By: Smriti Shukla
Editor’s Note: This article forms a part of our theme-based blog posts.
Four years after the 2015 Amendments to the Arbitration and Conciliation Act, 1996 (“the Act“), the President approved the Arbitration and Conciliation (Amendment) Act, 2019 (“the 2019 Amendment Act“). The 2019 Amendment Act has been brought to fill the gaps left by the previous amendments and intends to create better management of arbitration in India. With the view of promoting ease of doing business in India, the 2019 Amendment Act takes a big leap and lays down the groundwork for bringing an Arbitration Council in India. Many other ambitious provisions such as accreditation and qualification of arbitrators, grading of the arbitral institutions, the confidentiality of the arbitral proceedings, and a more realistic timeline, among various other things are introduced. However, the Act continues to retain shortcomings and glaring inconsistencies with some foreseeable problems which could be a major concern.
The Confidentiality Provision Introduced in the 2019 Amendment Act
The 2019 Amendment Act introduced a provision of confidentiality. The Act brought one of the historic changes and this change has been envisaged in the form of Section 42A of the Act. One of the popular characteristics of arbitration as a preferred resolution mechanism is the confidentiality of arbitral proceedings as compared to other proceedings. The concept of confidentiality was earlier statutorily recognised only during Conciliation proceedings under Section 75 of the Act. Confidentiality of proceedings makes arbitration a chosen means of dispute resolution for parties that wish to attain an objective, effective and commercially sensible solution, while also controlling the revelation to the public domain, competitors or others.
A Brief History of Section 29A: A Legislative Blunder?
Section 29A of the Amendment Act 2019 lays down the obligatory time limit for an arbitral tribunal to render its award in Indian Seated arbitration. This section was incorporated in the Amendment Act of 2015. It requires an arbitral tribunal to render an award within 12 months, which may be extended up to 18 months with the consent of the parties, from the date on which the tribunal is constituted. The scheme is if they failed to do so the tribunal stands terminated. The courts are empowered to extend the time limit with the condition if they provide enough and sufficient proof of their delay.
The insertion of Section 29A in the Act was to ensure expeditious and cost-effective disposal of the arbitral proceeding with the minimization of judicial interference. Although the section was able to achieve the ambitious aim of cost-effectiveness and speedy disposal of matter nonetheless it appears to defeat the goal of court interference. Additionally, it has been recognized that since the parties have chosen to arbitrate and not litigate, the courts must respect this choice and remember that their powers under the arbitration statute exist only to support, and not supersede, the powers of the arbitrators. But as predicted, Section 29A has given rise to plentiful controversies including a tussle between Sections 29A and 42A. Now, we look as to how.
Solving the Inconsistency between Section 29A and Section 42A
A fundamental essence in the arbitration is the liberty to choose the procedure of the proceedings. One of the major reasons that parties prefer arbitration over other court proceedings is due to the flexibility to choose the procedure that would govern their proceedings, as long as proceeding is not derogation of the lex arbitri. Section 29A uses the mandatory phases in the provision which has several adverse consequences. The terms such as “award shall be made”, and “mandate of the arbitrator shall terminate” are used in Section 29A which compels the parties to approach the court to seek an extension. The wording such as “unless otherwise agreed by the parties” or “subject to party agreement” has not been used in the Section which indicates its mandatory nature. This legislative blunder has various adverse consequences and one of these is a violation of the confidentiality of the parties.
Legislature consciously inserted confidentiality as newly added Section 42A by the 2019 Amendment Act. But, there are enough arguments against the proposition. The provision stands violated by existing Section 29A and may give rise to the situation wherein if the award is not given within the timeframe, the party has to appear before the court and disclose the nature of the dispute, details of the arbitrator, evidence recorded, stage of arbitral proceedings. In one arbitral proceeding, the tribunal rejected to consider the amendment in the pleading merely on the ground that if it was allowed, it would not be possible to complete the proceedings within the time stipulated under Section 29A of the 2015 Act. Later, the matter had to be brought before the Court. As Section 29A is ending up getting arbitrators replaced by the courts, it stands against the objective of the Act. Further, by default, all the documents filed in the court are part of the public domain. It may be against the very reason why the party chooses arbitral proceedings over the court proceedings. This may result in the violation of confidentiality agreement or the arbitration tribunal duty to maintain confidentiality and thus, stand in the way of putting into practice of section 42A.
As both provisions are undoubtedly in conflict with each other, the rule of harmonious construction should be applied to cure the inconsistency. In the landmark case of CIT v. Hindustan Bulk Carriers, this doctrine was discussed at length with the court laying down the five principles to this doctrine of harmonious construction. The five main principles of this rule are:
1) The courts must avoid a head-on clash of seemingly contradicting provisions and they must construe the contradictory provisions so as to harmonize them.
2) The provision of one section cannot be used to defeat the provision contained in another unless the court, despite all its effort, is unable to find a way to reconcile their differences.
3) When it is impossible to completely reconcile the differences in contradictory provisions, the courts must interpret them in such a way so that effect is given to both the provisions as much as possible.
4) Courts must also keep in mind that interpretation that reduces one provision to a useless number or dead is not harmonious construction.
5) To harmonise is not to destroy any statutory provision or to render it fruitless.
This doctrine was also applied by the Hon’ble Supreme Court in the case of Venkataramana Devaru v. the State of Mysore where the tussle was between Articles 25(2)(b) and 26(2)(b) of the Constitution. In that case, it was held by the Court that Article 26(b) is subject to Article 25(2)(b) and thus, the conclusion was reached by recourse to the rule of harmonious construction. A further example can be found in the case of M.S.M. Sharma v. Krishna Sinha. Therefore, keeping this principle in mind, the judiciary should vigilantly re-examine the purpose being served by Section 29A in the light of Section 42A.
While the aim of introducing the confidentiality provision in the 2019 Amendment Act is to strengthen institutional arbitration in India and promote it but unfortunately, Section 29A forces it to take two steps back as an arbitration-friendly jurisdiction. Section 29A in the present form is regressive and resurrects and is likely to give various foreseeable problems.
Firstly, the removal of mandatory time limits should be applied to institutional arbitration as done in international commercial arbitration. As in most of the cases, Indian courts have repeatedly interfered with the arbitration matter which has led to deter the parties. Arbitral courts do not require court control to ensure their speedy disposal of cases as they have their own mechanism for case management. Exclusion of institutional arbitration will lower the burden of the court to deal with applications under Section 29A.
Thus, there are various persisting glitches in the Act with needs to be reconsidered. India as being one of the main signatories in the New York Convention has failed to keep up with the standards set by international best practices. If India wishes to become a hub for arbitration-friendly jurisdiction then the autonomy of the tribunals should not be compromised by imposing time-bound proceedings that can be extended only with the permission of the court.
– Smriti is currently an undergraduate student at National University of Study and Research in Law, Ranchi.