In a significant move to reform and modernize the arbitration framework in India, the Department of Legal Affairs, Government of India released the Draft Arbitration and Conciliation (Amendment) Bill, 2024 (the “Draft Bill”). The proposed amendments aim to strengthen institutional arbitration mechanisms, minimize judicial intervention, and ensure the timely resolution of arbitral disputes under the Arbitration and Conciliation Act, 1996 (the “Act”). This legislative initiative follows the formation of the Expert Committee on Arbitration Law, constituted for reviewing the functioning of the Act and recommending necessary reforms.

1. Renaming of the Act:

The Draft Bill proposes a subtle yet significant change by renaming the Act to the "Arbitration Act, 1996" through an amendment to Section 1(1). This simplification reflects the growing prominence of arbitration as the primary focus.

2. Introduction of the "Seat of Arbitration":

A crucial amendment lies in the introduction of the concept of the "seat of arbitration." The Draft Bill presents two distinct options for amending Section 20:

• Option I: This option seeks to align Indian arbitration law more closely with international best practices. It proposes to replace the term "place" with "seat" in sub-sections (1) and (2) of Section 20, while sub-section (3) will use the term "venue." Furthermore, a new definition of "court" is introduced under Section 2A. This new definition distinguishes between domestic and international commercial arbitration where a seat is agreed upon. In such cases, the "court" will be:
  • a) For domestic arbitration: a court with territorial and pecuniary jurisdiction over the seat.
  • b) For international commercial arbitration: a High Court with territorial jurisdiction over the seat. In the absence of an agreed seat, the "court" will be the court or High Court having the usual jurisdiction to decide the subject matter of the dispute.

• Option II: This option proposes to eliminate the framework of parties agreeing upon the "seat." Instead, for domestic arbitration, the seat would be the place where the contract/arbitration agreement was executed or where the cause of action arose. Parties would still be able to agree on the "venue" of arbitration, failing which the arbitral tribunal would decide the venue. This option retains the existing definition of "courts," and jurisdiction in international commercial arbitration would lie with the High Courts having jurisdiction over the subject matter.

3. Framework for Emergency Arbitration:

This Bill seeks to insert a new Section 9A, providing the framework of ‘emergency arbitrators’, to facilitate grant of interim measures prior to the constitution of the arbitral tribunal. However, such an appointment of an emergency arbitrator can be made by an arbitral institution only. The emergency arbitrator shall conduct proceedings in the manner specified by the Arbitration Council of India (the “Council"). Further, any order passed by the emergency arbitrator shall be enforceable in the same manner as an order of the arbitral tribunal under Section 17(2) of the Act. Lastly, an order of the emergency arbitrator may be confirmed, modified, or vacated by an order or an arbitral award made by the arbitral tribunal.

However, it is unclear whether an emergency arbitration seated outside India is covered under Section 9A or not. This is because the provision to Section 2(2), which enlists the provisions of Part I of the Act that are applicable to an arbitration seated outside India as well, only includes Section 9A (2). Section 9A (2) merely states that proceedings of emergency arbitrator shall be conducted in the manner specified by the Council. Neither Section 9A (3), which makes an award by an emergency arbitrator enforceable in terms of Section 17(2), nor Section 17 (2) itself is applicable to an arbitration seated outside India. Hence, it seems Section 9A does not include emergency arbitrations seated outside India.

Rules of arbitral institutions such as SIAC, ICC and LCIA typically state that the seat of the arbitration shall be the seat of the emergency arbitration as well, in the absence of any specific stipulation. Since the parties do not usually specify the seat of emergency arbitration, it is likely that in case of an arbitration seated outside India, the seat of emergency arbitration would also be outside India. In such a case, given the lack of clarity on whether Section 9A includes emergency arbitrations seated outside India, it remains to be seen if an award passed by the emergency arbitrator would be directly enforceable in India.

