This article was featured in our 2023 Construction Arbitration Report, which is part of a series of industry-focused arbitration reports edited by Jus Connect and Jus Mundi.
This issue explores the construction industry and presents a goldmine of information based on data available on Jus Mundi and Jus Connect as of May 2023. Discover updated insights into construction arbitration and exclusive statistics & rankings, as well as in-depth global and regional perspectives on construction projects, disputes, & arbitration from leading lawyers, arbitrators, experts, arbitral institutions, and in-house counsel.
THE AUTHOR:
Prateek Jain, Partner at Masin
In recent years, to cater to its broader goals of fostering economic growth, improving the business environment, strengthening its position in the global market, attracting foreign investment, and easing the burden on courts for settling commercial disputes, India has made significant strides in positioning itself as a prominent destination for domestic and international arbitration. The construction industry is one of the most active and complex sectors for arbitration in India and is, therefore, the biggest beneficiary of these winds of change.
The Act and the Recent Amendments:
The Arbitration and Conciliation Act (“1996 Act”), which came into force on January 25, 1996 and is based on the UN model law adopted by the United Nations Commission on International Trade Law (“UNCITRAL”), was enacted to provide a legislative framework for the conduct of international commercial arbitration, domestic arbitration, and enforcement of foreign arbitral awards.
Despite the enactment of the Act, arbitration in India faced several challenges, such as delays in resolving disputes, the lack of clarity in the Act with respect to certain provisions, the interference of courts in the arbitration process, and the increased costs.
Therefore, in an attempt to make arbitration the preferred mode of settlement of commercial disputes, create greater confidence in parties to choose India as a seat for arbitration, and make India a hub of international commercial arbitration, this 1996 Act was amended three times in the last decade, on October 23, 2015, August 9, 2019 and March 10, 2021.
Key Amendments in the Act Promoting Arbitration as a Means to Resolve Complex Construction Disputes in India:
The key factors that make arbitration an attractive and preferred option for the resolution of complex construction disputes over litigation are the advantages in terms of confidentiality, expertise, flexibility, neutrality, enforceability, cost and time efficiency, and the potential to preserve business relationships.
Accordingly, the changes associated with the above-listed areas are the key amendments that drive this wind of change and shift of preference in India from litigation and other alternative dispute resolution (“ADR”) methods to arbitration. The major amendments are as follows:
Enhancement in the Authority of the Arbitral Tribunal and Enforcement of Mandatory Referrals by Judicial Authorities
Key amendments in this area include:
- The 2015 Amendment to Section 8 and Section 9 mandates all judicial authority to refer the parties to arbitration in respect of an action brought before it, which is subject to an arbitration agreement, and that the arbitral proceedings shall have to commence within 90 days once the Court passes an interim measure of protection under the section.
- The 2015 and 2019 Amendments to Section 17 empower the arbitral tribunal to have (under Section 17 of the Act) the same powers that are available to a court (under Section 9), and that the interim order passed by an arbitral tribunal during arbitral proceedings would be enforceable as if it is an order of a court.
- The 2015 Amendment to Section 2(2) envisages that subject to the agreement to the contrary, Section 9 (interim measures), Section 27 (taking of evidence), Section 37(1)(a), and 37(3) (Appealable orders), shall also apply to international commercial arbitrations, even if the seat of arbitration is outside India.
These amendments empower the Arbitral Tribunal and ensure that parties resort to arbitration to get their disputes settled if the matter is subject to an arbitration agreement.
Restrictions on Automatic Stay of the Arbitral Award upon the Filing of a Challenge in the Courts
Key amendments in this area include:
- The 2015 and 2019 Amendments to Section 36 and Section 87 stipulate that the arbitral award, for proceedings post-2015 Amendment, would not be stayed automatically by merely filing an application under Section 34 for setting aside the award.
