Draft Arbitration Amendment Bill 2024: A Boon or a Barrier to India’s Arbitration Future?

Arbitration in India has undergone significant changes over the years through legislative amendments and key judicial pronouncements that have shaped its evolving framework. The Draft Amendment Bill 2024 aims to build upon these developments by addressing existing challenges and further strengthening the arbitration regime in the country.

The Union government had constituted an expert committee on 12^th June, 2023 under the chairmanship of Dr. T.K Viswanathan to oversee the working of Arbitration across the country and propose recommendations to improve the Arbitration and Conciliation Act, 1996 (the “act”).

The expert committee duly submitted its recommendations on 7^th February, 2024.

The Department of Legal Affairs, Ministry of Law & Justice, Government of India announced the Draft Arbitration and Conciliation (Amendment) Bill, 2024, (the “bill”) highlighting its focus to further strengthen institutional arbitration, minimize judicial interference, and ensure the timely completion of arbitration proceedings.

In this article, we will delve into the proposed amendments in the bill and will highlight the most important changes and analyze the trajectory of the future of arbitration in India.

Renaming of the Statute

The bill proposes to amend Section 1(1) with the term “Conciliation” being removed from the title, as well as all references to it within the Act, including in the preamble, thereby renaming the act from ‘Arbitration and Conciliation Act, 1996’ to ‘Arbitration Act, 1996. This in essence, confines the scope of the Act exclusively to arbitration.

Formal Introduction of Emergency Arbitration

The bill formally establishes the legal framework relating to Emergency Arbitration in India. 

Building upon the ruling of the Apex Court in Amazon.com NV Investment Holdings LLC v. Future Retail Ltd. AIR 2021 SC 3723¹ which recognized the enforceability of orders of ‘emergency arbitrators’

It seeks to enhance institutional arbitration by allowing parties to seek urgent interim relief before the constitution of the arbitral tribunal.

Section 2(1)(ea) to the bill defines an ‘Emergency Arbitrator’ as an arbitrator appointed under Section 9A.

According to Section 9A(1), Arbitral institutions may, for the purpose of grant of interim measures referred to in section 9, provide for appointment of emergency arbitrator prior to the constitution of an arbitral tribunal. 

Section 9-A(3) places the orders of the emergency arbitrators on equal footing as that of an arbitral tribunal by further stating that the orders passed by an emergency arbitrator shall be enforced in the same manner as an order passed by the Arbitral Tribunal under Section 17(2) of the Act. This ensures the binding nature and enforceability of emergency arbitrator orders.

Finally, with regard to determining the validity of such measures, according to Section 9A(4) An order of the emergency arbitrator may be confirmed, modified, or vacated, in whole or in part, by an order or arbitral award made by the arbitral tribunal itself.

Introduction of Appellate Arbitral Tribunal

One of the most transformative changes proposed by the bill is the constitution of an Appellate Arbitral Tribunal (the “AAT”). The Bill grants arbitral institutions the authority to establish an AAT, which would be empowered to hear applications under Section 34 for setting aside arbitral awards.

AATs have been envisioned as an alternative to courts for adjudicating an application under Section 34 of the Act. They are to possess the same powers as a court. This proposed amendment has given parties 2 separate avenues for a Section 34 application.  

This proposed amendment evidently established 2 separate regimes for challenge of award under Section 34. Whether this provision will aid in reducing court intervention and proceedings or will the ambiguity in taking recourse to these avenues be counterproductive, remains to be seen. 

The bill lays down that “where parties have agreed to take recourse to an appellate arbitral tribunal”, no application for setting aside an arbitral award can be filed before the court. For ad hoc arbitrations or cases where a party has not approached the AAT, the authority to adjudicate Section 34 applications will continue to reside with the court.