4. Introduction of Arbitral Appellate Tribunal (AAT):

The Draft Bill has proposed to insert Section 34A to the Act and introduce ‘appellate arbitral tribunals’ as an alternative to courts for adjudicating an application under Section 34 of the Act. The arbitral institutions may provide for an appellate arbitral tribunal, which would possess the same powers as a court.

Accordingly, an application for setting aside an arbitral award may lie to either an appellate arbitral tribunal or a court. However, where the parties have agreed to take recourse to the appellate arbitral tribunal, no application can be filed before the court. The appellate arbitral tribunal, while deciding an application under Section 34, is required to follow such procedure, as may be specified by the Council.

However, to call such a tribunal an ‘appellate’ arbitral tribunal may be inaccurate since a court or tribunal under Section 34 does not sit in appeal over the arbitral award. In view of the settled position, the term ‘appellate arbitral tribunal’ would be a misnomer, and better terminology ought to be adopted (e.g., ‘annulment tribunal’ under the ICSID Convention).

Another limitation of Section 34A would be the non-recognition of an ad hoc appellate arbitral tribunal. It would be interesting to see if an appellate arbitral tribunal constituted at the instance of the parties rather than an arbitral institution, is granted recognition under the Act, particularly when the Supreme Court has anyway upheld the validity of a 2-tier arbitration proceedings in M/s Centrotrade Minerals & Metal Inc. v. Hindustan Copper Ltd, which did not restrict the principle to institutional arbitration. Therefore, even without statutory recognition in the Draft Bill, two-tier arbitration may still be possible in view of judicial precedents.

Lastly, the Draft Bill does not propose to make corresponding amendments to Section 36 of the Act, which grants power to the courts to stay the enforcement of an arbitral award. In that case, a literal interpretation of the proposed Section 34 and 34A, and the existing Section 36 would suggest that an application for seeking a stay on the enforcement of arbitral award would be filed before the court, even when an application for setting aside the arbitral award is filed before the appellate arbitral tribunal. While under the present scheme of the Act, proceedings under Sections 34 and 36 would likely end up in the same court, this would not be the case as per the Draft Bill where a petition under Section 34 is filed before the appellate arbitral tribunal. Since the application under Section 36 would anyway be filed before the court, there would be a multiplicity of proceedings.

5. Regime for Challenging an Arbitral Award (Section 34):

The Draft Bill proposes substantial changes to the framework for challenging arbitral awards under Section 34:

• Extension of "Patent Illegality": The ground of patent illegality is sought to be extended to international commercial arbitrations seated in India as well since the Draft Bill proposes to remove the words “arising out of arbitrations other than international commercial arbitrations” from the language of Section 34(2A).

• Partial Setting Aside of Awards: The amended Section 34 would explicitly empower a court or AAT to partially set aside an arbitral award. In such cases, the court/AAT may direct the arbitral tribunal to re-decide the issues within a fixed timeframe based on existing records, unless otherwise directed.

• Recategorization of Grounds for Challenge: All grounds for challenging an award would now need to be established by the applicant. The existing distinction between grounds requiring the arbitral record and those the court can consider suo moto is proposed to be removed. Section 34(2) would list grounds for setting aside an award wholly, while Section 34(2A) would specify grounds for setting aside an award wholly or partially.

• Formulation of Specific Grounds: The court/AAT would be mandated to first formulate specific grounds of challenge before hearing the application. Subsequent hearings would be limited to these formulated grounds, although the court can later consider other grounds with written justification.

• Disclosure of Prior Challenges: Applicants under Section 34 would be required to disclose any pending or decided challenges related to awards arising from the same legal relationship between the parties.

6. Amendments to the Limitation Period:

The Draft Bill proposes the following changes to the limitation periods under the Act:

• Where an application for interim relief under Section 9 has been filed prior to the commencement of the arbitral proceedings, the arbitral proceedings would have to be commenced within 90 days from the date of filing of such an application. Presently, the arbitral proceedings are required to be commenced within 90 days from the date of passing of an order, or within such further time as the court may determine. As such, the period to initiate arbitration proceedings has been curtailed and might result in arbitration proceedings being initiated even prior to any order being granted in the proceedings under Section 9 of the Act.