- The 2021 Amendment, through the introduction of a condition under section 36(3), ensures that when a party challenges an arbitral award and alleges that it was induced or affected by fraud or corruption, the court, upon being prima facie satisfied, shall stay the award unconditionally until the challenge is disposed of.
These amendments impose strict restrictions to the unconditional stay and/ or setting aside of the awards merely by filing an application under Section 34. It also makes the arbitration system robust and less prone to corruption and impartial judgments.
Freedom to Choose Arbitrators
The 2021 Amendment Act, through the substitution of Section 43J and deletion of the Eighth Schedule, provides the freedom to appoint a foreign national arbitrator. This plays a crucial role in the selection of an arbitrator having the right set of knowledge and expertise to be able to handle complex and large technical disputes in the construction industry efficiently and effectively.
Declaration of Impartiality and Independence of Arbitrators
The 2019 Amendment sets that the declaration and disclosures on the part of the arbitrator about his independence and impartiality shall be more onerous and in the specified formats (Sixth and Seventh Schedule of the Act). This amendment promotes foreign parties to opt for arbitration in India as it restricts Indian Government bodies to appoint their employees or consultants as arbitrators.
Confidentiality of Arbitration and Protection of the Arbitrators from Legal Proceedings
Key amendments in this area include:
- The 2019 Amendment, through the introduction of Section 42A, provides for maintaining the confidentiality of arbitration proceedings by the arbitrators, arbitral institutions, and the parties to arbitration, except where its disclosure is necessary for implementation and enforcement of the award.
- The 2019 Amendment, through the introduction of Section 42B, protects the arbitrators from any legal proceedings against acts done in good faith or as intended to be done under this act.
These amendments ensure the confidentiality of arbitration proceedings and protection of the Arbitrators from legal proceedings against acts done in good faith.
Establishment of the Arbitration Council of India (“ACI”) and Grading of Arbitral Institutions and Arbitrators
- The 2019 Amendment, through the introduction of Section 43, establishes the Arbitral Council of India (“ACI”) with the primary agenda, including ‘Grading of arbitral institutions and arbitrators’, ‘Formulation of policies and training relating to Arbitrations’, ‘Maintaining an electronic depository of the awards made in India’, and ‘Promotion of ADR’.
This amendment led to an increase in institutional arbitration in India and recognition of the importance of state-of-the-art infrastructure, and investment within India toward establishing world-class arbitration centres. The construction industry is the biggest beneficiary of this amendment, as their disputes are known to have complexity and details with crucial demand for infrastructure for arbitration proceedings, which is now available through institutions such as the Mumbai Centre for International Arbitration (“MCIA”) and the Delhi International Arbitration Centre (“DIAC”) among others.
Scope of Pleadings and Basis of the Decision
Key amendments in this area include:
- The 2015 and 2019 Amendments to Section 23, entitle the Respondent to submit a counterclaim or plead a set-off in the proceedings within the scope of the arbitration agreement. It also enforces timelines for submission of a statement of claim and defence, within six months of arbitrators being appointed.
- The 2015 Amendment to Section 25 empowers the tribunal to treat the Respondent’s failure to submit his statement of defence as forfeiture of his right to file a statement of defence, but without treating such failure as an admission of the allegations made by the Claimant.
- The 2015 Amendment to Section 28 seeks to relieve the arbitrators from strictly adhering to the terms of the contract while deciding the case. Though the terms of the contract are still not to be ignored, this brings in an element of discretion in favor of the arbitrators while writing an award.
- The 2015 Amendment to Section 31 stipulates that the whole or part of the cost of arbitration shall be paid by the party who initiated the arbitration proceeding, only if the arbitration agreement is made after the dispute in question had arisen.
- The 2015 Amendment to Section 31 also provides for the levy of future interest, in the absence of any decision of the arbitrator on the awarded amount, at 2% higher than the rate of interest prevalent on the date of the award.
