Corporates in course of business enter into contracts, but often, when matters do not go as planned, they have to contend with a raft of new challenges resulting into a dispute. Aside traditional litigation, arbitration has been increasingly adopted as an effective means of resolving international & commercial disputes which if used in an appropriate manner lay out a fair playing field and if possible an advantage specially in respect of Jurisdiction, Governing & Procedural Laws, Time frame, Cost effectiveness etc. to help the business achieve its objectives. The Civil Courts for various reasons have not been able to fulfill these objectives, leaving the Corporates to evolve a strategy to look towards Alternative Disputes Resolution (ADR) Mechanisms.
The initial attempt made under the Arbitration Act, 1940 allowed the Courts to interfere at every stage of the arbitration proceeding; till the passing of the award although, The Arbitration and Conciliation Act, 1996 replaced it, and aimed at providing faster and efficient resolution of disputes, but could not achieve the purpose.
In order to make India a Hub for International Arbitration and to facilitate quick enforcement of contracts, easy recovery of monetary claims, reduce the pendency of cases in Courts in October 2015 the 1996 Act was amended which elevated the hopes of the Legal Fraternity to put in place a robust legal strategy which may provide a faster and effective dispute resolution Mechanism .
Some of the major changes brought by the amendment towards the aforesaid are :
• (Section 9). Commencement of arbitral proceedings within 90 days or time given by the Court and limiting the scope of Court’s interference thereafter.
• Section 11. Fixing 60 days for disposal of application for appointment if arbitrator& fixing the Arbitrators Fee
• Section 12. Declaration by the arbitration about independence and impartiality. Insertion of 5th &7th Schedule listing grounds raising doubt to independence and impartiality and ineligibility
• Section 14. Substitution of arbitrator by another one
• Section 17.Making orders passed by the Tribunal enforceable as those of Courts
• . Section 23. Providing for filling counter claim or plead a set-off falling within the scope of arbitration agreement .
• Section 24. Requiring tribunal to hold hearing on day to day basis & impose exemplary cost
• Section 29A &29B. Mandating the passing of the award in 12 months with a maximum extension of 6 months and terminating the mandate beyond that extendable only by Courts & providing for substituting one or all the arbitrator(s) and for reduction of arbitrator’s fee. Fast track procedure for deciding disputes without any oral hearings and passing of award in 6 Months
• Section 28 The tribunal to take into account the terms of contract and trade usages applicable to the transaction
• Section 31 Awarding future interest @ 2% higher than the current rate of interest if not decided by Arbitrator.
• Section 34 Limiting the scope of public policy to challenge the Award. Provision for service of advance notice and disposal within 1 year thereof.
• Section 36. Stay of awards only if granted by the Court
The Arbitration And Conciliation (Amendment) BILL 2018 aims to further improvise the ADR Mechanism by inter-alia providing for.
a. directly approaching the arbitrators from designated arbitral institutions by the Supreme Court or the High Court.
b. creation of ACI (Arbitration Council of India).
c. Providing clarification on the applicability of Amendment Act 2015 (Section 87) .
The provisions of the Act have been amended to ensure that there exists an economically viable , efficient, speedy, dispute resolution mechanism & therefore now every corporate needs to evolve a strategy to how to use the Mechanism to their best advantage depending upon which side of the dispute they may stand which puts a major thrust and importance in drafting and incorporating an appropriate customized arbitration clause in the agreement(s),in line with overall Corporate Strategy.
For customizing an appropriate Corporate Arbitration Strategy Inter-alia the following may be focused:
1. Seat Of Arbitration, Enforcement & Procedural Law: The seat also usually determines the procedural law to be followed unless agreed otherwise. However, preferably the seat should be in a country which is signatory to New York Convention.
2. Governing or Substantial Law: The Governing or the substantial law should be agreed or it might result in a dispute itself if left unspecified and can be of great advantage or disadvantage.
3. Number of Arbitrators: Depending upon the valuation of the matter multi level Clauses for referring disputes upto a certain value to sole arbitrator and beyond that to a larger number of arbitrators can be incorporated.
4. Language of arbitration: this poses a major concern in countries not following English as a formal language ,therefore dual/multi languages can also be agreed upon.
5. Institutional or Ad Hoc Arbitration: Pro’s and Con’s of both be carefully evaluated depending on the anticipated dispute as what may appear to be effective (Cost & Time) may actually be not so.
6. Scope of Arbitration Agreement: Depending upon the potential dispute the scope should be enlarged or minimized.
7. Mandatory Rules & Waiver of Non Mandatory Rules: Since Mandatory Rules cannot be changed they should be specifically incorporated along with waiver of all the Non-Mandatory Rules.
8. Appellate Arbitration: The Hon’ble Supreme Court upheld the legality of Two Tier Arbitration Procedure or second instance Arbitration, this can be used as an effective mechanism
Majority of the Corporate due to these amendments are once again ready to explore and adopt the ADR mechanism having realised that by thinking strategically and tactically drafting a customized arbitration clause they can not only reduce the ultimate business risks but can also increases odds of success and reduce unnecessary costs and risks like the risk-allocation process .