to the Arbitration Act, the Law Ministry has initiated
a consultative process and is seeking views of various stake holders such as judges,
lawyers, arbitration institutions and the public at large. The idea behind the proposed
amendments is to minimize court intervention in arbitral proceedings and to
institutionalize the arbitration process in India. Law Ministry is hopeful that with the
proposed amendments India will become a hub for international commercial arbitration.
The consultation paper will be made available on the website of the Law Ministry within
the next few days. This is a great opportunity for interested parties to provide their
constructive comments on the proposed amendments.
The Government of India has been contemplating amendments to the Arbitration Act for
quite a while. In 2001, the 176th Law Commission Report, which was chaired by the then
Law Commission Chairman Justice B.P Reddy, had given an exhaustive set of
recommendations to overhaul the Arbitration Act. On the basis of these recommendations
of the Law Commission, an Arbitration and Conciliation (Amendment) Bill, 2003 was
introduced in the Rajya Sabha. The Standing Committee on Personnel, Public
Grievances, Law and Justice was of the view that the provisions of the Bill gave room for
excessive intervention by the Courts in the arbitration proceedings. The Bill had various
other contentious issues that resulted in the Bill being withdrawn from the Rajya Sabha.
This time around, one would have to wait and watch how long it takes for the
consultation paper to result in concrete amendments to the Arbitration Act.

In the view of high court advocate Pradeepta Mishra, the nimble foot of the age and
concomitant impatience for the expeditious hearing of the cases of civil nature inclusive
of the industrial and trade disputes the gnawing need of the non-litigious practice and out
of court settlement are emergently felt. Litigants to keep pace with this trend prefer to set
to rest their disputes within reasonably shorter duration and inter alia saving the upgrown
case expenses. These potent factors together have given birth to mediative, conciliatory
and arbitration laws and advisory law firms to counsel for the remedies that can be
reached without any let or hindrance. However, the contemporary curiosity lies with the
question as to whether the arbitral issues between two disputing parties should be limited
to the courts or there be specific adjudicatories to resolve those both the doors of relief
being open to them. Currently, the Union Law Ministry makes humble attempt of
amending the Arbitration and Conciliation Act, 1996 with a view to make it easily
accessible to the beneficiaries and dispel the self-contradictory elements available there
within amidst the investitive power and implemental procedures. Above all, the
enterprising Law Minister, Mr. Moily has lent his congenial voice about the intent there
of, Arbitration should not be continuation of the courts. The idea should be resolving the
issue at the earliest.. Amazingly, international commercial arbitration has waxed its
applicability no sooner the area of Merger and Acquisition has been acted upon and
Memoranda of Understanding(MOUs) amongst Multi-national Companies(MNCs) are
allowed. However, the bare purpose behind the proposed amendments to the said Act is
to minimize court intervention in arbitral proceedings and to institutionalize the
arbitration process in India that is a verdant pasture of twenty first century commercial
mercantile possibilities. But, what the Supreme Court is up to causes the protagonists
serious concern. Again the issues are not merely domestic but very much international as
broadly, the said Act spoke equally for the domestic and international commercial
arbitration adopted by the United Nations Commission on International Trade
Law(UNCITRAL) and stood for the effectuation of the external arbitral awards and
conciliating the matters connected there with and incidental there to. On its own right and
reason, section 8 of the said Act empowers the court to refer a matter before it to
arbitration, in the event that the matter falls within the scope of an arbitration agreement
between the parties, more explicitly where there is an arbitration clause.

The SC in Radhakrishnan v Maestro Engineer case, ruled that the Court, as opposed to
the Arbitrator, was the more competent forum to deal with the dispute, scrutinize oral and
documentary evidence in specific, so raised by the parties which part of duties does not
hold good to the former while relying on Abdul Kadir decision etc. To boot, the
Arbitrator has no jurisdiction to try serious allegations such as fraud, financial
malpractice and collusion that have criminal implications in respect of which provisions
of the Criminal Procedure Code and the Evidence Act come into play together with that
of the Code of Civil Procedure which are mandatory. Conversely, the Arbitrators role is
limited to the reference to the Contract Act. Although Alternative Disputes
Resolution(ADR) Mechanism is the dire need of the hour to bring the disagreeing parties
to terms of agreement let us conclude assuming the latest initiative to amend or re-draft
the Arbitration Law as an optimistic pep to redefine the scope and ambit of arbitral
proceedings purported for quick, efficient and amicable settlement of disputes that
breaches no inter-jurisdictional severability and further that incurs neither the judicial
displeasure nor incites the arbitrator's impunity.

http://www.barandbench.com/brief/2/640/proposed-amendments-to-the-arbitration-act-
consultation-paper-released-by-the-law-ministry
Amendments to the Arbitration & Conciliation Act, 1996 – A
Consultation Paper has been published by the Ministry of Law &
Justice, Government of India on 8th April 2010.