Evidently, a potential drawback of Section 34A is its exclusion of ad hoc appellate arbitral tribunals. A key question that arises is whether an appellate tribunal formed by mutual agreement of the parties, rather than through an arbitral institution, will be acknowledged under the Act. This becomes particularly relevant given that the Supreme Court, in M/s Centrotrade Minerals & Metal Inc. v. Hindustan Copper Ltd.², upheld the validity of two-tier arbitration without limiting its applicability to institutional arbitration

Finally, the Bill does not introduce corresponding changes to Section 36 of the Act, which empowers courts to stay the enforcement of an arbitral award. As a result, a strict reading of the proposed Sections 34 and 34A, along with the existing Section 36, suggests that even if an application to set aside an arbitral award is filed before the AAT, a separate application for a stay on enforcement would still need to be submitted before the court.

Expansion of Grounds for challenging an arbitral award

The ground of patent illegality is sought to be extended to International Commercial Arbitration through the proposed amendment under Section 34(2A). 

ONGC v Saw Pipes AIR 2003 SC 2629³ had extended the grounds of challenge and included patent illegality as a ground  in the context of Domestic awards. 

Instead of removing this provision, the removal of the words “arising out of arbitrations other than international commercial arbitrations” from the language of Section 34(2A) indicates its expansion to the international sphere as well. 

This proposed amendment carries an element of unpredictability that would have the effect of discouraging international parties from choosing India as an arbitration seat, pushing them toward more arbitration-friendly jurisdictions like Singapore, ultimately weakening India’s goal to become a hub for international dispute resolution.

Limitation of scope of Recourse available under Section 9

The proposed amendment in sub-section (1) of Section 9 stipulates that the words ‘or during‘ be substituted for the words ‘the commencement of’ effectively placing a bar to any recourse available to the parties during the Arbitration proceedings.

Moreover, sub-section (3) of Section 9 that talks about the impermissibility of the arbitral tribunal to entertain an application under sub-section (1) unless remedy under section 17 is rendered inefficacious has been proposed to be deleted. 

Adoption of Technology in Dispute Resolution

The bill seeks to expand the scope of “arbitration” under Section 2(1)(a) of the act. 

The proposed amendment seeks to substitute the existing definition with the following clause “Arbitration means any arbitration whether or not administered by an arbitral institution and includes arbitration conducted, wholly or partly, by use of audio-video electronic means.”

Further clarifying the scope of ‘audio-video electronic means’ under Section 2(1)(aa) of the bill,  the proposed amendment holds it to include use of any communication device for video conferencing, filing of pleadings, recording of evidence, transmission of electronic communication, for the purposes of conduct of arbitral proceedings and any other matter incidental thereto, in the manner as specified by the Council under sub-section (5) of section 19.

Recognizing the growing reliance on digital platforms in commercial dealings, the Draft Amendment also proposes changes to Section 7(4)(a) to explicitly validate arbitration agreements signed using digital signatures.

Expedited Timelines for Disposal of Arbitration Proceedings

Timelines for Referral Courts under Section 8: The proposed amendment adds sub-section (4) to Section 8, imposing a 60-day deadline for resolving applications to refer parties to arbitration. By setting a clear time limit, the amendment seeks to streamline the referral process and enhance efficiency in arbitration proceedings which otherwise would lead to prolonged delays in the absence of any set time limit.

Time-limit to initiate Arbitration Proceedings after application under Section 9(1): A strict timeline mandating the initiation of arbitration proceedings has been envisioned in the bill. Where, before the commencement of the arbitral proceedings, a party files an application for any interim measure of protection under sub-section (1), the arbitral proceedings shall be commenced within a period of ninety days from the date of filing of such an application in the Court. 

The present scenario required commencement of arbitration proceedings from the date of the Court’s order under sub-section (1) of Section 9.

Time-limit to rule on Jurisdictional challenges under Section 16: The proposed amendment mandates a 30-day deadline for arbitral tribunals to rule on jurisdictional challenges under Section 16(5). This reform aims to expedite the resolution of objections to the tribunal’s jurisdiction, preventing unnecessary delays and ensuring expedited arbitration proceedings.

Time-Limit to appoint Arbitrators under Section 11: Under the proposed amendment, applications for the appointment of arbitrators under Section 11(4), (5), and (6) must be filed within 60 days from the date of failure or refusal to appoint an arbitrator. 