• An application for appointment of arbitrators under sub-section (4), (5) or (6) of Section 11 would have to be filed within 60 days from the failure or refusal of appointment of arbitrator(s). Presently, no such limitation period has been prescribed in the Act. However, the Supreme Court had held that such an application must be filed within three years from the date of failure or refusal, in terms of Article 137 of the First Schedule of the Limitation Act, 1963. In fact, the Supreme Court in BSNL v. Nortel Networks (India) (P) Ltd., while reiterating the three year limitation period, opined that this was an unduly long period of limitation that runs contrary to the scheme of the Act and recommended that the Parliament should fill this lacuna by effecting an appropriate amendment to Section 11.

• The Draft Bill proposes to insert Section 37(1A), which provides that an appeal under Section 37 of the Act shall be filed no later than 60 days from the date of receipt of the order being appealed against. In the existing framework, there was no such period of limitation.

7. Timelines for Disposal of Applications:

The Draft Bill introduces timelines for the disposal of certain applications:

• Section 8 Applications (Reference to Arbitration): A judicial authority must dispose of an application for reference to arbitration under Section 8 expeditiously and, in any event, within 60 days from the date of filing.

• Section 16(5) Applications (Challenge to Jurisdiction): A plea challenging the jurisdiction of the arbitral tribunal under Section 16 must be decided within 30 days of filing. If the tribunal decides to address the plea later, it must record the reasons in writing.

8. Strengthening the Role of Institutional Arbitration:

The Draft Bill seeks to significantly strengthen the framework for institutional arbitration. It proposes a wider definition of "arbitral institution" under Section 2(1)(ca) as "a body or organisation that provides for conduct of arbitration proceedings under its aegis, by an arbitral tribunal as per its own rules of procedure or as otherwise agreed by the parties." Furthermore, the Bill proposes to grant arbitral institutions powers equivalent to a court in extending the arbitral tribunal's mandate or substituting arbitrators under Section 29A(3) to (6).

9. Omission of Fourth Schedule and Determination of Arbitrator Fees:

The Draft Bill proposes to omit the Fourth Schedule of the Act, which prescribes a fee schedule for arbitrators based on the sum in dispute. Consequently, Section 11A will be modified, and the fees of the arbitral tribunal will be as specified by the ACI, unless the parties have agreed otherwise or the arbitration is conducted under the rules of an arbitral institution that has its own fee structure.

10. Form and Content of the Arbitral Award:

The Draft Bill proposes to insert Section 31(2A), mandating that an arbitral award must explicitly state that the following were ensured:

1. Parties were not under any incapacity.
2. The arbitration agreement is valid under the applicable law.
3. Parties were given proper notice and the opportunity to present their case.
4. The composition of the arbitral tribunal and the arbitral procedure followed the parties' agreement.
5. The subject matter of the dispute is arbitrable.
6. The award only deals with disputes within the scope of the submission to arbitration.

This proposal seeks to reduce the likelihood of an arbitral award being set aside on the grounds outlined in proposed Section 34(2) of the Act and minimize any delay or hindrance in achieving the finality of a dispute.

Additionally, the rate of interest on the sum directed to be paid by an arbitral award under Section 31(7)(b) is proposed to be modified from "2% higher than the current rate of interest prevalent on the date of award" to "3% higher than the prevailing repo rate of the Reserve Bank of India prevalent on the date of award."

11. Mandatory Stamping of Arbitral Awards:

The Draft Bill proposes to amend Section 31(1) of the Act, which provides for the form and contents of the arbitral award, to mandate the stamping of the arbitral award. However, the Draft Bill does not clarify as to who will bear the cost of stamping the arbitral award. In the absence of any specific provision in this regard, it appears that an arbitral tribunal will determine the payment of stamp duty under Section 31A as part of costs of arbitration provided in Section 31(8) of the Act.

