This article has been published by Chambers & Partners at https://chambers.com/legal-trends/indias-arbitration-law-overhaul.

Background

India’s dispute resolution landscape demands a robust arbitration mechanism, which promotes the ease of doing business and enforcement of contracts in India.

In 2015, India witnessed a significant transformation in its arbitration regime with the introduction of the amendments to the Arbitration and Conciliation Act, 1996 (the “Arbitration Act”). This marked a new era for the arbitration ecosystem aimed at making India an arbitration-friendly jurisdiction. The amendments were carried out to minimise judicial interference and to ensure that party autonomy was preserved.

Following the reformative changes introduced in 2015, the government has continued to work towards strengthening the arbitration framework. The focus has been on reducing judicial intervention, promoting institutional arbitration and creating a more efficient dispute resolution environment. In 2019, further amendments were introduced to reinforce the pro-arbitration rulings by Indian courts and to align with international standards.

Against this background, on 18 October 2024 the government of India floated the Arbitration and Conciliation (Amendment) Bill, 2024 (the “Draft Bill”) for public comments. The aim of the Draft Bill is “to provide a further boost to institutional arbitration, reduce court intervention in arbitrations and ensure timely conclusion of arbitration proceedings”. The Draft Bill follows certain recommendations made by the TK Vishwanathan Committee, including the recognition of “seat” and “venue” in arbitration, and the formal recognition of emergency arbitration.

A key takeaway from the Draft Bill is its intent to place arbitration institutions at the forefront of developing India’s arbitration landscape. The Draft Bill grants legislative recognition to pro-arbitration judicial reforms introduced between 2019 and 2024, including recognition of emergency arbitrator’s decisions, as recognised by the Indian Supreme Court in Amazon.com NV Investment Holdings v Future Retail Limited and Others, 2022 1 SCC 209. It also encourages the use of technology in arbitration by recognising proceedings via audio-visual means.

The Draft Bill, inter alia, also proposes the establishment of a Council (designed to oversee arbitral practices and enforce standardised roles across both institutional and ad hoc arbitrations) as well as recourse to an appellate arbitral tribunal for challenging arbitral awards. Further, the Draft Bill seeks to harmonise mediation and arbitration by making mediation an integrated option for parties throughout arbitral proceedings. While the government’s intention to promote institutional arbitration and cut down judicial interference is commendable, the Draft Bill raises concerns by vesting excessive supervisory and regulatory powers in the Council, and by adding another layer of an appellate arbitral tribunal.

Addressing the Seat/Venue Conundrum

The appropriate replacement of the term “place” with “seat” and “venue” in the Draft Bill represents a positive development towards clarifying the Arbitration Act’s jurisdictional provisions. Historically, ambiguities in the terminology led to substantial confusion among parties regarding the distinction between a “seat” (the jurisdictional home) and a “venue” (the location of proceedings). With the Draft Bill now expressly distinguishing between “seat” and “venue”, the potential for disputes arising from misinterpretation of these terms is likely to diminish.

Council: Another Regulator?

The idea of establishing a council in India was first proposed in the Report of the High-Level Committee to Review the Institutionalisation of Arbitration Mechanisms in India (2017), chaired by Justice B N Srikrishna (the “Srikrishna Report”). The Srikrishna Report recommended setting up an autonomous body called the Arbitration Promotion Council of India (APCI), which would monitor and guide arbitration institutions. Its primary function was to oversee and promote institutional arbitration through various functions – ie, policies for grading arbitral institutions based on governance, arbitration rules and best practices, with periodic reviews to maintain quality. The Draft Bill has reiterated its proposal to establish a Council. However, the Council, in its current form, extends far beyond the advisory role envisioned in the Srikrishna Report.

…the Council’s role must be carefully calibrated to avoid compromising party autonomy.

For instance, in ad hoc arbitrations, the proposed proviso in Section 19(3) requires that the tribunal “shall duly consider” conducting proceedings in accordance with model rules issued by the Council. While these model rules may serve as helpful references, making their use mandatory may impact on party autonomy. Another significant change is the introduction of Section 9A, which allows arbitral institutions to appoint emergency arbitrators. However, the Draft Bill mandates the emergency arbitrator to follow procedures specified by the Council.

The involvement of the Council in imposing procedural rules for all emergency arbitrations, including those governed by arbitral institutions, raises concerns. Many leading arbitral institutions have already developed frameworks for emergency arbitration, including detailed procedures, timelines and mechanisms for appointing arbitrators. Requiring compliance with Council-framed rules could interfere with the autonomy both of arbitral institutions and of parties.

The Council can be a beneficial institution for a jurisdiction such as India, where a centralised body can oversee and rate the performance of arbitral institutions and maintain uniform standards. However, the Council’s role must be carefully calibrated to avoid compromising party autonomy.

Appellate Arbitral Tribunal

Section 34(1) of the Draft Bill provides for recourse to a court or an appellate arbitral tribunal against an arbitral award. Section 34A(1) provides that the arbitral institutions may provide for an appellate arbitral tribunal to entertain applications for setting aside an arbitral award. Section 34A(2) provides that the appellate arbitral tribunal shall follow the procedure specified by the Council while deciding a challenge against an arbitral award.

The Draft Bill offers the parties the choice of approaching either a court or an appellate arbitral tribunal to challenge an award. This dual option, while well-intentioned, could prove counterproductive. The setting-aside of arbitral awards should ideally remain within the domain of the judiciary, as it requires judicial expertise and exemplifies judicial supervision over the arbitral process. A more effective solution would be to establish an exclusive and specialised division for arbitrations to deal with only arbitration-related cases – ie, to confer exclusive powers to deal with any application/suit that seeks relief in relation to arbitration, including any anti-arbitration injunctions. Said arbitration division would have trained and qualified judicial members. This approach would not only ensure that complex legal questions are addressed by judicial minds but would also help manage the pendency of such cases efficiently.

It appears that the intent of the Draft Bill to cut down judicial interference has been lost…

Given that it is left to the discretion of the arbitral institutions to provide for an appellate arbitral tribunal to entertain applications challenging arbitral awards, there does not appear to be a permanent body. Such a mechanism is only available to parties opting for institutional arbitrations. Additionally, the Draft Bill leaves the composition and qualifications of the appellate tribunal undefined, giving the Council the discretion to determine these elements. This ambiguity raises concerns about the tribunal’s legitimacy and impartiality. It appears that the intent of the Draft Bill to cut down judicial interference has been lost, from the way the amendment has been suggested.

Depository: the Need to Address Confidentiality Concerns

Section 43M of the Draft Bill mandates that the arbitral institution or tribunal, upon appointment, must apply to the Council for access to the depository. The introduction of a depository aligns with the Srikrishna Committee’s recommendations, which suggested such establishment. While this is a much-needed step, it is essential to ensure that confidentiality is protected. The Draft Bill should expressly provide that records in the depository are anonymised and treated as confidential by ensuring they are not made available to the public. Moreover, the submission of records to the depository should not be made mandatory in order to uphold the principle of party autonomy.

Conclusion

The Draft Bill introduces several positive reforms to modernise and strengthen the arbitration framework in India. It attempts to foster institutional arbitration, reduce judicial interference and provide legislative recognition to processes such as emergency arbitrations. However, certain aspects – particularly the role of the Council and the dual system for award challenges – need refining. Additionally, confidentiality concerns around the depository must be addressed to preserve trust among stakeholders. If these concerns are addressed, the Draft Bill has the potential to significantly enhance India’s position as a global hub for arbitration. Overall, the Draft Bill is two steps forward and one step sideways.