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One of the important changes that the new Arbitration Act in India (Arbitration and Conciliation Act 1996 as amended in 2015 or ACA 1996/2015) has brought in is in the matters relating to the Finality of Arbitration Awards.

Under the replaced section 36 of the Act on “Enforcement”, it is now stated that

” Where an application to set aside the arbitral award has been filed in the Court under section 34, the filing of such an application shall not by itself render that award unenforceable, unless the Court grants an order of stay of the operation of the said arbitral award in accordance with the provisions of sub-section (3), on a separate application made for that purpose.”

This provision means that unless a stay is specifically granted, mere filing of an application for setting aside an award shall not result in the arbitral award not being enforced .

As a result of this provision, it becomes necessary for the objecting party to satisfy the Court that a stay is necessary and there is a substantial case under Section 34 for the award to be set aside.

Under Section 34 of the Act, an arbitral award can be set aside only if the party furnishes proof that

a) A party was under some incapacity

b) Arbitration agreement is not valid under law

c) Party was not given proper notice of of the  Appointment of the Arbitrator or of the Arbitral Proceedings or that he was otherwise unable to present his case

d) Arbitral award was beyond the scope of the submission to arbitration

e) Composition of the Arbitral tribunal was faulty

Readers will appreciate that the procedure adopted by ODR Global (www.odrglobal.in) for Virtual ODR, effectively captures evidence that can be used to prove or disprove any of the above points when a Court sits in judgement. In the absence of the CEAC certified recording that ODR Global provides, it would be difficult to prove only with the copy of the Award that the point such as “was unable to present the case” can be proved.

Another factor under which the award can be set aside under Section 34 is when the award is in conflict with the public policy of India. This is a clause which is subject to interpretation and debate and could be a difficult aspect to prove.

The points that constitute conflict with public policy are

a) award induced by fraud

b) award induced by corruption

c) award was in violation of Section 75 (Confidentiality clause in a conciliation)

d) award was in violation of Section 81 (Production of evidence used in a Conciliation)

In connection with the above, it must be pointed out that the Virtual ODR process includes a role for an intermediary and the protection of confidentiality of a Virtual Conciliation proceeding rests with the confidentiality agreement that the Administrator of the ODR (eg: ODR Global) signs with the parties to the conciliation.

This view is recognized by the UNCITRAL Draft law on ODR which is in the final stages of being approved by the UN which states that the ODR Administrator shall follow a “Code of Ethics and The ODR administrator should adopt and implement appropriate confidentiality measures”.

Also the application under Section 34 should be made within 3 months after the receipt of the award.

Further the application shall be made only after serving a notice to the other party.

With all these conditions, the Court is expected to dispose off the application within one year.

The above safeguards indicate that getting an arbitral award delayed or over turned is not easy in most cases. In genuine cases, where the award needs to be challenged, the evidence that supports any of the requirements of Section 34 is very important.

A further appeal of the setting aside or refusal to set aside an award under Section 34 can be appealed in a higher Court and could be a possible means of delaying the award by one of the parties. But in view of the fact that “Stay” is not a presumption, the decree can be enforced even if the appeal is being discussed in a higher Court.

Parties entering into Arbitration must be aware of the finality of an award and ensure that at every point of the arbitration such as appointment of the arbitrator, meeting the deadlines in notices, placing its claim or defense, providing evidences before the Tribunal, or pressing for oral hearings and arguments etc, sufficient care is exercised so that they donot lose an arbitration by virtue of the laxity of the disputing party or his counsel. This adds an extra sense of responsibility on the Counsel as well as the choice of the Counsel by the party.

Despite a long history of Arbitration in India, with the new Arbitration Act there is a need for all Arbitrators as well as Counsels to study the material changes that have occurred in the Act an ensure that they donot contribute to any fault or error in the award.

In this connection it is also necessary for the Counsels and Arbitrators not to be mis-led by past Case laws which might have been decided under the old Act and apply it blindly to the new Act. In this connection, we may recall the Sundaram Finance Ltd V NEPC India Ltd  judgement in Supreme Court where the Court observed,

“… The Act of 1996 is very different from the Arbitration Act of 1940. The provisions of the Act of 1996 have, therefore to be interpreted and construed independently and in fact reference to the 1940 Act may actually lead to  misconstruction…”.