The Hon’ble Supreme Court of India has held in “Union of India v. Singh Builders
Syndicate” (2009), that it is necessary to find an urgent solution for the problem to save
arbitration from the arbitration cost and opined that Institutional arbitration has provided
a solution, as the Arbitrators' fees is not fixed by the Arbitrators themselves on case to
case basis, but is governed by a uniform rate prescribed by the institution under whose
aegis the Arbitration is held.

The Hon'ble Supreme Court of India has in the landmark decision "Salem Advocate Bar
Association, Tamil Nadu v. Union of India" (2005) directed that all courts shall direct
parties to alternative dispute resolution methods like arbitration, conciliation, judicial
settlement or mediation. The draft "Civil Procedure Alternative Dispute Resolution and
Mediation Rules 2003" was also considered by the Supreme Court, for enactment by
respective High Courts. Direction was issued to all High Courts, Central Government and
State Governments for expeditious follow-up action.

Departmental Related Standing Committee after taking oral evidence of eminent

advocates and the representatives from trade and industry, Public Sector Undertakings,
representatives of this Department, submitted its report on the Arbitration & Conciliation
(Amendment) Bill, 2003 to the Houses of Parliament on 4th August, 2005. The
Committee expressed the view that since many provisions of the Bill were contentious,
the Bill may be withdrawn and a fresh legislation may be brought after considering the
recommendations of the Committee.

The Arbitration and Conciliation (Amendment) Bill, 2003, introduced in the Rajya
Sabha on the 22nd December, 2003 and pending therein, has been referred to Department
Related Parliamentary Standing Committee on Personnel, Public Grievances, Law and
Justice, headed by Shri E.M. Sudarsana Natchiappan, M.P., for examination and report.
The above Bill seeks to amend various provisions of the Arbitration and Conciliation Act,
1996, to remove certain shortcomings in the existing Act and also to speed up arbitrations
under the Act. The Committee, at its sitting held on 23rd August, 2004 decided to invite
memoranda containing suggestions/ views/ comments of individuals/ institutions/
organizations, interested in the subject matter of the Bill and the State Governments/
Union Territory Administrations, and to hear oral evidence on various provisions of the
Bill. Suggestions and views were sent by IIAM.

The Law Commission of India has recommended various amendments to the Arbitration
& Conciliation Act, 1996 by its 176th Report. The proposed amendment seeks to make
arbitration more effective and speedy. There is also proposal for Fast Track Arbitrations.

http://www.arbitrationindia.org/htm/laws_rules.html
A TIMES OF INDIA ARTICLE ON THE PROPOSED CHANGES IN
THE ARBITRATION ACT
NEW DELHI: In order to make out-of-court settlement of disputes easy, the law ministry
has come up with a consultation paper proposing major changes in the Arbitration and
Conciliation Act, 1996.

The consultation paper released by law minister Veerappa Moily on Thursday says any
person being approached as an arbitrator will have to give a "no conflict of interest"
declaration. "The possible arbitrator shall disclose in writing any past or present
relationship, either direct or indirect, financial, business, professional or social or
relationship with any of the parties involved in the dispute," the consultation paper says.

The earlier attempt to amend the Act in 2003, as per recommendations of the Law
Commission, did not prove fruitful. The standing committee of law ministry felt that
provisions of the Bill "gave room for excessive intervention by the courts in arbitration
proceedings". It suggested many amendments after which the Bill was withdrawn from
Rajya Sabha.

Seeking to institutionalise arbitration in India as per international standards and reduce

the interference of courts in the process, the consultation paper also proposes to amend
the powers of courts to appoint arbitrators. In case the parties have not named an
arbitrator, the Chief Justice, instead of choosing an arbitrator, may choose an institute
which will refer the matter to one or more arbitrators from its panel, the consultation
paper says. "This way, we want to institutionalise the system of arbitration in the
country," Moily said.

