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Report No. 246

Delays in Courts, before the Tribunal and Investment Treaty Risk

22. Judicial intervention in arbitration proceedings adds significantly to the delays in the arbitration process and ultimately negates the benefits of arbitration. Two reasons can be attributed to such delays. First, the judicial system is over-burdened with work and is not sufficiently efficient to dispose cases, especially commercial cases, with the speed and dispatch that is required. Second, the bar for judicial intervention (despite the existence of section 5 of the Act) has been consistently set at a low threshold by the Indian judiciary, which translates into many more admissions of cases in Court which arise out of or are related to the Act.

23. Out of the two problems, the first is part of a wider and more pervasive problem that is endemic to the Indian judiciary, and the reforms for which form part of a separate study. However, a few suggestions may be noted. The Commission finds that in most Courts, arbitration matters are kept pending for years altogether, and one of the reasons is the lack of dedicated benches looking at arbitration cases. One may look to the experience in the Delhi High Court where there is a practice of having separate and dedicated benches for arbitration related cases.

This has resulted not only in better and quicker decisions, but has also increased the confidence of the parties in choosing the jurisdiction of the Delhi High Court for dealing with arbitration related cases. The Government must consider this experience of the Delhi High Court, and request the Chief Justices to create specialised and dedicated arbitration benches. The Commission also believes that one of the methods to provide relief against frivolous and misconceived actions is to implement a regime for actual costs as is implemented in the UK and also other jurisdictions, and which finds its place in the proposed section 6A to the Act.

24. Two further sets of amendments have been proposed in this context. First, it is observed that a lot of time is spent for appointment of arbitrators at the very threshold of arbitration proceedings as applications under section 11 are kept pending for many years. In this context, the Commission has proposed a few amendments.

The Commission has proposed changing the existing scheme of the power of appointment being vested in the "Chief Justice" to the "High Court" and the "Supreme Court" and has expressly clarified that delegation of the power of "appointment" (as opposed to a finding regarding the existence/nullity of the arbitration agreement) shall not be regarded as a judicial act. This would rationalize the law and provide greater incentive for the High Court and/or Supreme Court to delegate the power of appointment (being a non-judicial act) to specialized, external persons or institutions.

The Commission has further recommended an amendment to section 11 (7) so that decisions of the High Court (regarding existence/nullity of the arbitration agreement) are final where an arbitrator has been appointed, and as such are non-appealable. The Commission further proposes the addition of section 11 (13) which requires the Court to make an endeavour to dispose of the matter within sixty days from the service of notice on the opposite party.

25. Similarly, the Commission has found that challenges to arbitration awards under sections 34 and 48 are similarly kept pending for many years. In this context, the Commission proposes the addition of sections 34 (5) and 48 (4) which would require that an application under those sections shall be disposed off expeditiously and in any event within a period of one year from the date of service of notice.

In the case of applications under section 48 of the Act, the Commission has further provided a time limit under section 48 (3), which mirrors the time limits set out in section 34 (3), and is aimed at ensuring that parties take their remedies under this section seriously and approach a judicial forum expeditiously, and not by way of an afterthought.

In addition, a new Explanation has been proposed to section 23 of the Act in order to ensure that counter claims and set off can be adjudicated upon by an arbitrator without seeking a separate/new reference by the respondent, provided that the same falls within the scope of the arbitration agreement. The Commission has also recommended mandatory disclosures by the prospective arbitrators in relation to their ability to devote sufficient time to complete the arbitration and render the award expeditiously.

26. It is recommended that in the case of international commercial arbitrations, where there is a significant foreign element to the transaction and at least one of the parties is foreign, the relevant "Court" which is competent to entertain proceedings arising out of the arbitration agreement, should be the High Court, even where such a High Court does not exercise ordinary original jurisdiction.

It is expected that this would ensure that international commercial arbitrations, involving foreign parties, will be heard expeditiously and by commercially oriented judges at the High Court level. The amendments proposed to section 48 (as indicated above) are also intended to achieve the same object. This is important not just for providing confidence to foreign investors, but to mitigate the risk faced by the Government of India from claims by foreign investors under the relevant Investment Treaty negotiated by the Government of India with other countries.

The award of the Arbitral Tribunal in White Industries Australia Ltd. v. the Republic of India, UNCITRAL, Final Award (November 30, 2011), serves as a reminder to the Government to urgently implement reforms to the judicial system in order to avoid substantial potential liabilities that might accrue from the delays presently inherent in the system.

27. Another problem that is sought to be addressed in the relevant amendments proposed to the Act, is to increase the threshold of judicial intervention at the various stages of the arbitral process - including the pre-arbitral (sections 8 and 11) and post-award stage (section 34). These have been discussed at the appropriate places.

Amendments to the Arbitration and Conciliation Act, 1996 Back

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