Report No. 176
1.7 Other aspects brought to the notice of the Commission
Several other aspects in the working of the 1996 Act have been pointed out. Some of these can be referred to at this stage itself briefly to substantiate why the Commission has now felt that it is appropriate to propose amendments to the Act. Of course, not all of these suggestions are being accepted by the Commission. It has been stated that in several cases, Indian parties have been deprived of a right to seek prompt-interim relief under section 9 of the Act from the Court before the commencement of arbitration proceedings and after the award, in international arbitration awards, or after the passing of such awards where the seat of arbitration is outside India because sec.2(2) confines Part I of the Act to arbitrations in India.
This, it is said, has resulted in serious prejudice to Indian parties who are not able to obtain any interim orders under sec. 9 before commencement of international arbitration or during or after conclusion of the proceedings, from Indian courts. In several cases the awards might remain only on paper, at the end of the day. This anomaly has led to conflicting judgments in the High Courts. In fact all countries which have adopted the UNCITRAL Model, apply Arts. 8, 9, 35 and 36 of the Model Law to an international arbitration where the seat of arbitration is outside that country.
This was not noticed when the 1996 Act was passed. It has been pointed out that inasmuch as there is no need to file an award in the Court under the new Act, there is a scope for tinkering with the award. There is no public record of the contents of the award. Obviously, Stamp and Registration laws can easily be contravened under the new Act. Divergent views have been expressed as to the stage at which jurisdictional issues could be decided and also as to whether orders of the Chief Justice of India or his nominee or that of the Chief Justice of the High Court or his nominee, as the case may be, appointing arbitrators-should be treated as administrative orders or as judicial orders.
Treating the orders under Sec. 11 as administrative has led to several writ petitions being filed in the High Courts raising jurisdictional grounds and consequently stay of arbitration proceedings being obtained. It has been pointed out that sec.8 of the Act has deviated from the Model Law by omitting the words 'unless it finds the agreement is null and void, inoperative and incapable of being enforced.' It has also been pointed out that where the arbitrator rejects objections relating pleas of bias or disqualification under sec. 13 or objections as to jurisdiction under sec.16 by way of interim decision, no immediate right of appeal is provided as in Art. 13 or Art. 16 of the Model Law and parties have to go ahead with the arbitration proceedings till the award is made.
This may involve them in waste of money by way of fees to arbitrators and lawyers. This again is a deviation from the Model Law. Even after the award, the objection relating to rejection of a plea of bias or jurisdiction is not included in the list of grounds specified under sec. 34. It has again been pointed out that while an appeal is permitted, where the award deals with a dispute not contemplated by or not falling within the terms of the submission or matters beyond the scope of the submission for arbitration, no ground is provided in a case where the arbitrator omits or refuses, in spite of an application under sec.33(4) to decide an issue which definitely arises out of the pleadings of the parties.
It has been pointed out that if arithmetical or typographical mistakes are not corrected after following the procedure under section 33(1), there is no remedy. Similarly, it is stated that if no reasons are given in spite of the provisions of section 31(3), there is no remedy. Though, under section 28 the substantive law has to be followed, no provision is made in section 34 if there is an error of law apparent on the face of the award. Of course, some participants in seminars suggested that grounds of 'misconduct' of the arbitral proceedings must also be included in the grounds of challenge in section 34.
It has also been proposed that a provision similar to sec.21 of the Arbitration Act, 1940 is necessary so that whenever, during the pendency of a suit or proceeding or appeal in High Court or Supreme Court, parties could agree to go to arbitration. In such cases, specific provision must also be made to enable objections to the award to be filed in the same court which referred the matter to arbitration rather than driving them again to the District Court.
For example, if after 20 years of litigation, the Supreme Court, by consent of parties, refers the matter to arbitration, the objections have now to be filed in the District Court according to the recent judgment of the Supreme Court in P. Anandagjapathi Raju vs. P.V.G. Raju (2000(4) SCC 539 = AIR 2000 SC 1886), while under the Act of 1940, they could be filed in the Supreme Court, since that was the court which referred the parties to arbitration. It has been pointed out that section 43(3) is to be amended because of the amendments to section 28 of the Indian Contract, 1872, in 1997.
By that amendment to the Indian Contract Act, the provision which extinguishes a right to a remedy even before the expiry of the time fixed in the Limitation Act, 1963, has become bad and hence there is no longer any need for approaching court to remove hardships. It has been pointed out that there is a conflict of judgments as to whether the time limits fixed in section 11(4) and (5) of the 1996 Act are mandatory or not and whether in the event the opposite party does not appoint any arbitrator within the period, a party cannot move the court under section 11 for appointment.
It is also stated that section 11(6) does not fix any time limit. Under section 9, it is said that a party may obtain an interim order before taking steps for arbitration and after getting the order, he may not take steps to have an arbitrator appointed. It is pointed out that section 9 is badly drafted and requires restructuring. It is urged that clauses in the contract which enable a party to appoint his own employer or adviser or consultant to be an arbitrator violate section 18 of the 1996 Act relating to equal treatment to the parties. It was suggested that some more powers are to be given to the arbitrators to see that their interim orders or dates of hearing given by them are duly honoured.
It is said that a "fast track procedure" may be proposed by way of a Schedule. Section 42, it is said, is vague and requires a detailed restructuring. Several important amendments to section 37 have been suggested to cover appeals against orders passed by the arbitral tribunal under sections 13 and 16 where certain jurisdictional pleas are rejected by the tribunal. We are referring to these aspects only to point out the nature of defects that have been placed before the Commission for its consideration. The above important aspects are, therefore, the starting point of the review of the 1996 Act by the Commission.
The Commission prepared a Consultation Paper (Annexure-II) and held two Seminars, one in Mumbai and another in Delhi in the months of February and March, 2001 and gave wide publicity to the Paper by putting it on the website. Retired Judges and leading lawyers were invited for the Seminars. Several of them participated and also gave written notes putting forth their ideas. During these seminars there was consensus on various proposals and also divergence on some of the proposals. Proposals not contained in the Consultation Paper were also exhaustively discussed.
Even in the month of May 2001, responses as well as fresh proposals have been received by the Commission. In the light of the above, the Commission re-examined the proposals and has also considered the fresh proposals which were placed before it. It has considered the various responses, either accepting or rejecting the suggestions in this Report.
The Commission has accepted some of the proposals and has rejected a large number of other proposals. In fact, several proposals made in the Consultation Paper (Annexure-II) have not been accepted by the Commission in this report. The Commission has kept in mind the warning to keep away from any 'mind-set' of the 1940 Act but it has also taken care to keep away from the other 'mind-set' that no amendments at all need be made.