To a question on the `integrity' of arbitrators, Moily said the institutions will ensure that
the person being hired is accredited and is a person of integrity. "In a democracy, we can
work on a system, not individuals," he said.

http://timesofindia.indiatimes.com/india/Govt-proposes-major-changes-in-Arbitration-
Act-/articleshow/5775385.cms#ixzz1Clnx2cHg

Arbitration Amendment Bill, 2003 was introduced in Parliament of India but same was
withdrawn subsequently because many provisions of the Bill were contentious and it was
decided that new legislation will be brought in parliament of India after undertaking an in-
depth examination of various suggestions and recommendations.

In the meantime, the Supreme Court of India and many of its High Courts had pointed out
some lacunas in the Act. Government of India has decided to have consultations for
amendment of the Act as it has become necessary to remove difficulties and lacunas in the
Act. It has started the process of amending the Act.

Section Regarding
Definition of Court is being amended to
avoid present procedure for challenging
awards at two levels, one in the
subordinate courts and another by way
of appeal to High Court. A separate Law
i.e. The Commerical Division of the High
Court’s Bill, 2009 has been passed by
Lok Sabha to constitute Commercial
Division in every High Court in India for
adjudication of commercial disputes. The
Bill is now pending in Rajya Sabha for
consideration.
Under the new proposed law, the
Commercial Division of the High Court
will entertain applications under Section
34 and 36 and appeals under Section 37
of the Act.
(l) 2 (1) (e)
Section 2(2) provides that part 1 relating
to domestic awards is applicable where
place of Arbitration is in India. There
were certain controversies relating to
application of this part to foreign awards.
Amendment is proposed to clarify that
Part 1 (except Section 9 & 27) shall
(m) 2(2) apply only to Domestic Arbitrations.
Definition of Arbitration Agreement is
being amended to provide that in every
commercial contract with a consideration
of specified value shall be deemed to
have in writing specified Arbitration
Agreement. It also provides that all
Arbitration Agreements that differs from
the proposed clause will stand modified
along the lines of the specified
(n) 7, 8, 2(1)(b) arbitration agreements.
Section 11 relates to appointment of
Arbitrators. It is proposed to substitute
the appointing authority by substituting
the words “by the Chief Justice or any
person or institution designated by him”
the words “ by the High Court or any
(o) 11 person or institution designated by it”
(p) 12 Section 12 deals with grounds of
challenge to the appointment of an
 Arbitrator. It is proposed to add few
more grounds for disclosure of interest
by the Arbitrator.
Section 28(3) deals with Rules applicable
to substance of dispute. It is proposed to
substitute Section 28 (3) as under:“(3) In
all cases, the arbitral tribunal shall take
into account the terms of the contract
and trade usage applicable to the
(q) 28(3) transaction”.
It provides a very high rate of interest of
18% per annum on the awarded amount
which is proposed to be reduced by an
amendment to a rate of one percent
(r) 31 (7) (B) higher than the current rate of interest.
It deals with ground of public policy of
India for setting aside of award. Supreme
Court of India in the case of ONGC Vs.
Saw Piper Ltd. in 2003 had held that
public policy of India is required to be
given wider meaning in public interest
which had far reaching consequences .
This decision was subject matter of
public debate and criticism and law
commission of India had suggested of
insertion of an explanation to clarify and
restrict the meaning of public policy of
India as under:“Explanation II- For the
purposes of this section “an award is in
conflict
with the public policy of India” only in
the following circumstances,

namely:-

When the award is contrary to the-

(i) fundamental policy of India; or

(ii) interests of India; or

(iii) justice or morality.’

(s) 34(2)(b)(ii)
It is proposed to add following sub clause
:“(iii) the application contains a plea
questioning the decision of the arbitral
tribunal rejecting –
(a) a challenge made by the applicant
under sub-section (2) of section 13; or

(b) a plea made under sub-section (2) or

sub-section (3) of section 16,”;
(t) 34 (2)(iii)
(u) 34 A It is proposed to insert new Section 34 A
in respect of domestic awards as
under:“34A. Application for setting aside
arbitral award on additional ground of
patent and serious illegality.-
(1) Recourse to a Court against an
arbitral award made in an arbitration
other than an international commercial
arbitration, can also be made by a party
 under subsection (1) of section 34 on the
additional ground that there is a patent
and serious illegality, which has caused
or is likely to cause substantial injustice
to the applicant.

(2) Where the ground referred to in sub-

section (1) is invoked in an application
filed under sub-section (1) of section 34,
while considering such ground, the Court
must be satisfied that the illegality
identified by the applicant is patent and
serious

and has caused or is likely to cause

substantial injustice to the applicant.”

