THE ARBITRATION AND CONCILIATION (AMENDMENT) ORDINANCE, 2015

Mahesh Kumar GuptaB-4, Sector-44, Noida-201301

mkg_irse83@yahoo.co.in

WELCOME TO INTERACTIVE SESSION

OBJECTSOF AMENDMENTS

1. Arresting flight of arbitration cases abroad2. Expediting settlement of disputes3. Courts power in appointment of arbitrator as

administrative powers4. Cost of arbitration5. Model fee structure6. Independence/Impartiality of arbitrators

OBJECTSOF AMENDMENTS

7. Counter statement within scope of reference8. Interim Orders of arbitrators as orders of Court9. Scope of setting aside of award10. Removal of automatic stay of award11. Interest on award

1. Arresting flight of arbitration cases abroad

• Lack of Trust was the main reason• Employees, Advisors, Advocates, Consultants as

Arbitrators. (No more as per Vth/VIIth Schedule.)• Difficult to enforce the interim orders of Tribunal.• Delay in appointment of arbitrators.• No Time bound arbitration.• Frequent challenge & setting aside of award due to vague

term of public policy.• Difficult to enforce the award if place in India.

1. Arresting flight of arbitration cases abroad

• Extg. 2(2) Part I to apply where the place of arbitration is in India. The said provision preempted the powers of

Indian Courts in respect of Interim measures, assistance in taking evidence etc. e.g. prohibition of sale of assets etc.

• According to new provisio to Sec 2(2), subject to an agreement to the contrary, the provisions of sec. 9, 27, 37(1)(a) shall also apply to international arbitration, even if the place of arbitration is outside India.

2. Expediting settlement of disputes

• The Court to expeditiously dispose the application for appointment of arbitrator under new sec. 11(13) with endeavor to dispose within 60 days from the service of notice on opposite party.

• To reduce the time in appointment of arbitral tribunal, as per new sub sec. (6A), the court shall, notwithstanding any judgement, decree or order of any court, confine to the examination of the existence of an arbitration agreement.

• 1940 Act, sec 28 gave power to court only to enlarge time for making award except with the consent of the parties.

• 1996 Act did not limit the time for the arbitrators so far.

2. Expediting settlement of disputes

• As per new sec. 12(1)(b), arbitrator to disclose his ability to devote sufficient time to complete the entire arbitration within a period of 12 months. (VIth Sch. mistake due to copy, paste indicating arbitration in 24 months & award in 3 months).• As per new section 29A, the award shall be made within

12 months from the date of entering upon the reference i.e. appointment of arbitral tribunal.• Incentive of entitlement of additional fees if award made

within 6 months.

2. Expediting settlement of disputes

• The parties may extend period not exceeding 6 months by consent.• The mandate of the arbitrator shall terminate if award not

made in time unless the Court extends the same.• Extension by court on sufficient grounds only & on terms i.e.

costs etc.• Court may also reduce the fees of the arbitrators for the

delay• Court may substitute one or all the arbitrators.• Court will endeavour to dispose the matter of

extension/termination of arbitrators within 6 months.

2. Expediting settlement of disputes

INTRODUCTION OF FAST TRACK PROCEDURE• The parties may at any stage agree for fast track

procedure consisting of sole arbitrator.• The dispute to be decided by written pleadings without

any oral hearings except for clarifying certain issues or any further information.• The award shall be made within a period of 6 months.• The fees shall be as agreed between the arbitrator and

the parties.

2. Expediting settlement of disputes

• The fee of arbitration fixed on claim amount instead of per hearing fees incentivizing the arbitrators to expedite the arbitration proceedings and publication of award.

• The provision of imposing costs for frequent and unnecessary adjournments.

• Application for setting aside award to be disposed of expeditiously and in any event within one year.

3. Appointment of arbitrator as administrative powers of Court

• Appointment: No appointment only if the arbitration agreement does not exist or is null and void/no valid arbitration agreement. {Sec.8(1) & 11 (6A)}

• Test: prima facie satisfaction regarding the existence of an arbitration agreement & bound to refer the parties to arbitration

• Final decision of existence of the arbitration agreement: Impliedly lies with the arbitral tribunal in accordance with section 16, as a preliminary issue. If arbitration rejected, the decision of the Court would be final & conclusive.

3. Appointment of arbitrator as administrative powers of Court

• New sub section 11.(6B): The designation of any person …… shall not be regarded as a delegation of judicial power by Supreme Court or the High Court.• Since not regarded as judicial power, the decision would be final

and no appeal.• Remedy would be before the arbitral tribunal. • Deviation from SBP Company vs. Patel Engineering case,

beforehand the Limitation, Accord & satisfaction, excepted matters were not in jurisdiction of the tribunal if the tribunal was appointed by the Court.• Henceforth, the Arbitral Tribunal will be vested with powers to

adjudicate the questions of limitation, accord & satisfaction, excepted matters etc. in all cases.