The current law does not specify a time limit.

However, the Supreme Court opted to apply a three-year limitation as provided under Article 137 of the First schedule of the Limitation Act, 1963. In BSNL v. Nortel Networks (India) (P) Ltd⁴, the Apex Court observed that this extended period was inconsistent with the Arbitration Act’s objective of expeditious dispute resolution and recommended legislative intervention. 

This amendment remedies the unreasonably long period of delay. 

Time-Limit to file appeal under Section 37: The proposed subsection (1A) of Section 37 prescribes a time-limit to file an appeal against orders passed under Sections 8,9 and 32. There is no prescribed timeline in the current law.

Sub-section 1-A of Section 37 is a non-obstante clause and states that notwithstanding anything contained in any other law, an appeal under sub-section (1) shall be made within 60 days from the date of receipt of the Order appealed against, but not thereafter.

Although the rationale for introducing these timelines is expedition in disposal of cases, it remains to be seen whether these provisions are meant to be strictly enforced or if Section 5 of the Limitation Act would allow for extensions in exceptional cases.

Focus on Institutional Arbitration

The Department of Legal Affairs has proposed amendments to significantly expand the scope of Institutional Arbitration in India. Its proposed amendment by way of introduction of Section 2(1)(ca) of the Act would see the definition of ‘Arbitral Institutions’ significantly altered.

In the present act, an arbitral institution has been defined as an institution designated by the Supreme Court or a High Court under this Act. 

While In the proposed Amendment, it has been defined as a body or organisation that provides for conduct of arbitration proceedings under its aegis, by an Arbitral Tribunal as per its own rules of procedure or as otherwise agreed by the parties.

Furthermore, The draft amendment enhances the role of arbitral institutions by granting them powers previously held by courts under Section 29A. These include extending the tribunal’s mandate, substituting arbitrators, and reducing arbitrators’ fees for delays. By shifting these responsibilities from the judiciary to specialized arbitration bodies, the amendment aims to streamline proceedings, improve efficiency, and reduce court interference, strengthening the institutional arbitration framework in India.

Emphasis on Seat of Arbitration

The proposed amendment seeks to bring much-needed clarity to the distinction between the seat and venue of arbitration, an issue that has often led to countless jurisdictional conflicts and litigation delays. 

The amendment replaces the term “place” with “seat” across multiple provisions, ensuring that the seat of arbitration is understood as the legal jurisdiction governing arbitration proceedings, while the venue merely denotes a physical location. This move aligns Indian arbitration law with international standards and the Supreme Court’s jurisprudence from BALCO v. Kaiser Aluminium to BGS SGS Soma JV v. NHPC Ltd⁵, which has repeatedly emphasized the importance of this distinction between seat and venue.

Section 2A embodies this change, introducing a revised definition of “court,” ensuring that jurisdiction is determined based on the agreed seat of arbitration. For domestic arbitrations, jurisdiction will be vested in courts with territorial and pecuniary jurisdiction over the seat. For international commercial arbitrations, the relevant High Court will have jurisdiction over the seat, reinforcing the legal framework.

Moreover, the amendment to Section 20 introduces two approaches to determining the seat of arbitration:

1. Option I allows parties to expressly designate a seat, and in the absence of such agreement, empowers the arbitral tribunal to determine it based on relevant circumstances.
2. Option II eliminates party autonomy in choosing the seat and instead fixes it as the place where the contract was executed or where the cause of action arose, though parties may still decide the venue.

By clarifying the seat-venue distinction and restructuring jurisdictional provisions, the amendment aims to minimize legal ambiguities and expedite arbitration proceedings in India. However, addressing potential inconsistencies between different provisions remains crucial for ensuring the effectiveness of these reforms.

Elimination of the Fourth Schedule 

The bill eliminates the Fourth Schedule, which previously set arbitrator fees based solely on the dispute’s monetary value. This move follows the Expert Committee’s recommendation, which criticized the existing fee structure for lacking flexibility and failing to account for factors such as case complexity, time investment, and evidentiary requirements.