Section 36 deals with enforcement of

awards which provides that enforcement
comes to a stop upon filing of an
application under sub section (1) of
section 34 to set aside the award.It is
proposed to improve the law by
providing that an application for setting
aside of award shall not operate as a
stay of award unless courts grants
(v) 36 specific stay order.
The Supreme Court of India has given a much-deserved boost to institutional
arbitration. However, in Union of India v. Singh Builders Syndicate1 the Court alluded
to cost problems with the process when it said that it is necessary to find an urgent
solution to save arbitration from arbitration costs.

In Singh Builders, appellant Northern Railways (a Union of India undertaking)

challenged the order of the Delhi High Court appointing a retired judge of the High
Court as the sole arbitrator in a dispute over a construction contract between the
appellant and the respondent. Northern Railways contended that the appointment of
arbitrators should comply with Clause 64 of the general terms and conditions of
contract, which requires two "gazetted" railway officers of equal status to be
appointed from a panel made available by Northern Railways, one of whom is
appointed by the contractor and the other by Northern Railways, and the third by the
two party-appointed arbitrators.

The respondent made a request for arbitration in 1999. When Northern Railways
failed to take necessary steps to appoint the arbitrator under Clause 64, respondent
filed an application under the Arbitration and Conciliation Act, 1996 (1996 Act)
seeking appointment of the tribunal by the court. In 2002, the court constituted a
tribunal under Clause 64, appointing the serving officers of Northern Railways as
arbitrators. But before the proceedings could commence one of the arbitrators was
transferred and consequently resigned in May 2004.

The same process began all over again, twice. Therefore the respondent approached
the High Court seeking the appointment of a sole arbitrator. The High Court, taking
into account the conduct of Northern Railways, decided that no useful purpose would
be served by again reconstituting a three-member panel under Clause 64. After all,
the matter had been pending since 1999 and each time a panel was appointed an
arbitrator resigned. Accordingly, the High Court appointed a retired Judge of the Delhi
High Court as the arbitrator.

Northern Railways challenged the appointment of the retired judge as a sole

arbitrator before India's Supreme Court. It argued that when a retired judge is
appointed as the arbitrator in place of serving officers, the government is forced to
bear the high cost of the retired judge's fee even though it had not consented to his
appointment.

The question before the Supreme Court was whether the retired judge's appointment
as sole arbitrator by a court should be set aside and a tribunal be constituted under
Clause 64.
It held in Northern Railway Administration, Ministry of Railway, New Delhi v. Patel
Engineering Co. Ltd.,2 that the appointment of arbitrators named in the arbitration
agreement was not mandatory, but the terms of the agreement should be adhered
to as closely as possible. Thus, Patel Engineering required the court to first appoint
the arbitrators in the manner provided in the arbitration agreement. If the
independence and impartiality of an appointed or nominated arbitrator is then put in
doubt, or the tribunal fails to function and it becomes necessary to make fresh
appointments, the court could make appropriate alternative arrangements to give
effect to the arbitration provision.

The Singh Builders decision is pathbreaking because for the first time the Supreme
Court of India acknowledged that the cost of arbitration in India could be quite high if
the tribunal consists of retired judges (more than 80% of arbitrations are ad hoc
arbitrations).
In this case it is significant that the party who raised the cost issue (Northern
Railways) was the largest government- owned corporation in India and it had
challenged the appointment of retired judges as arbitrators.

Singh Builders is also significant because the Supreme Court proposed that the
arbitrator selection method by government companies providing for its serving
officers to act as arbitrators be discontinued or "phased out."

In the past this clause had been challenged on the ground that having serving
officers of the government companies act as arbitrators made the panel lack
independence and impartiality. However, several High Courts and the Supreme Court
have upheld the arbitration clause against this challenge, stating that since the
challenger had entered into the agreement with its eyes open it could not wriggle out
of the situation. In any event, an employee of a government company could not be
considered impartial or objective.3
In order to cut down arbitration cost, the court stated that the court should fix the
fees of any private arbitrator it appoints, with the consent of the parties at the time
of appointment and, if necessary, in consultation with the arbitrator.

The Supreme Court also suggested that retired judges who serve as private
arbitrators should indicate their fee structure to the registry of the High Court. This
will enable the parties to select a retired judge whose fees it can afford. The Supreme
Court found it objectionable that parties were being forced to use an arbitrator
appointed by the court and then being forced to agree to the fee fixed by that
arbitrator.

"It is unfortunate that delays, high cost, frequent and sometimes unwarranted judicial
interruptions at different stages are seriously hampering the growth of arbitration as
an effective dispute resolution process. Delay and high cost are two areas where the
arbitrators by self regulation can bring about marked improvement," the court said.

