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Ahan Gadkari*
[This is the second part of the two-part contribution on the 2024 Arbitration and Conciliation Act Amendment Bill. For a discussion on the changes introduced by the Bill with respect to establishing the distinction between “seat” and “venue,” and the introduction of emergency arbitration, please see Part I.]
Part II of this contribution continues the discussion of the changes introduced by the Draft Arbitration and Conciliation Act Amendment Bill, 2024 (“the Bill”) and evaluates the Bill’s potential in achieving its stated objectives. First, it begins by examining the newly imposed 30-day timeline for adjudicating jurisdictional challenges, critiquing the Bill for not incorporating an immediate appellate mechanism that could prevent jurisdictional objections from being raised at the enforcement stage. Second, it scrutinizes the Bill’s attempt to classify grounds for partially setting aside domestic arbitral awards, contending against such categorization. Third, the discussion then shifts to the introduction of appellate arbitral tribunals, and why they may not be as effective as intended. Finally, it offers an appraisal of whether the proposed amendments genuinely fulfil the Bill’s aim of reducing judicial interference to enhance the enforceability of contractual obligations.
I. REVIEWING THE CHANGES INTRODUCED BY THE BILL [CONTD.]
A. Establishing a 30-Day Time Limit for Deciding on Challenge to Jurisdiction
Section | Existing Provision | Proposed Amendment |
16(5) | (5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award. | (5) The arbitral tribunal shall decide on a plea referred to in subsection (2) or sub-section (3) as a preliminary issue within thirty days of the filing of the application, unless for reasons to be recorded in writing, the arbitral tribunal deems it fit to decide the plea later and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award. |
Table 2 – Proposed Amendment to Section 16(5) (p. 41)
The proposed Section 16(5) provides a 30-day time limit for deciding challenges to the jurisdiction of a tribunal and has attempted to make such a timeline mandatory using the word “shall.” The Supreme Court has held that the determination of whether a statutory provision is mandatory hinges primarily on the legislative intent rather than merely the language employed. However, where treating a provision as directory would undermine the fundamental objective of the statute, it must be construed as mandatory. In the present context, the provision in question seeks to impose a strict 30-day time limit for jurisdictional challenges. Given that the very purpose of the amendment i.e. preventing delays would be frustrated if the provision were deemed directory, it is likely that the courts will interpret it as mandatory to preserve the legislative intent.
The necessity for such a provision arises from the need to counter what Justice Akil Kureshi has aptly termed as “guerilla tactics” in arbitration—strategies that obstruct the arbitral process through challenges. These tactics may include the late filing of submissions, outright refusals to comply with tribunal orders, or the excessive submission of documents to burden opposing counsel and the tribunal. While not unlawful, these practices exploit procedural rules to the detriment of the entire arbitration process. Instituting a strict 30-day time limit for jurisdictional challenges will make it harder for parties to use such tactics to delay arbitral proceedings.
However, the proposed Section 16(5) makes no mention of an appeal mechanism for it. The “Report of the Expert Committee to Examine the Working of the Arbitration Law and Recommend Reforms in the Arbitration and Conciliation Act 1996” (“the Report”) had strongly advocated for an appellate framework in jurisdictional challenges, asserting that such a mechanism is essential for coherence and is consistent with Article 16 of the UNCITRAL Model Law, but this recommendation has not been adopted in the Bill (¶3.15.2).
An appeal mechanism under Section 16 is required because the absence of such a provision leads to significant issues that cannot be resolved merely by setting a time limit on jurisdictional challenges. Under the current Indian arbitration regime, an appeal can only be raised under Section 37 if the challenge to an arbitral tribunal’s jurisdiction is accepted. [1]
If a party’s challenge to the arbitral tribunal’s jurisdiction is rejected, the party is compelled to continue with the arbitration without immediate recourse, resulting in significant costs and participation in proceedings they believe lack jurisdiction. This situation prompts parties to raise their objections at the earliest stages, such as during the appointment of arbitrators under Section 11 or through writ petitions, causing unnecessary delays. Additionally, the lack of an appeal mechanism leads to the same jurisdictional issues being re-agitated during the setting aside of the award under Section 34, increasing the burden on courts and causing further delays.
