Open Access Research Article
THE RECENT AMENDMENTS TO SECTION 8 AND 11 OF THE ARBITRATION AND CONCILIATION ACT, 1996: A PRO-ARBITRATION MOVE OR NOT – By VARSHA GULAYA
Published Paper
Article Details
The recent Amendments to Section 8 and 11 of the Arbitration and
Conciliation Act, 1996: A Pro-arbitration move or not
By - Varsha
Gulaya
Introduction
The key feature which has made
arbitration, a viable and attractive option is the speedy resolution of
disputes in comparison to the normal court’s procedure. In, India, the
Arbitration and Conciliation Act, 1996 (hereinafter referred ad “1996 Act”) was
introduced to facilitate the arbitration process. However, with time it was
understood that the certain provisions of the 1996 Act acted as impediment in
the smooth conclusion of arbitration process as earliest as possible. This
hindered India’s position as “arbitration-friendly” nation in comparison to
others at global level.
In 2015 and 2019, the Parliament of
India introduced two amendments which have made sea changes in the arbitration
process and made it friendly and less time consuming. The author will deal with
both the amendments, especially in the context of section 8 and section 11 of
the 1996 Act in two parts below.
I.
Reforming section 8 vis a vis 2015 amendment: A
Promising change
Section
8 of the 1996 Act titled, “Power to refer to arbitration where there is an
arbitration agreement” works in two ways - One, it restricts the “judicial
authority” from proceeding in a matter, in presence of valid arbitration
agreement; and, second, it gives an opportunity to parties to waive its right to
arbitrate generated from arbitration agreement by either, bringing an action
before a judicial authority or by omitting to make a reference of arbitration
agreement timely before the judicial authority.
In
order to comprehend the important changes that section 8 brought forth, it
becomes impertinent to compare the provision before and after the amendment.
The author does so in the following manner: -
|
|
Components
of section 8 before 2015 Amendment
|
Components
of section 8 after 2015 Amendment
|
|
Section
8(1)
|
-
A judicial authority before which
an action is brought in a matter which is subject of an arbitration agreement
-
Shall if a party
-
so applies not later than when
submitting his first statement on the substance of the dispute
-
refer the parties to arbitration
|
-
A judicial authority before which
an action is brought in a matter which is subject of an arbitration agreement
-
Shall, if a party to the
arbitration agreement or person claiming through or under him
-
so applies not later than the
date of submitting his first statement on the substance of the
dispute
-
then notwithstanding any
judgment, decree or order of the Supreme Court or any Court
-
refer the parties to arbitration
-
unless it finds that prima facie no
valid arbitration agreement exists
|
In
addition to substitution of sub-section (1) of section 8, the Arbitration and
Conciliation (Amendment) Act, 2015 (hereinafter referred as “Amendment Act,
2015”) to the 1996 Act introduces a proviso to section 8(2) stipulating that in
absence of original arbitration agreement or a certified copy with the party
making reference for arbitration under section 8(1) and if they are retained by
other party, then party making reference shall file a petition in the court
along with the copy of arbitration agreement praying to call upon the other
party to produce the original arbitration agreement or certified copy before
the court.
The
246th Law Commission Report of 2014, highlights that judicial
intervention in the process
Arbitration acts a pariah in India and has
discouraged many at global level to choose India for arbitration. Despite the
existence of section 5, which limits the extent of judicial intervention only
to situations where it is so expressly provided in the act. This salutary
provision has lost its effectiveness in light of the gaps present in such
express provisions. At international level, active role played by judiciary is
heavily criticised as it runs contrary to the party autonomy principle and
deters the otherwise speedy process of arbitration.
The
Statement of Objects and Reasons to the 2015 amendment provides an insight into
logic behind it. It states, “… The proposed amendments to the Act
would facilitate and encourage Alternative Dispute Mechanism, especially
arbitration, for settlement of disputes in a more user-friendly, cost effective
and expeditious disposal of cases since India is committed to improve its legal
framework to obviate in disposal of cases.”.
After discussing the rationale and
objectives of Amendment Act, 2015, let’s see the nature of changes brought by
it.