The court also suggested that using administered arbitration offered by an arbitral
institution could provide a solution if the arbitrators' fees are prescribed by the
institution.

While some arbitration providers do not prescribe arbitrator fees, they make the
arbitrator's hourly or daily rate known to the parties during the arbitrator selection
process, so parties know before selecting the arbitrator how their fees are calculated,
the court said.

Given the staggering 34 million cases pending in the various courts in India, and the not-too-
happy ADR scene, the case for reform in the Indian legal sector has never been clearer or more
urgent.

‘It is my dream that India should emerge as a hub of international arbitration’,4 said the former law
minister of India, Dr HR Bhardwaj. His successor, Dr Veerappa Moily, building on his
predecessor’s dreams, has initiated a slew of judicial reforms, and has set an ambitious timeline
of five years to transform the Indian legal scene.
The Commercial Courts Amendment Bill, 2009, has been introduced in parliament to create
special divisions in high courts to deal exclusively with commercial disputes above a certain
threshold value. The Bill has been passed by the lower house of parliament (Lok Sabha) and is
pending in the upper house of parliament (Rajya Sabha). In June 2010, the government
introduced the National Litigation Policy, 2010, which aims, inter alia, to reduce government
litigation in courts and the average time for cases from 15 years to three years.

In a step that would nullify the decisions of the Supreme Court in Venture Global Engineering v
Satyam Computer Services Ltd,5 and other similar decisions, which had ruled that part I of the
Act, which was intended to apply essentially to domestic arbitrations, would also apply to
arbitrations seated outside India, the consultation paper proposes to restrict the applicability of
the provisions of part 1 to arbitrations seated in India, except for the provisions relating to interim
relief (section 9) and assistance of the courts in taking evidence (section 27), which would also be
applicable to international arbitrations.
In the Saw Pipes case,6 the Supreme Court had held that if an award is contrary to the
substantive provisions of the law, or the provisions of the Act, or against the terms of the contract,
it would be patently illegal and liable to be set aside under section 34 of the Act. Addressing these
points, it is proposed that the Act be amended to include a provision where an arbitral tribunal is
obliged to (the word used is ‘shall’) take into account the terms of the contract and trade usages
applicable to the transaction.
The Act currently provides for an automatic stay on the enforcement of an arbitration award on
the mere filing of an application challenging an award under section 34. It is proposed to make an
arbitration award immediately executable on the expiry of the limitation period to challenge it,
unless a stay order has been passed by the court.

It is also proposed to introduce more comprehensive disclosure standards for arbitrators.

As a part of the public consultative process, LCIA India joined hands with the government and
with the International Centre for Alternative Dispute Resolution (ICADR) to organise a conference
in Mumbai in August 2010, to discuss the proposed amendments. The conference was one in a
series held in various Indian cities.

It is hoped that a draft amendment Bill, incorporating the feedback and ideas raised during the
consultative process will be introduced in the upcoming session of parliament.

The launch of the LCIA India Arbitration Rules In April 2010, at a conference held in Mumbai,
LCIA India launched its Arbitration Rules. These Rules are to a large extent based on the LCIA’s
own tried and tested rules, but with changes incorporated to reflect the interface with the Indian
Act, the practice of arbitration in India and the various judicial decisions of the Supreme Court of
India. The Rules came into force from 17 April 2010, and are accessible on the LCIA India.
The philosophical keystone to the Rules is article 14, which places corresponding duties on
parties and tribunals to ensure proceedings are conducted fairly, efficiently and expeditiously.

The Rules include a number of new provisions aimed at expediting proceedings, which provisions
may provide a prototype for future rules to be published by the LCIA. These new provisions
include an express requirement that all prospective arbitrators confirm their ability to devote
sufficient time to ensure the expeditious conduct of the arbitration. Further, article 28.4(b), a new
provision, provides that the tribunal may take into account the conduct and cooperation, or non-
cooperation, of the parties during the arbitration when determining the allocation of costs.
Article 10 of the Rules gives the power to the LCIA Court to revoke an arbitrator’s appointment if
the arbitrator ‘does not conduct or participate in the arbitration proceedings with reasonable
diligence, avoiding unnecessary delay or expense’.

The LCIA India Rules, although directed at parties doing business in and through India, are an
international set of rules, which are suitable for operation under any system of law, regardless of
the seat or venue of the arbitration.