4. Cost of arbitration

• Although claim of reduction of fees, but instead increase the cost of arbitration as per model fees structure.

• Model fee structure introduced and the ceiling of Rs. 30.0 lakhs fixed. (not mandatory, shown not next slide)

• Regime for costs introduced to discourage frivolous claims i.e. “costs follow the event” i.e. generally unsuccessful party to pay the costs, reasons to be stated for different order, frivolous counter claims leading to delay, denial of reasonable offer to settle, frequent adjournments to be taken into account.

• Advisable to finalise the fees with arbitral tribunal before their appointment.

4. Cost of arbitration

• Existing Sec. 31(8) Unless otherwise agreed by the parties,(a) the costs of an arbitration shall be fixed by the arbitral tribunal has been removed due to hurry.

• As per substituted 31(8), the Costs shall be fixed as per Sec. 31 A.

• Costs would include the fees of arbitrators, courts, witnesses, legal fees & expenses, any other expenses incurred in connection with the arbitral proceedings.

• As per 31A.(1), the Court or arbitral tribunal shall have the discretion to determine the above costs.

• Seems to be a hurried drafting as parties not entitled to fix the fees of arbitrators.

4. Costs of Arbitration

• Any agreement as to the fees before dispute would not be valid.• Discretion to whom costs are payable, amount of such costs,

when the costs to be paid.• Agreement that parties have to share the costs in some

proportion shall be valid only if made after the arising of the dispute.

5.Model fee structure

Sum in Dispute (Rs.) Model Fees (Indicative) Upto Rs. 5,00,000/- Rs. 45,000/-

Above Rs. 5,00,000/- & upto Rs. 20,00,000/-

Rs. 45,000/+ 3.5% of the claim amt. over Rs. 5,00,000/-

Above Rs. 20,00,000/- & upto Rs. 1,00,00,000/-

Rs. 97,500/+ 3% of the claim amt. over Rs. 20,00,000/-

Above Rs. 1,00,00,000/- & upto Rs. 10,00,00,000/-

Rs. 3,37,500/+ 1% of the claim amt.overRs. 1,00,00,000/-

Above Rs. 10,00,00,000/- & upto Rs. 20,00,00,000/-

Rs. 12,37,500/+.75% of the claim amt.overRs.1,00,00,000/

Above Rs. 20,00,00,000/- Rs. 19,87,500/- + 0. 5% of the claim amount over & above Rs. 20,00,00,000/- with a ceiling of Rs. 30,00,000/- For Sole Arbitrator, an additional amount of 25% of the above.

6. Independence/Impartiality of arbitrators

• Extg. Sec. 11(8) (b) other considerations as are likely to secure the appointment of an independent and impartial arbitrator. It did not specify justifiable doubts as to the independence & impartiality of an arbitrator.• Builders made their advocate, Clients made their employees

as arbitrator, much against the PNJ.• As per new sec. 12(1) (a) Arbitrator when approached to

disclose his relationship likely to give rise to justifiable doubts as to his independence or impartiality i.e.• i.e. direct or indirect, any past or present relationship or

interest in any of the parties or in relation to the subject matter in dispute, whether financial, business, professional or other kind as per Vth Schedule.

6. Independence/Impartiality of arbitrators

• Even if an agt. for appointment of certain categories, the same shall not withstand if the agreed arbitrators come under the categories specified in Seventh Schedule.• The provisions as per IBA Guidelines

Persons ineligible to be arbitrators as per VII th Schedule• Employee, Consultant, Advisor, past or present business

relationship, currently advises party or its affiliate, represents law firm acting as counsel of the party, lawyer in firm representing party.• Manager, Director or part of Management etc. or in affiliate,

commercial relationship, regular advisor, family relationship, given legal advice on the dispute, close family member holding interest in the company etc.

6. Independence/Impartiality of arbitrators

• Past Counsel of the party/against party within last 3 years, appointed as arbitrator on two or more occasions by any party, two arbitrators are lawyers in the same firm etc. are the grounds for justifiable doubts as per Fifth Schedule.• However, the parties may, subsequent to disputes having

arisen between them, waive the applicability of this sub-section by express agreement in writing.• Mandatory to make a disclosure by the Arbitrator as

regard to Number of on-going arbitrations, past or present relationship or interest likely to give rise to justifiable doubts as to independence or impartiality.

7. Counter statement within scope of reference

• Submission of Counter Claims: No separate reference required to be given to arbitral tribunal either by appointing authority or the Court. {Sec. 23(2A)}• Respondent may also submit a counter claim/set off within

the scope of the arbitration agreement.• Counter claim to be treated as being within the scope of

reference.• Condition: to fall within the scope of the arbitration agt. to

avoid a separate/new reference by the respondent.• In order to ensure final settlement of disputes between

parties and prevent multiplicity of litigation.• The Law of Limitation would however be attracted for counter

claims.