In this regard, decision in Ameet
Lalchand Shah & Ors. v. Rishabh Enterprises & Ors[1] of
the Apex Court is important, wherein it was held-
“Arbitration and Conciliation
(Amendment) Act, 2015 has brought in amendment to Section 8 to make it in line
with Section 45 of the Act … Principally four amendments to Section 8(1) have
been introduced by the 2015 Amendments –
(i) the relevant "party"
that is entitled to apply seeking reference to arbitration has been
clarified/amplified to include persons claiming "through or under"
such a party to the arbitration agreement;
(ii) scope of examination by the
judicial authority is restricted to a finding whether "no valid
arbitration agreement exists" and the nature of examination by the
judicial authority is clarified to be on a "prima facie" basis;
(iii) the cut-off date by which an
application under Section 8 is to be presented has been defined to mean
"the date of" submitting the first statement on the substance of
the dispute; and
(iv) the amendments are expressed to
apply notwithstanding any prior judicial precedent. …”
In
SSIPL Lifestyle
Private Limited v. Vama Apparels (India) Private Limited & anr.[2], the High Court of Delhi analyzed the
time limit for making referral under section 8 under the principal in the
following words –
And, after a thorough perusal of the
amendment act, 2015 stated that the intention of the amendment was to “to
tighten the time limit within which arbitration proceedings should commence and
conclude”. In this context, change of terminology from “when” to the ‘date
of” signifies that date of submitting the written statement that is statement
on substance of dispute must be adhered to. Hence outer limit for filing under
section 8 is same as that of filing of written statement in a civil suit.
And,
in Pravin Electricals Pvt. Ltd. v. Galaxy Infra and Engineering Pvt. Ltd[3],
the Court discussed the impact of the 2015 amendment act on ambit of
examination of arbitration agreement by the judicial authority under section 8,
by observing,
“Section
8 states that the judicial review at the stage of reference is prima facie and
not final. … The court, Under Sections 8 … has to refer a matter to arbitration
or to appoint an arbitrator, as the case may be, unless a party has established
a prima facie (summary findings) case of non-existence of valid arbitration
agreement, by summarily portraying a strong case that he is entitled to such a
finding…. The court should refer a matter if the validity of the arbitration
agreement cannot be determined on a prima facie basis, as laid down above i.e.
"when in doubt, do refer". The scope of the court to examine the
prima facie validity of an arbitration agreement includes only:
244.5.1.
Whether the arbitration agreement was in writing? Or
244.5.2.
Whether the arbitration agreement was contained in exchange of letters,
telecommunication, etc.?
244.5.3.
Whether the core contractual ingredients qua the arbitration agreement were
fulfilled?
244.5.4.
On rare occasions, whether the subject-matter of dispute is arbitrable? ...”
II.
Reforming
Section 11 vis a vis Amendment 2015 & 2019: A Promising Prospect
Section
11 titled, “Appointment of arbitrators” is a guiding provision with respect to
the procedure to be followed while appointing the arbitrators. This section is
based on the Article 11 of the United Nation Commission on International Trade
Law (UNCITRAL) Model Law on International Commercial Arbitration, 1985. This
provision recognises one of foundational principle of arbitration, i.e.,
principle of party autonomy. The whole essence of arbitration process, in real,
displays protection of party autonomy in number of matters. And, one of such
matter, is appointment or selection of arbitrator or procedure for the same.
Even,
during the Hague Conference in 1907, it was noted that, “the right of choosing
one’s own judge is a right which is of the very essence of the arbitral
justice”[4].
Thus,
the importance of selection of arbitrator cannot be over-emphasized. Hence, now
it becomes necessary to analyse, how and in what manner the Arbitration
Amendment Act, 2015 and of 2019 brought changes in the already existing system
provided under the 1996 Act.
Before
proceeding what is important to take note is that section 3 of Arbitration
amendment act, 2019 which provides for amendment in section 11 is yet to be
enforced.
For
the convenience, author has drawn up a table comparing the some of the
important changes below –
|
|
Components
of Section 11 in the principal 1996 Act
|
Components
of Section 11 after Arbitration Amendment Act, 2015
|
Components
of Section 11 after Arbitration Amendment Act, 2019
|
|
Section
11(3A)
|
|
|
The
2019 amendment introduced section 11 (3A). In crux this sub-section empowers
the Supreme Court and the High Court to designate arbitral institutions
(which are graded by the Council under section 43-I) for purpose of this Act.
To
this are attached two provisos. 1st Proviso, envisages that where
no graded arbitral institutions are available in the High Court jurisdiction,
then CJ High Court may employ arbitrator from the panel of arbitrators
maintained by the HC for the purpose of this Act. And, such arbitrators shall
be deemed to be arbitral institution.