Unlike the LCIA Rules, which provide for London as a default seat, the LCIA India Rules do not
provide for a default seat. In the absence of parties’ agreement, the seat would be determined by
the LCIA Court, taking into account, inter alia, the parties’ proposals in this regard.

LCIA India has also produced a set of ‘Notes for Arbitrators’, to provide guidance to arbitrators
conducting arbitrations under its Rules, on issues relating to independence, impartiality,
confidentiality and the management of time and costs.

LCIA India is pleased to be administering its first arbitrations already.

Pro-arbitration approach of the Indian judiciary

The Indian judiciary has been, by and large, supportive of arbitration, notwithstanding the
occasional aberrant decision. Four cases decided in 2010 are of special note, namely Bhushan
Steel Ltd v Singapore International Arbitration Centre & Anr;7 Sumitomo Heavy Industries v Oil &
Natural Gas Commission of India;8 Dozco India P Ltd v Doosan Infracore Co Ltd;9 Denel
(Proprietary Limited) v Bharat Electronics Ltd.10
In Bhushan Steel, the arbitration clause contained in a series of contracts for the supply of coated
steel coils, made reference to disputes being referred to arbitration in Singapore, as per
international law. Upon a dispute arising, the second defendant, a Danish company, initiated
arbitration proceedings at the Singapore International Arbitration Centre (SIAC). The plaintiff,
Bushan Steel, then filed a suit in the Delhi High Court seeking, inter alia, a declaration that the
arbitration clause in the contract was vague and indeterminate, and hence void and incapable of
being enforced; and asked that the court issue a permanent injunction restraining SIAC from
continuing the arbitration proceedings.

The Danish company, in response, filed an application for the rejection of the application on
grounds that the court had no jurisdiction to hear the application under the Code of Civil
Procedure (CPC) and under section 5 of the Indian Arbitration Act. The Delhi High Court held that
the law applicable to the arbitration was Singaporean law and, given that the clause clearly
provided for Singapore as the seat of arbitration, the parties had excluded the provisions of the
Act.
The Sumitomo Heavy Industries case saw the Supreme Court, in a well reasoned declaration of
the law, holding that, if the conclusion of the arbitrator is based on a possible view of the matter,
the court should not be expected to interfere with the award. It held that an arbitrator ‘is
legitimately entitled to take the view which he holds to be the correct one after considering the
material before him and after interpreting the provisions of the agreement. If he does so, the
decision of the arbitrator has to be accepted as final and binding’. It further went on to rule that a
court, while considering a challenge to an arbitral award, ‘does not sit in appeal over the findings
and decision of the arbitrator’.

In the recent case of Dozco India, the Supreme Court refused to intervene in a dispute where the
arbitration clause made a specific reference to arbitration under Korean law, with a seat of
arbitration in Seoul. It held that the designation of a foreign seat and an express choice of a
foreign governing law, amounted to a clear agreement to exclude the operation of part 1 of the
Indian Arbitration Act.

In the Denel case, the Supreme Court refused to interfere with an arbitration agreement, on the
ground that the parties had entered into it with full knowledge and understanding of what they
were agreeing. This case also saw the court sounding a note of caution to public sector
undertakings (PSUs), albeit through its obiter dicta finding, advising PSUs to change their
practice of nominating their own senior employees as arbitrators.

Light at the end of the tunnel or the light of an oncoming train?

Having lived and worked in Singapore for a few years, prior to taking up my position at LCIA
India, I have had the privilege of seeing how Singapore has managed to turn around its legal
sector to emerge as a legal services hub for Asia, especially in the field of arbitration. It will,
however, require a Himalayan effort and dogged determination, backed by strong political will, to
turn into a living reality, the hope and expectation of successive Indian ministers of law that India
may itself become a global arbitration hub.

However, for the first time in decades, there is an air of expectancy in arbitration circles in India;
and, for the first time, the proposed reforms are backed by solid political will, and, if one looks
beyond the many contradictions and challenges of India, one cannot but reach an optimistic
assessment of the future.

Light at the end of the tunnel, for sure!

www.globalarbitrationreview.com/.../light-end-tunnel-light-oncoming-train/
HR Bhardwaj, Address at the launch
of LCIA India, New Delhi, 18 April 2010, available at www.lcia-india.org (accessed on 15
November 2010).
 5
(2002) 4 SCC 105.
6
Oil & Natural Gas Corpn Ltd v Saw Pipes, (2003) 5 SCC 705.
7
IA No 11355/2009 in CS (OS) No1392/2009.

JT2010(5)SC344; 2010 (6) SCC 394.

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