- These amendments ensure the protection of the Respondent’s right to counterclaim, imposes strict timelines for submission of the Parties’ pleadings of arbitration proceedings, relieve the arbitrators from going beyond the terms of the contracts while deciding the case, and enhance the degree of freedom in certain decision and award by the tribunal.
Time-bound and Cost-saving Proceedings of Arbitration
Key amendments in this area include:
- The 2015 and 2019 Amendments, through the introduction of Section 29A and 29B, imposed that the arbitral award shall be made within 12 months from the appointment of arbitrators, with a period extension of a maximum of 6 months with the consent of the parties, unless the Court extends it for sufficient cause or on such other terms it may deem fit.
- The 2015 Amendment to Section 24 stipulates that the hearing for the presentation of evidence or oral arguments be held on a day-to-day basis and mandates the tribunal not to grant any adjournments unless sufficient causes are shown.
- The 2015 Amendment to Section 11 makes it incumbent upon the Supreme Court, or the High Court, or a person designated by them, to dispute the application for appointment of arbitrators within 60 days from the date of service of notice. It also empowers the High Courts to fix limits on the fee payable to the arbitrator as per the rates in Fourth Schedule.
- The 2019 Amendment through the introduction of Section 11(3A) stipulates that in cases where parties cannot reach an agreement, the court, instead of stepping in to appoint the arbitrator(s) by themselves, which takes considerable time, may designate graded arbitral institutions to perform that task.
These amendments make arbitration proceedings time-bound and cost-saving, which is particularly helpful for construction arbitrations, where the appointment of arbitrators and proceedings can often be a lengthy and complex process due to factors such as the technical nature of the disputes requiring specialized knowledge and expertise, requirement of interim relief, and consolidation of arbitrations due to involvement of multiple contracts, subcontractors, and parties.
Overall, the recent changes have made the arbitration process more efficient and effective, which is crucial for dispute resolution in the construction industry where time is often of the essence and late settlement of disputes can have significant financial implications.
Furthermore, India’s judiciary has also played a crucial role in promoting arbitration and ensuring the smooth functioning of the Amended Act. The consistent judgments from the judiciary have clarified legal ambiguities, reduced judicial interference, and established a strong precedent for the enforcement of domestic and foreign arbitral awards. Such judgments and the judiciary’s pro-arbitration stance have contributed to the acceptance of arbitration as a preferred method of resolving construction disputes in India.
Conclusion
The recent amendments to the Indian Arbitration and Conciliation Act have brought significant changes that have made the arbitration process more time-efficient, cost-effective, enforceable, and confidential. The amendments have successfully tackled various challenges previously faced by construction and other industries. Although there is still ample room for further improvement, I firmly believe that the winds of change have begun blowing in the right direction for the resolution of complex construction disputes in India.
India‘s journey to becoming an international arbitration hub is ongoing, and the efforts made thus far have already started to bear fruit. These recent amendments and the consequential reforms, infrastructure development, and the promotion of a pro-arbitration environment are allowing India to continue its journey towards becoming a preferred arbitration destination and making its mark in the international arbitration landscape – starting with the Asia Pacific region – since India’s strategic geographic location makes it an attractive choice for resolving cross-border disputes.
ABOUT THE AUTHOR
Prateek Jain, a Partner at Masin, is a seasoned expert witness with over 12 years of experience specializing in dispute resolution and claim consultation within the engineering and construction industry. With specific expertise in conducting Delay, Quantum, and Technical Analysis, he has worked across various Engineering, Procurement, and Construction (EPC) sectors such as Manufacturing Plants (Chemical, Medical, & Metallurgical), Power Plants (Thermal, Nuclear, & Hydro), Roads and Highways, Buildings and Infrastructure Projects (Residential & Commercial), and Pipeline (Petrochemical, Water, & Sewerage). Prateek’s extensive project portfolio encompasses regions spanning the Middle East, South Asia, Central Asia, Southeast Asia, and Africa.
Find more data-backed insights in our 2023 Construction Arbitration Report
