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Report No. 176

1.5 Representations regarding grounds for interference by the Courts after making of the award:

Quite recently, representations have come before the Commission pointing out that the UNCITRAL Model was mainly intended to enable various countries to have a common model for 'international commercial arbitration' and the Indian Act, 1996 has made provisions similar to the model law and made applicable to, what we may call, cases of purely domestic arbitration between Indian nationals and that this has given rise to some difficulties in the implementation of the Act. Certain problems which surfaced after 1996 have also been placed before us.

1.6 In this report, the words "PURELY DOMESTIC ARBITRATION BETWEEN INDIAN NATIONALS' are used to refer to arbitration where NONE of the parties is (i) an individual who is a national of, or habitually resident in, any country other than India, or (ii) a body Corporate which is incorporated in any country other than India; or (iii) a company or an association or a body of individuals whose central management and control is exercised in any country other than India, and its words "INTERNATIONAL ARBITRATION" is used where at least one of the above mentioned parties/bodies is in a country other than India.

This is done as a matter of convenience. This should not be confused with the proposed definition of the term 'domestic arbitration' in section 2(1)(ea). The grounds for objecting an award under sec.34 and Sec. 37 are now made common to purely domestic awards as well as international arbitration awards. It has been suggested that the principle of least court interference of the award may be a fine principle for international arbitration awards but having regard to Indian conditions and the fact that several awards are passed in India as between Indian nationals sometimes by lay men who are not well acquainted with law, the interference with such awards should not be as restricted as they are in the matter of international arbitrations.

This suggestion will be considered at the appropriate stage. The attention of the Commission has, in fact, been invited to a passage from Redfern and Hunter in Law and Practice of International Arbitration, (2nd Edition, pages 14 and 15) which reads as follows:

"Amongst states which have a developed arbitration law, it is generally recognized that more freedom may be allowed in an international arbitration than is commonly allowed in a domestic arbitration. The reason is evident. Domestic arbitration usually takes place between the citizens or residents of the same state, as an alternative to proceedings before the courts of law of that state it is natural that a State should wish (and even need) to exercise firmer control over such arbitrations, involving its own residents or citizens than it would wish (or need) to exercise in relation to international arbitrations which may only take place within the state's territory because of geographical convenience."

The above passage supports the view that in the matter of purely domestic arbitrations between Indian nationals, the State can desire that its courts should have greater or firmer control on the arbitrations. At the other end, we find that under the English Statutes, there has always been and even now, more supervision by Courts in respect of international as well as domestic arbitrations, than under the Model Law.

Sections 3 and 4 of the English Act, 1979 allowed for the exclusion of various forms of appeal to the High Court if so provided for in a 'non-domestic" arbitration agreement, which was defined to mean an arbitration agreement to which none of the parties was either a national or resident in, or a company incorporated or managed in, England. It is important to note that the scope of interference as provided in sec.68 of the English Act, 1996 includes wide interference under sec. 68(2)(a) to (i) on grounds of "serious irregularity" and these grounds are in fact applicable to international and domestic arbitrations.

Section 4 of the English Act, 1996 refers to the mandatory provisions in Schedule I which cannot be contracted out. The Schedule I includes among others, Sections 67 and 68 dealing with "serious irregularities". In other words, both international and domestic arbitration suffer increased interference from courts in England after 1996 than in the UNCITRAL Model. The Department of Trade and Industry (UK) decided on 30.1.97 that the part relating to modifications for the purpose of domestic arbitration shall not come into force. It quoted the Corporate and Consumer Affairs Minister, John Taylor as follows:

"I have also decided that all arbitrations, whether domestic or international, should be treated in the same way." (see Russell on Arbitration, 1997 p.41 fn. 84)

The Belgian, Swiss and Italian arbitration statutes do contain separate and special provisions applicable to international arbitrations permitting lesser interference by courts (see Fouchard and others, International Commercial Arbitration, 1999, page 54 para 105). Therefore, it is a matter for consideration whether a few more additional grounds for challenging the award are to be added in the case of purely domestic arbitrations.