The above words hold true in the context of Act of 2015 modifying the Act of 1996 rendering most of the Case laws of the past being rendered not applicable in the current context. Legal professionals by force of habit should not simply quote past decisions and assume that the precedence would be acceptable even under the new law.

It is for this reason that this website tries to discuss the new law in great detail so that we can understand the difference between what the advocates studied and practiced until last year and what they are now confronted with.

Naavi

One of the aspects of the Arbitration Amendment Act 2015 is on the reference to the “Regime For Costs” under Section 31A of the amended Act.

Some of the Judicial professionals have not been happy with the “Model Fee” as suggested in the fourth schedule which is reproduced here below.

THE Fourth SCHEDULE (See sections 11(14))

Note:—
In the event, the arbitral tribunal is a sole arbitrator, he shall be entitled to an additional amount of twenty-five per cent on the fee  payable as per the table set out above

The above is a “Model” fee structure and the High Court may modify it to the extent required as indicated in the section as under:

(14) For the purpose of determination of the fees of the arbitral tribunal and the manner of its payment to the arbitral tribunal, the High Court may frame such rules as may be necessary, after taking into consideration the rates specified in the Fourth Schedule.
Explanation.—For the removal of doubts, it is hereby clarified that this sub-section shall not apply to international commercial arbitration and in arbitrations (other than international commercial arbitration) in case where parties have agreed for determination of fees as per the rules of an arbitral institution.’’

However, it can be implied that without a specific enhancement granted by the Court, the schedule fee may be considered as the “Upper Limit” of what the law considers as “Reasonable”.

We may also note that the schedule mentions that if the Arbitral Tribunal is a sole arbitrator, he shall be entitled to an additional 25% of fees. This confirms that what the schedule represents is the total fees that has to be shared by all the members of the Arbitration Panel.

Some of the major Arbitral Instutions  in India used to specify a schedule of fees in their rules and indicate that the scheduled fees would be applicable to each of the members of the Arbitration Panel. This used to discourage the parties in going for multi member Arbitration Panel which is good to enhance the credibility of the Panel. Now that the schedule mentions that the fees mentioned in the schedule is for the total panel, it actually encourages setting up of a multi member panel for all arbitrations.

However, if any Arbitrator or an Arbitration panel decides to charge a fee lower than what is specified, there is no reason for any Court to object.

One should appreciate that today there may be some lawyers who charge lacks of rupees as fee for their appearance but Judges do function under a fixed salary basis. But the salary regime does not incentivise quick disposal of cases and few judges who quickly dispose off cases are actually frowned upon.  The Arbitration fee regime is however based on “Per Case” basis and if an arbitrator can handle multiple cases, he will make reasonable money as compared to a Judge. In case of small ticket arbitrations where the fee may be low, the arbitrator has to complete the arbitration in one or two sittings or without any oral hearing so that his remuneration would  more than compensate for the time, effort and expertise he brings into the proceedings.

It may also be noted that the amended act provides that Arbitrations should be completed within 1 year unless an extension is agreed upon by the parties (upto 6 m0nths)  or granted by a Court and if an arbitrator completes an arbitration within 6 months, he can claim an additional fee with the consent of the parties at the time of appointment.

Another interesting aspect of the Amendement is that if a Court is extending the time allocated for an Arbitration and the reasons for the delay is attributable to the Arbitrator/Panel of Arbitrators, the Court may reduce the remuneration by 5%.

Thus the Act now incorporates a fixed time for completion of arbitration and a possible incentive for early completion and a possible disincentive for delays caused by the Panel. This is superimposed with a model fee structure which could define an upper limit for the fees.

These measures have not been to the liking of some of the Arbitrators who are presently active but are considered as a “Consumer Friendly” move of the Government and reasonable in the context of reducing the cost of dispute resolution in general.

The business community should welcome these moves.

Naavi

Alternate Dispute Resolution (ADR) focusses on delivery of justice free from the complexities caused by the age old processes under which “Litigation” system works in our Courts.

An attempt to improve the litigation process has always been at the heart of any judicial reforms. One example for such attempt is Information Technology Act 2000 (ITA 2000) which introduced the system of Adjudication, as an “Enquiry” process and both Adjudicator and the Cyber Appellate Tribunal were freed from the procedural binding of the Civil Procedure Code while conferring the powers of the Adjudicator and the Cyber Appellate Tribunal equivalent to a Civil Judge.