To address this, the amended Sections 11(14) and 11A establish a new approach:

• Institutional arbitrations will follow the fee structures set by the respective arbitral institutions.
• Ad hoc arbitrations, or cases where institutional rules do not apply, will have fees determined by the Arbitration Council.

It is important to note that while the amendment removes rigid fee slabs, it does not introduce a concrete alternative method for fee determination, leaving this responsibility to the Council.

Enhanced Form and Clarity in Content of Arbitral Award

The proposed amendment introduces Section 31(2A), which establishes a mandatory requirement for arbitral awards to explicitly conform to fundamental legal and procedural standards. Specifically, the award must affirm that:

1. No party was incapacitated.
2. The arbitration agreement is legally valid under the governing law chosen by the parties or, in the absence of such a choice, under the applicable law in force.
3. All parties were properly notified of the arbitrator’s appointment and the arbitration proceedings and had a fair opportunity to present their case.
4. The composition of the arbitral tribunal complied with the parties’ agreement.
5. The arbitration process followed the agreed procedural framework.
6. The dispute falls within the scope of matters that can be settled through arbitration under the applicable law.
7. The award remains strictly within the terms of the arbitration submission.

The introduction of these requirements is intended to mitigate the chances of an award being challenged or annulled under the proposed amendments to Section 34(2). This provision seeks to preserve the finality and conclusiveness of dispute resolution by ensuring procedural transparency and adherence to legal standards.

Reclassification of Grounds for Challenge of Arbitral Award

The proposed amendment introduces a structured approach to challenging arbitral awards by clearly distinguishing between grounds that justify setting aside an award in its entirety and those that allow for a partial annulment.

The breakdown:

• Complete Annulment (Section 34(2)): An award may be set aside in its entirety if fundamental procedural defects exist, such as party incapacity, an invalid arbitration agreement, lack of proper notice, improper tribunal composition, or if the dispute is inherently non-arbitrable.
• Partial or Complete Annulment (Section 34(2A)): An award may be set aside wholly or partially if the arbitrators have exceeded their jurisdiction, the award is contrary to public policy, or if there is patent illegality in the decision.

Recognition of Partial Setting-Aside of Awards:

The amendment explicitly allows courts to set aside an arbitral award in part, addressing a gap in the existing framework. This is in line with the Delhi High Court judgement in NHAI v. Trichy Thanjavur Expressway Ltd⁶

If an award is partially annulled, the court or appellate arbitral tribunal may direct the arbitral tribunal to reconsider only the affected issues, while the unaffected portions remain binding. The tribunal’s reconsideration will primarily rely on the original arbitral records unless the court directs otherwise.

Mandatory Formulation of Challenge Grounds:

The amendment requires courts or appellate arbitral tribunals to first formulate specific grounds of challenge before proceeding to hear the application. This is aimed at promoting clarity & finality in arbitral awards. It would inevitably discourage baseless challenges and pointless litigation arising out of the same.

Courts still retain the discretion to consider additional grounds later, provided reasons are recorded in writing.

Disclosure Requirement for Repeat Disputes:

Parties challenging an arbitral award under Section 34 will be required to disclose any prior or pending challenges related to disputes arising from a common legal relationship, whether contractual or otherwise.

Conclusion

It can be concluded that although most of the proposed changes to the arbitration regime are noteworthy, there are certain provisions that may create hurdles in the swift and effective resolution of disputes through arbitration. Among the changes that further the agenda of arbitration are the introduction of timelines for various applications and the incorporation of provisions related to emergency arbitration. However, disempowering courts under Section 9 from granting relief once an arbitral tribunal is constituted is not a favorable change. Additionally, extending the nebulous “patent illegality” test to international commercial arbitration could be counterproductive.

1. AIR 2021 SC 3723
2. AIR 2020 SC 3163
3. AIR 2003 SC 2629
4. AIR 2021 SC 2849
5. AIRONLINE 2019 SC 1720
6. 2023: DHC: 5834