Some countries have adopted the UNCITRAL Model as it is, while some other countries have adopted with some changes. Some other countries, while adopting the Model Law, have incorporated some provisions from the English Act of 1996. The latest Report of the Law Commission of South Africa takes note of these variations as follows in paragraph 2.4 of the Report:-

"Sanders P "Unity and Diversity in the Adoption of the Model Law" (1995) 11 Arbitration International 1 (hereinafter referred to as "Sanders") at pages 2-3 lists the following countries or states as having adopted the Model Law: Canada in 1986 (at both federal and provincial level - in the provinces, with the exception of Quebec, it applies to international arbitrations only); Cyprus in 1987; Bulgaria and Nigeria in 1988; Australia (at federal level for international arbitrations only) and Hong Kong in 1989; Scotland in 1990; Peru in 1992; Bermuda, the Russian Federation, Mexico and Tunisia in 1993; and Egypt and Ukraine in 1994. Sanders also lists eight states of the United States of America as having adopted the Model Law, including California, Florida and Texas.

However, whereas Connecticut totally adopted the Model Law (Sanders 3) it appears from a commentary on the Florida International Arbitration Act (see Loumiet C M "United States: Florida International Arbitration Act - Introductory Note" (1987) 26 ILM 949 at 960 n 13) that there are significant philosophical and textual differences between the Florida statute and the Model Law. Singapore adopted it for international arbitrations in 1994. Of the major industrial countries in Western Europe, as yet only Germany has adopted the Model Law. (See the New German Arbitration Law, being the Tenth Book of the German Code of Civil Procedure, which commenced on 1 January 1998.

An English translation is published in (1998) 14 Arbitration International 1-18.) The new German Arbitration Law adopts the Model Law with minimum changes and applies to both international and domestic arbitrations (see s 1025 and Böckstiegel K-H "An Introduction to the New German Arbitration Act Based on the UNCITRAL Model Law" (1998) 14 Arbitration International 19 at 22-23).

New Zealand has also adopted the Model Law for both domestic and international arbitrations (see the Arbitration Act 99 of 1996, which commenced on 1 July 1997). (The New Zealand legislation is discussed by Richardson M "Arbitration Law Reform: the New Zealand Experience" (1996) 12 Arbitration International 57-66 and "Arbitration Law Reform: the New Zealand Experience - an Update" (1997) 13 Arbitration International 229-31.) The Kenyan Arbitration Act 4 of 1995 and the Zimbabwean Arbitration Act 6 of 1996 referred to in the text came into force on 1 January 1996 and 13 September 1996 respectively."

That does not mean that the Commission is proposing to unduly increased court interference in cases of purely domestic arbitration. In fact, the Commission proposes to further restrict court interference, in certain respects than what is permitted by the Model Law or the 1996 Act, both for international and purely domestic arbitration. It proposes that all matters which come to the court against the award are to be listed for preliminary hearing and could be rejected straight away before notice. It is also proposed to introduce a provision similar to sec.99 of Civil Procedure Code (CPC) that awards should not be interfered with lightly unless substantial prejudice is shown.

It is also proposed to remove the obstacle created by sec.36 precluding enforcement of award merely because an application to set aside the award is filed and is pending. Mere filing of such an application should not amount to automatic stay of the award. Further, we propose to enable the court to impose conditions for compliance with the award, partly or wholly, pending disposal of objections. Proposals are also being made to keep delays before the arbitral tribunal totally under control, by amending sections 23, 24 and 82 as also and inserting new sections 24A, 24B, 29A, 37A. Time limits are proposed to be imposed for passing awards subject to extension by Courts, however, providing that that, pending disposal of the application by the Court, the arbitration shall continue.

Chapter XI is introduced for Fast Track Arbitration. Sections 34 and 35 of the Amending Act are proposed to be introduced to speed up arbitrations, applications and appeals under the Act of 1996 and also under the old Act of 1940. We shall advert to these provisions in para 1.8 hereinafter. Therefore, it is not as if, the proposed amendments will increase court intervention or thereby delay arbitration. On the other hand, the proposed amendments will speed up pending and future arbitrations.



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