The system of ADR introduces a whole new paradigm of Dispute Resolution where all desirable innovations can be introduced by an Arbitrator or an Arbitral Institution. No doubt that even these innovations can be challenged, but such objections are difficult to sustain unless it was proved to unfair. In the light of the systems like ODRGLOBAL.IN where the proceedings are recorded and would be available for proving whether the proceedings were conducted in a fair manner or not, objections on the ground of unfair treatment of one of the parties would be almost impossible.

We can therefore say that ADR in general and the unique process used by entities such as ODRGLOBAL.IN in particular, provides for innovation on the party of the Arbitrator that is within the legal process but would provide better convenience, quicker completion and lower cost. The Arbitrator should however take care that the provisions of Arbitration and Conciliation Act 1996 as amended in 2015 (ACA-1996/2016) should be followed diligently. We shall therefore examine some of the key requirements of the Act as regarding the conduct of the proceedings.

The parties to an arbitration first agree on the choice of the Arbitrator (or an arbitral institution which may finally appoint an arbitrator) and a process for appointing them right in the agreement. Once an Arbitrator is appointed to the satisfaction of the parties, the responsibility for the fair conduct of the proceedings pass onto the Arbitrator.

According to section 18 of the ACA-1996/2015, it is the responsibility of the Arbitrator to treat all parties with equality and give full opportunity to present their case. The Arbitrator is neither bound by the Code of Civil Procedure 1908 nor even the Indian Evidence Act as long as the principle of fairness can be proved.

In order to avoid any charge of improper procedure it is desirable that the Arbitrator follows a structured procedure which is also made known to the parties. This is done by arbitral tribunals by developing a set of “Rules of Arbitration” which is applicable to all arbitrations conducted under the aegis of the tribunal by its members.

Such procedure includes the following principal issues

1. How Place of Arbitration is fixed
2. How notices are served and acknowledged
3. How Counsels participate
4. How documents are exchanged
5. How the hearings are held
6. How arguments are presented
7. How witnesses are produced
8. How costs are split
9. How much time is allocated
10. How the award is delivered etc.

Where the parties usually live in different places and the Arbitrator is located in a different place, the choice of the Place of arbitration itself can be a point of contention since it does impose an extra cost of time and money on outstation parties. Unless both parties are located in the same town or they adopt the neutral venue as in the case of an ODR (Online Dispute Resolution) process, the choice of any town is bound to add an element of cost.

Some times, “Experts” are sought to be brought in as “Witnesses” and “Expert Counsels” are sought to be appointed if the subject matter of dispute needs technical or subject matter expertise for satisfactory resolution. If such experts are to travel and stay in the place of arbitration, the party using their services have to meet such costs. In small ticket disputes, these influence directly on the delivery of justice and the ability of the parties to have a satisfactory resolution.

Similarly, the number of hearings in which different parties need to assemble at a particular place multiples the cost unless solutions are found to either rotate the place of hearings between cities convenient to different parties or use of ODR is resorted to.

Also the procedure by which notices are delivered without loss of time and integrity and without providing excuses to any parties to claim non receipt is also a point to be considered while designing the procedure.

While the Arbitrator may be neutral to the way the costs are split between the parties which is a matter to be settled in the contract, he may define his fees as well as the cost of administration, cost of the meeting place to be paid if it is hosted by the Arbitral Institution, cost of travel and stay of the Arbitrator etc. and load it first onto the person who invokes the Arbitration and later based on the award.

If an Arbitrator wants to act as an independent entity not affiliated to any Arbitral Institution, then he needs to develop his own set of Arbitration rules which are reasonable and suit both the convenience of the parties as well as the requirements of the ACA-1996/2015.

In this context, it may be of interest for readers to study the “Model Rules of ODR” that are being formulated by the Global Forum of ODR Professionals working with ODRGLOBAL.IN which needs to be not only in conformity with ACA-1996/2015 but also the Information Technology Act 2000/8 as also the principles of the UNCITRAL Model Law on Arbitrations under development.

The Arbitrators can make use of the Model Rules as a template and tweak them with modifications that they find it necessary for their own Arbitration proceedings. If properly constructed, conveyed to the parties and consent obtained, the risk of the awards being challenged can be substantially reduced and the objective of fair and quick justice delivery which is the core theme of ADR will be realized.

Naavi