2nd
proviso, provides that CJ of HC may review the panel of arbitrators from time
to time.
|
|
Section
11(4)
|
On
failure of parties to appoint an arbitrator or the two appointed arbitrators
fail to appoint the third arbitrator, if appointment procedure under section
11(3) applies, then appointment shall be made upon request of party by
-
The Chief Justice, or
-
the person or institution
designated by him
|
On
the failure of parties to appoint an arbitrator or the two appointed
arbitrators fail to appoint the third arbitrator, if appointment procedure
under section 11(3) applies, then appointment shall be made upon request of
party by
-
Supreme Court, or
-
High Court, or
-
Any person or institution
designated by such court
|
On
the failure of parties to appoint an arbitrator or the two appointed
arbitrators fail to appoint the third arbitrator, if appointment procedure
under section 11(3) applies, then the appointment shall be made
-
On the application by the party
-
By the
Arbitral
institution designated by the Supreme Court (in case of International
Commercial arbitration) or by the High Court (in cases other than
International commercial arbitration)
|
|
Section
11(5)
|
On
failure of parties to agree on procedure for appointing arbitrator(s) u/s
11(2), the appointment shall be made on request of the party by –
-
The Chief Justice, or
-
the person or institution
designated by him
|
On
failure of parties to agree on procedure for appointing arbitrator(s) u/s
11(2), the appointment shall be made on request of the party by –
-
Supreme Court, or
-
High Court, or
-
Any person or institution
designated by such court
|
On
failure of parties to agree on procedure for appointing arbitrator(s) u/s
11(2), the appointment shall be made –
-
On application of the party
-
In accordance with provision
contained in s. 11(4).
|
|
Section
11(6)
|
Where,
under an appointment procedure agreed upon by the parties, in case of failure
as per clause (a), (b) or (c), then any party may request to –
-
The Chief Justice, or
-
the person or institution
designated by him
unless
other means for securing the appointment is provided in the agreement
|
Where,
under an appointment procedure agreed upon by the parties, in case of failure
as per clause (a), (b) or (c), then any party may request to-
-
Supreme Court, or
-
High Court, or
-
Any person or institution
designated by such court
unless
other means for securing the appointment is provided in the agreement
|
Where,
under an appointment procedure agreed upon by the parties, in case of failure
as per clause (a), (b) or (c), then the appointment shall be made
-
On the application by the party
-
By the Arbitral institution
designated by the Supreme Court (in case of International Commercial
arbitration) or by the High Court (in cases other than International
commercial arbitration)
unless
other means for securing the appointment is provided in the agreement
|
|
Section
11(6A)
|
|
Inserted
|
Omitted
|
|
Section
7
|
The
decision on matter entrusted by Section 11(4) or 11(5) or 11(6) to-
-
The Chief Justice, or
-
Person or institution designated by
him
Shall
be final
|
The
decision on matter entrusted by Section 11(4) or 11(5) or 11(6) to-
-
The Supreme Court, or
-
The High Court, or
-
Any person or institution
designated by such court
Is
final and no appeal including LPA shall lie against such decision
|
Omitted
|
|
Section
11(13)
|
|
Inserted.
It
provided that an application made under section 11 shall be expeditiously
disposed and endeavour shall be made to dispose within 60 days from date of
service of notice on opposite party
|
Substituted
for –
“An application made under this
section for appointment of an arbitrator or arbitrators shall be disposed of
by the arbitral institution within a period of thirty days from the date of
service of notice on the opposite party.”
|
From
the comparison above, it can be summarised that the key transformation made in
the section 11 are –
a)
The onus of appointing arbitrator(s)
has been shifted first from Chief Justice or his designated person to the
Supreme Court, High Court, or designated person or institution by it (2016) to
arbitral institution designated by Supreme Court or High Court (2019).
b)
The designation of arbitral
institution will be from the list of graded by Arbitration Council of India.
c)
The scope of interference by the
judiciary was restricted only to determination of the existence of an
arbitration agreement (2015) to now absolute removal of this provision (2019).
d)
Time limit for disposing application
under section 11 was first directed to be disposed of expeditiously with an
endeavour to dispose within 60 days (2016). Now, in it must be disposed within
30 days (2019).
Therefore,
the legislative intent behind these amendments has been to minimise the
interference or supervisory control of courts in arbitration process. As, time
spent litigating before the court hinders the effectiveness of the arbitration
process and is disliked by parties who aim to settle their disputes
expeditiously.
The
whole impact of these amendments can be envisaged only after considering how it
evolved and what prompted such change. Before 2015, the Supreme Court after
juggling between the categorisation of power to appoint arbitrator(s) as either
“judicial” or “administrative” finally settled on “judicial” power. However,
what disturbed the proponents of pro-arbitration was the “expansive” scope of
interference contemplated by the court while appointing arbitrator(s). As, at
times, the courts in enthusiasm went on to decide on arbitration agreement, its
validity, limitation issue and other matters which ultimately resulted in
extended judicial proceeding and interference which was never acceptable in
arbitration. With this approach, the whole purpose of choosing arbitration was
turning out to be frustrated.