From a comparative perspective, the UK Arbitration Act, 1996 addresses jurisdictional challenges under Sections 30(2) and 32, providing that once an appeal to a challenge is made under Section 32, there can be no further appeal on that issue. This mechanism prevents such matters from being re-litigated during setting-aside proceedings, thereby promoting finality.
Therefore, while setting a time limit might by the Bill does encourage promptness, it does not address the fundamental problem of parties lacking timely recourse when their jurisdictional challenges are rejected, only to be revisited later.
To remedy this, the Indian arbitration framework should introduce an immediate appeal mechanism for jurisdictional rulings, akin to that recommended in UNCITRAL Model Law and present in UK law. Additionally, it should enforce a strict time frame of 30 to 60 days for resolving such appeals. This dual approach would prevent the misuse of jurisdictional objections as “guerilla tactics” and ensure the arbitration process remains efficient and aligned with its intended purpose.
B. Allowing for Partial Setting Aside of Domestic Awards
The amendment to Section 34 creates two distinct categories within the grounds for setting aside an award. The first category are awards which can only be set aside as a whole:
(i) “a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(v) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force.” (p. 55-56)
The second category are awards which can be set aside as a whole or in parts:
(i) “the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(ii) the arbitral award is in conflict with the public policy of India.
(iii) the award is vitiated by patent illegality appearing on the face of the award:” (p. 57-58)
Although the Report recommended instituting a framework for partially setting aside awards, it did not propose this categorization (¶3.25). The Bombay High Court in R S Jiwani v. Ircon International Limited (“Jiwani v. Ircon”), and the Delhi High Court in National Highways Authority of India v. Trichy Thanjavur Expressway Limited (“NHAI v. Trichy”), have elaborated on this matter under the current arbitration regime. Both judgments affirm that if an arbitral award comprises independent components, each standing on its own, the doctrine of severability can be applied to allow partial setting aside of the award.
NHAI v. Trichy established that Section 34(4), being curial in nature, operates independently from Section 34(2), which delineates grounds for setting aside arbitral awards. Consequently, if an award is marred by irregularities as specified in Section 34(2), recourse to Section 34(4) to rectify the award would fall outside the permissible scope. It is assumed that the Bill has created two categories based on this interpretation: one where the award can be partially set aside and one where it cannot.
However, this need not be extended to an amendment of Sections 34(2) and (2A). The approach taken by the Bombay High Court in Jiwani v. Ircon offers a better interpretation, where the court concluded that partial enforcement should be available across all grounds under Sections 34, without rigid categorization.
For instance, under the Bill’s Section 34(2)(iii), consider a scenario where a party received proper notice but was unable to present evidence related to a specific counterclaim. Would it be fair to set aside the award in its entirety? A more equitable approach would be to set aside only that portion of the award pertaining to the counterclaim. Thus, there should be no categorical prohibition against partial enforcement on certain grounds; rather, it should be addressed on a case-by-case basis, applying severability wherever possible, as endorsed by Jiwani v. Ircon and recommended in the Report (¶3.25).
C. Legitimizing Appellate Arbitration Tribunals
Proposed Section 34A:
“34A. Appellate Arbitral Tribunal. – (1) The arbitral institutions may, provide for an appellate arbitral tribunal to entertain applications made under Section 34, for setting aside
an arbitral award.
(2) The appellate arbitral tribunal while deciding an application under Section 34 shall follow such procedure, as may be specified by the Council.” (p. 60)
At the outset, the rationale for restricting appellate arbitral tribunals solely to institutional arbitration, while excluding ad-hoc arbitration, is unclear. The Supreme Court has already recognized the validity of appellate arbitration tribunals and two-tiered arbitration clauses in M/s Centrotrade Minerals & Metal Inc. v. Hindustan Copper Ltd., noting that it would be interesting to observe how parties might manage two-tiered arbitration in an ad-hoc framework. Yet, this exploration will be foreclosed as the Bill effectively prohibits appellate tribunals on an ad-hoc basis.
Furthermore, the Court had suggested that it was within the legislature’s purview to determine whether appellate tribunals should possess the authority to remand disputes back to the original tribunal for reconsideration. The legislature has now addressed this by restricting the function of appellate arbitral tribunals solely to the setting aside of awards, limiting their scope and precluding a remand mechanism.