12. Restriction on Filing Section 9 Applications During Arbitral Proceedings:

The Draft Bill proposes to omit the term "or during" in Section 9(1), making it impermissible to file an application for interim relief under Section 9 during the arbitral proceedings. Consequently, Section 9(3), which allows such applications post-constitution of the tribunal if the remedy under Section 17 is inefficacious, is proposed to be deleted.

13. Deletion of Section 42 (Jurisdiction over Subsequent Applications):

Section 42 of the Act provides that where an application with respect to an arbitration agreement is filed in court, all subsequent applications arising out of that agreement and the arbitral proceedings will be made in that court only. The Draft Bill has proposed to delete this provision entirely.

In our opinion, Section 42 should be retained if the amendment act opts for Option II for amending Section 20 of the Act (Introduction of ‘Seat’ and ‘Venue’). This is because in case of Option II, the jurisdiction of courts would be determined in accordance with either Section 2(1)(e) of the Act or the seat of arbitration (being the place where arbitration agreement was executed or where the cause of action arose). Either way, courts at multiple places may have jurisdiction over the arbitration under Option II and in such a case, Section 42 would be helpful in narrowing down multiple courts having jurisdiction over the arbitration.

14. Narrowing the Scope of "Equal Treatment" under Section 18:

The Draft Bill aims to modify Section 18 by substituting the words "full opportunity" with "fair and reasonable opportunity" for parties to present their case.

15. Settlement Governed by the Mediation Act, 2023:

The Draft Bill aligns the Arbitration Act with the Mediation Act, 2023. All references to "conciliation" are proposed to be omitted, and any settlement agreement reached under Section 30 of the Arbitration Act will now be enforceable as a "mediated settlement agreement" under the provisions of the Mediation Act, 2023.

16. Recognition of Online Dispute Resolution (ODR):

The Draft Bill proposes to modify the definition of "arbitration" under Section 2(1)(a) to explicitly include arbitrations conducted wholly or partly through audio-video electronic means. A new Section 2(1)(aa) defines "audio-video electronic means" to encompass various digital communication tools. Corresponding amendments are proposed to Section 7(4)(a) and Section 31(5) to recognize the digital signing of arbitration agreements and arbitral awards, respectively.

17. Recomposition and Expanded Functions of the Arbitral Council of India (ACI):

The Draft Bill proposes to expand the eligibility criteria for the Chairperson of the ACI under Section 43C(1)(a), no longer requiring them to have been a judge or possess specific legal experience. The new criteria focus on "ability, integrity and standing having adequate knowledge and professional experience or shown capacity in dealing with problems relating to law, alternative dispute resolution preferably arbitration, public affairs or administration."

Furthermore, the proposed Section 43D(2) entrusts the ACI with extensive duties, including laying down model arbitration agreements, a code of conduct for arbitrators, model arbitral procedures, guidelines for online proceedings, maintenance of a depository of arbitral awards, and criteria for recognition, renewal, withdrawal, suspension, or cancellation of recognition of arbitral institutions.

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Conclusion:

The Draft Arbitration and Conciliation (Amendment) Bill, 2024 aims to modernize India's arbitration regime with key reforms such as Appellate Arbitral Tribunals, emergency arbitration recognition, and stricter timelines. While these changes signal progress, they also raise critical concerns. The appellate mechanism may compromise arbitration’s finality and extending the ‘patent illegality’ ground to international arbitrations risks deterring foreign investors by increasing judicial intervention. Tightened timelines, without flexibility for delays, could lead to procedural inefficiencies. Limiting court jurisdiction under Section 9 may leave parties unprotected in urgent matters. Additionally, the June 3, 2024, government guidelines restricting arbitration in major public procurement disputes appear contradictory to India’s pro-arbitration stance. Overall, while the Bill is a step forward, its effectiveness will depend on addressing these fundamental issues.