8. Interim measures of arbitral tribunal as orders of Court

• Extg. Sec. 17. Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, order a party to take any interim measure of protection.• Substituted sec. 17(1). A party may, (even if agreed, party can

apply now) any time before arbitral award is enforced, apply for an interim measure of protection in respect of namely:—• (i) appointment of guardian. • (ii)(a) the preservation, interim custody or sale of any goods

which are the subject-matter • (b) securing the amount in dispute in the arbitration;• (c) detention, preservation, inspection of property/thing

which is the subject-matter, or as to which any question may arise therein and authorising for any of the aforesaid

8. Interim measures of arbitral tribunal as ordersof Court

purposes any person to enter upon any land or building in the possession of any party or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;• (d) interim injunction or the appointment of a receiver;• (e) such other interim measure of protection as may

appear to the Arbitral Tribunal to be just and convenient, and the arbitral tribunal shall have the same power for making orders as the Court has for the purpose of, and in relation to, any proceedings before it.• (2) Orders of the arbitral tribunal as the orders of the

Court & enforceable under CPC, 1908.

9. Scope of setting aside the awardEXISTING GROUNDS FOR SETTING ASIDE THE AWARD

• a party under some incapacity• Arb. Agt. not valid under the subject law• no proper notice of the appointment of an arbitrator or of the

arbitral proceedings• unable to present the case• disputes not contemplated by or not falling within the terms of

arbitration agreement. • decisions on matter beyond the scope of arbitration• tribunal or procedure not as per the agreement of the parties• the subject-matter not capable of settlement by arbitration under

the law• The award against the public policy of India, (unsafe &

treacherous ground for legal decision) i.e. • (a) induced or affected by fraud or corruption

9. Scope of setting aside the award• (b) violation of section 75 or section 81• Public policy further explained to include the following.• (c) is in contravention with the fundamental policy of Indian

law (won’t include review on the merits of the dispute.• (d) in conflict with the most basic notions of morality or justice.• (e) if patently illegal (in other than ICA) but not on the ground

of erroneous application of law or reappreciation of evidence.• Extg. Sec. 28(3) In all cases, the arbitral tribunal shall decide in

accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transactions.• Substituted: While deciding and making an award, the arbitral

tribunal shall, in all cases, take into account the terms of the contract and trade usages applicable to the transactions.

9. Scope of setting aside the award

• The awards were so far set aside if against any of the provisions of the contract even if unconscionable and against the trade practices e.g. no interest would be payable etc.• [review based on the patent illegality std. set in ONGC

Ltd.v. Saw Pipes Ltd. The proviso creates exceptions for erroneous application of the law and re-appreciation of evidence, which cannot be the basis for setting aside awards.]• Application to be filed only after notice to other party.• Application to be disposed of within a period of one year

from the date of notice to the other party.

10. Removal of automatic stay of award

• Existing provision under sec.36 for enforcement: • The award shall be final subject to time for making an

application to set aside the arbitral award has expired, or the application has been refused.

• Amended Sec. 36(1) time for making an application to set aside the arbitral award has expired, then subject to-

• Sec. 36(2) Where an application to set aside award has been filed, the filing of such an application shall not by itself render the award unenforceable, unless a separate application made for that purpose & the Court grants stay of award in accordance with the provisions of sub-section(3)

• Sec. 36(3). Upon filing of the separate application under sub-section (2) for stay of the operation of the award, the court may, subject to such conditions as it may deem fit, grant stay of the operation of the award for reasons to be recorded in writing.

11. Interest on award

•Sec. 31(7) (a) the arbitral tribunal may include in the sum for which the award is made interest, at such rate, over any part, for any period from cause of action to date of award • (b) unless the award otherwise directs, carry interest @ 18% p. a. from

date of the award to the date of payment.•Amended to interest at 2% p. a. higher than the current rate of interest

from the date of award to date of payment.•Expl.: “current rate of interest” shall have the meaning as per Cl (b)

sec.2 of the Interest Act, 1978. •NOTE: “sum” includes interest awarded in section 31(7)(a).• (as per decision of SC in Hyder Consulting (U.K.) v. Governor of Orissa • “current rate of interest” means the highest of the maximum rates at

which interest paid on different classes of deposits by different classes of scheduled banks in accordance RBI Banking Regulation Act

THE ARBITRATION AND CONCILIATION (AMENDMENT) ORDINANCE, 2015

Mahesh Kumar GuptaFormer Chief Engineer (IRSE), Advocate (Delhi High Court)B-4, Sector-44, Noida-201301, mkg_irse83@yahoo.co.in

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