While appellate procedures have been integrated into the frameworks of international institutes,[2] and will probably be introduced in Indian arbitral institutes, a critical question remains: are such appellate tribunals truly desirable? A concern pops up that these mechanisms could be exploited as “guerilla tactics” to delay enforcement, under the garb of respecting party autonomy. Institutional rules of several international arbitration institutions stipulate that enforcement of the initial award is suspended while an appeal is pending,[3] thereby providing an opportunity for parties to obstruct and delay enforcement and effectively defeating arbitration’s objective of swift dispute resolution.
Moreover, the introduction of appeals adds to the time and cost of arbitration, which are traditionally its key advantages over litigation. The 2006 QMSIA survey of corporate legal heads involved in cross-border transactions revealed that 91% of respondents rejected the inclusion of appellate mechanisms in international arbitration (p. 3).
Given that appellate tribunals have now gained recognition from the Supreme Court and are increasingly being legitimized by legislative frameworks, it becomes imperative to impose stringent time limits on their operation. This sentiment was echoed in the 2020 BCLP Survey, where 88% of participants supported imposing a six-month deadline for appellate decisions to mitigate delays. This would prevent misuse and preserve the core advantages of arbitration—efficiency and finality.
II. WILL THE BILL ACHIEVE ITS DESIRED GOAL?
The Bill purports to improve contract enforcement by reducing court intervention, but certain provisions may paradoxically impede award enforceability. While steps toward enhanced enforcement are evident, notably absent are mechanisms aimed at expediting the enforceability of international arbitration awards, which is critical for India’s development as an arbitration hub. The Report acknowledged this necessity, yet the Bill lacks concrete solutions to address it, an oversight that may weaken India’s competitive stance against established arbitration centers in Asia like Singapore.
Turning to domestic awards, the Bill introduces a categorization mechanism for partial enforcement but leaves undefined how this structure will improve enforcement efficiency. Furthermore, terms like “fundamental policy of Indian law” and “patent illegality” remain broad and loosely defined. These terms permit extensive judicial scrutiny, undermining arbitration’s purpose by allowing awards to be set aside on nearly any basis, thus delaying enforcement.[4] For instance, in a recent case the Supreme Court used its powers under Article 142 of the Constitution to set aside an award for patent illegality based on a curative petition, which is meant to be used in the rarest of rare cases. This petition was raised after four stages of enforcement challenges. The expansive interpretation of the doctrine of patent illegality has permitted the Supreme Court to intrude into the arbitrator’s domain of contractual interpretation, thereby engaging in a re-evaluation of these matters at the fifth stage of challenge. Preventing such long delays in contract enforcement was the stated aim of the Bill, but these concerns remain unaddressed.
Furthermore, the proposed appellate arbitration tribunals represent another area of potential regression. Although the Report did not recommend such a layer, the Bill incorporates appellate tribunals, adding an additional procedural tier that may further complicate and prolong arbitration in India. This additional layer appears counterintuitive in a system already criticized for lengthy processes and high costs, creating a burden that India’s arbitration framework may struggle to sustain.
On a positive note, the Bill’s clear distinction between “seat” and “venue” in arbitration, alongside the recognition of emergency arbitration, represents much-needed advancements. However, these positive steps are insufficient to make India a preferred arbitration hub. Achieving that status requires addressing the critical areas identified above, and it remains to be seen whether these concerns will be resolved when the Bill becomes an Act or if we will have to wait for a few more years for these reforms.
[1] Arbitration and Conciliation Act, 1996, Section 37(2)(1).
[2] American Arbitration Association, Optional Appellate Arbitration Rules, 2013 [“AAA”]; JAMS Optional Arbitration Appeal Procedure, 2003 [“JAMS”]; CPR Arbitration Appeal Procedure, 2015 [“CPR”].
[3] AAA, Article 2(a); JAMS, Article (c); CPR, Rule 2.3.
[4] See Dhruv Garg & Utkarsh Srivastava, ‘The Unruly Horse Goes Further Astray: Defining ‘Fundamental Policy of Indian Law’ in Arbitral Jurisprudence’ (2017) 38 SLR 69.
*Ahan Gadkari is an Associate at MGCO Advocates.