Hence,
it can be said these circumstances pushed the legislature, to draw a line on
courts interference and limited it only to the extent of “examination of an
arbitration agreement” regardless of any decision passed by the court by virtue
of 2015 amendment. It also provided finality to the decisions made under
section 11. This take was later affirmed by the Supreme Court in DuroFelguera, SA v. Gangavaram Port
Ltd.[5]
Resultantly, amendment has been applauded around the world as it made
arbitration process smooth by removing the unnecessary freedom of interference.
The
author further submits that amendment act of 2019 though not yet enforced is
inspired by the default procedure of appointment of arbitrator followed in
other nations, which are the prominent favoured destination for arbitration.
The amendment 2019 gives impetus to the institutional arbitration. And, with
this neither Supreme Court nor High Court would be tasked to appoint
arbitrator. In turn, provisions introduced in by amendment of 2015, such as,
section 11(6A) and Section (7) would be rendered futile.
Recently,
in March 2021, the Supreme Court has discussed the implication of the amendment
acts on section 11 in the case of Bharat Sanchar Nigam Ltd. & anr. v. M/S
Nortel Network India Private Ltd.[6]
Here, the division bench discussed in detail section 11, from the rationale
behind granting Chief Justice power to appoint arbitrators to ensure
credibility; to SBP & Co. v. Patel Engineering Ltd..[7],
where the constitution bench expanded scope of inquiry u/s. 11. This case was
further supported by National Insurance Co. Ltd v. Boghara Polyfab Pvt. Ltd.[8]
which went a step ahead by noting three kind of preliminary issues which are to
be decided by Court when dealing with section 11. After amendment of 2015, the
scope of inquiry was limited in view of insertion of Section 11(6A). The effect
being, except the question of “existence of the arbitration agreement” all
other questions were left for the arbitral tribunal to decide. This gave a
boost to doctrine of “Kompetenz-kompetenz” in India. Later, the decisions of
Mayavati Trading Company Private Ltd. v. Pradyut Dev Burman[9]
and Uttarakhand Purv Sainik Kalyan Nigam v. Northern Coal Field[10]
backed the limited intervention by court at pre-arbitral stage.
The
Bharat Sanchar case[11]
also analysed the 2019 amendment and observed, “… it will result in the deletion of
sub-section (6A), and the default power will be exercised by arbitral
institutions designated by the Supreme Court, or the High Court, as the case
may be…”. However,
this case can be seen as giving wings to permissive inquiry of existence of
arbitration agreement. As, the Court had observed, “… It is only in the very
limited category of cases, where there is not even a vestige of doubt that the
claim is ex facie time-barred, or that the dispute is non-arbitrable, that the
court may decline to make the reference…”
Conclusion
The
author, undoubtedly, is of the opinion, that the amendments of 2015 and 2019 to
the Arbitration and Conciliation Act have upped the position of India in field
of arbitration internationally. Section 8 and section 11 of the 1996 Act deals
with the pre-arbitral stage. The principal 1996 Act never contemplated that
with time judicial oversight would increase enormously even before the start of
arbitration. But with time, it was realised that such a position has
jeopardized prospect of making India – an arbitration hub. Troubled with this,
the legislature in 2015 brought momentous changes which will enable efficient
and smooth disposal at the pre-arbitral stage by limiting interference by
judiciary which mostly resulted in prolonging the arbitration procedure. To
further eschew the role of courts, the amendment of 2019 has proposed replacing
courts with arbitral institution to decide matter falling under section 11.
To
conclude, the amendments have indeed pushed India towards pro-arbitration
country group, like Singapore, Hong Kong and others. But, courts in one way or
another have equipped themselves with power to extend the acceptable
restrictive interference, intentionally or unintentionally, for example, in the
Bharat Sanchar (2021) case. Amendment of 2019 though far-reaching and pivotal
in making India more arbitration friendly, is yet to withstand the test of
time.
[4] Scott, The Proceedings of the Hague Peace Conference,
Translation of the Official Texts, II The Conference of 1907, Meetings of the
First Commission 2 (1921) (L. Bourgeois).
[5]
(2017) 9 SCC 729. Reference can also be made to Parsvnath Developers
Limited & anr v. Rail Land Development Authority decided by Delhi High
Court on May 18, 2020.
Article Information
THE RECENT AMENDMENTS TO SECTION 8 AND 11 OF THE ARBITRATION AND CONCILIATION ACT, 1996: A PRO-ARBITRATION MOVE OR NOT – By VARSHA GULAYA
Authors: Varsha Gulaya
- Journal IJLRA
- ISSN 2582-6433
- Published 2022/11/11
- Volume 2
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
- Access Open Access
- License CC 4.0
All research articles published in International Journal for Legal Research and Analysis are open access and available to read, download and share, subject to proper citation of the original work.
Disclaimer: The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of International Journal for Legal Research and Analysis.