Law being changed to give desis more leeway

NEW DELHI: For arbitration outside India, a draft legislation to amend the Arbitration and Conciliation Act, 1996 prepared by the law ministry on the recommendations of the law commission proposes to allow Indians to obtain interim measures from Indian courts even before arbitration starts outside India.

It has allowed companies to appoint their employees, consultants as an arbitrator for international arbitration within India. Amendments have also been proposed to empower Indian Courts to decide if an international arbitration agreement is incapable of being performed and is null and void and if a dispute indeed exists.

With this amendment, the Arbitration Act will be completely in line with the Uncitral Model Law. Top government officials told ET, while the Uncitral model Law, that forms the basis of most arbitration laws around the world, permits certain Articles such as 8,9, 35 and 36 to apply to arbitrations outside the country, there is an omission in this behalf in the 1996 Act.

Consequently, in the absence of Section 9, in arbitration outside India, the Indian party is unable to obtain interim measures from Indian Courts, before the arbitration starts outside India. This has led to conflicting judgements in the Delhi and the Calcutta High Courts.

Officials said that companies have been deserting Indian courts and opting for arbitration proceedings outside India. This has inflated costs and have diminished chances of India emerging as an international arbitration centre.

It also proposes to provide provisions under Section 8, 27, 35 and 36, to arbitration outside India. Further, objections to the award would be filed in the same court which had made the reference. This would clarify the confusion faced by the Supreme Court in the interpretation of Section 8.

The Supreme Court has held that its language with some difficulty can be extended to agreements entered into during the course of a pending litigation. But it has stated that even if a reference is made at an appellate stage (High Court or Supreme Court) the objections to the award have to be filled in the Principal District Court which would lead to further litigation starting from the District Court, according to the Commission.

The government had earlier, amended the Act in 1996 to align it with the Uncitral Model. The draft Bill has been referred to the states for their comments, as arbitration falls under the concurrent list.

It is proposed to empower a judicial authority to decide preliminary issues raised by the respondent before reference is made to arbitration. Also, action would have to be stayed, pending the decision and subject to the decision. If the judicial body rejects the preliminary issues and makes a fresh reference to an arbitral tribunal, the mandate of the one already appointed by the respondent will cease, officials said.

It also proposes to enable parties going into arbitration in writ jurisdiction also, where they have disputes about their rights under civil law.

Officials said that compliance with the precedent condition in the Scott v Avery clause will be made non-mandatory. The clause, officials explained, requires a party to first obtain an arbitration award as a condition precedent for filling an action before a judicial authority.

It, therefore, cannot ignore an arbitration clause and file action before court, they said. But the amendment would be useful in cases where the judicial authority decides that arbitration is null and void. Else, no award would be possible in such cases under the clause.

The Bill redefines domestic arbitration to include international arbitration in India, (i.e. where the arbitration is in India though all of the parties may or may not be Indian). Also under Section 8 of the existing Act, a judicial authority has to refer a dispute to arbitration if the respondent relies on an arbitration clause

The Law commission has proposed that this section should include references made by quasi-judicial authorities, as well, thereby cutting delays. At present, cases typically first move to a court from a quasi-judicial body, before finally being referred to arbitration.