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BACKGROUND

 

With
an increase in cross border transactions and open economic policies acting as a
catalyst, commercial disputes have been steadily rising. The Indian judiciary
has been criticized for an interventionist approach in arbitration,
particularly when it involves a foreign party. Some recent judgments of the
Indian courts have created some controversy and confusion on the law governing
arbitration. Arbitration in India is plagued inter-alia by
unreasonable delays, high costs, and delay in enforcement of the award. Some
have even questioned that the very purpose behind enacting the Arbitration and
Conciliation Act, 1996 (the “Act”), which was to provide for quick
and effective alternative dispute resolution, stands frustrated. The
confidence, trust and faith of the parties to resolve disputes through
arbitration has eroded significantly over a period of time. Taking note of
these developments, the Law Commission of India, led by its Chairman Justice
A.P. Shah has submitted its 246th report to the Ministry of Law and Justice
(the “Law Commission Report”) in August 2014, suggesting sweeping
changes to the Act that will have a significant impact on arbitration in India.

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WHAT IS
MEDIATION?

 

In 2002, Section 89 of the Indian Code of Civil Procedures was
amended and has given way to alternative dispute resolution methods such as
arbitration, mediation, conciliation and pre-trial settlement methodologies.

Mediation is usually defined as “A voluntary process by which parties involved
in a conflict, in the presence of a neutral third-party, negotiates to arrive
at a settlement satisfactory to both parties.” The above definition very
clearly states that the process of mediation is voluntary. This means that no
party can be threatened into participating in the process. Remembering this, if
we inspect the idea of alluding cases for necessary intervention, it appears to
be repetitive and damages the very premise of the intercession procedure.

 

PROCESS OF
MEDIATION

 

In certain types of cases, the courts can make it mandatory
for the parties to be given an option of mediation. The judge, thus, has a
great responsibility of referring only the appropriate cases for the process of
mediation. The case should be deemed as appropriate for the process of
mediation if and when the judge can ascertain that elements of settlement exist
in the case. A case can be referred to the process of mediation, whenever the
judge believes that there is a possibility of the settlement if the case is
referred to the process of mediation, or if the parties voluntarily choose the
mediation. Both the parties should be aware of the rights available to them and
should be informed and prepared for entering into negotiations to reach a
settlement or agreement that will satisfy the needs of both the parties.

 

MEDIATION IN
INDIA CURRENTLY

 

At
present, in India, mediation applies to divorce cases and other matrimonial
disputes. On 22 February 2013, the Supreme Court of India passed a judgment
that laid down the following guidelines for courts while dealing with matrimonial
matters:

 

“Regarding Section 9 of the Family
Courts Act, the Family Courts shall make all efforts to settle the matrimonial
disputes through mediation. Even if the Counsellors submit a failure report,
the Family Courts shall, with the consent of the parties, refer the matter to
the mediation centre. In such a case, however, the Family Courts shall set a
reasonable time limit for mediation centres to complete the process of
mediation because otherwise the resolution of the disputes by the Family Court may
get delayed. In a given case, if there is good chance of settlement, the Family
Court in its discretion, can always extend the time limit.

 

The criminal courts dealing with the
complaint under Section 498-A of the IPC should, at any stage and particularly,
before they take up the complaint about hearing, refer the parties to mediation
centre if they feel that there exist elements of settlement and both the
parties are willing. However, they should take care to see that in this
exercise, rigor, purport and efficacy of Section 498-A of the IPC are not
diluted. Needless to say that the discretion to grant or not to grant bail is
not in any way curtailed by this direction. It will be for the concerned court
to work out the modalities taking into consideration the facts of each case.

 

All mediation centres shall set up
pre-litigation desks/clinics; give them wide publicity and make efforts to
settle matrimonial disputes at pre-litigation stage.”

 

In
India, mediation is slowly gaining recognition as a dispute settlement
mechanism.  Now before the court gives a divorce case a decree, the
parties are given a chance for reconciliation. Studies show that 10-15% marital
disputes get solved in mediation centres. Divorce issues like settlement;
maintenance and custody of the child are deemed perfect for the process of
mediation.

 

Section
9 of the Family Court Act states that the court can take the assistance of
counsellors to resolve marriage related disputes, as it is the duty of courts
to make the best effort to resolve the disputes under this section. In case the
counsellors are unable to help resolve the dispute then the courts should refer
such cases to mediation centres, as a complete effort to resolve the dispute.

 

Many
mediation centres are setting up ‘Help Desks’ at places within the court
complex, this is helping bring forward the concept of pre-litigation mediation
in India. The recent statistics gives an insight that the Delhi High Court
Mediation Centre and Delhi Government Mediation and Conciliation Centres have
been successful in resolving many marital disputes. Such centres are gaining
success and popularity, very fast, in the sector of pre-litigation mediation.

Pre-litigation mediation in India can be made as a standard way of resolution
of marriage related disputes with sufficient publicity and effort; the parties
will also be saved from the various problems that arise after a divorce.

 

In
the case of Ramgopal & Anr. v. State of Madhya Pradesh & Anr.,
the court asked the Law Commission and the Government of India to do research,
to determine if the punishments for the offenses mentioned under Section 498-A
of the Indian Penal Code that is currently none compoundable can be made
compoundable. If these offenses are made compoundable, then the courts can
order the parties involved in such disputes to consult the mediation centres.

 

Mediation
is gaining popularity as a method of dispute resolution, very fast. This is
also increasing the number of people who rely on the process of mediation for
resolution of disputes. Based on this Indian courts may consider venturing out
into other alternate dispute resolution mechanisms.

 

Mediation
as a process can be used to resolve various areas of disputes, most of the
civil cases can be referred to mediation for resolution. Matters related to
rent, partition, recovery of money, labour, damages, specific performance,
recovery of money, injunction, declaration, dispute between a landlord and a
tenant, case of dishonoured cheques, claims related to motor accidents, etc.,
are some examples of types of cases that are suitable for the process of
mediation.  There are also criminal offenses like those mentioned under Section
320 of the Code of Criminal Procedure that can be resolved through the process
of mediation.

 

HIGHLIGHTS OF
THE LAW COMMISSION REPORT

 

Encourages Institutional
Arbitration

 

The
Law Commission Report has: (a) suggested the promotion and encouragement of the
culture of institutional arbitration in India, which the Commission recognizes
as the way forward; (b) recommended that the High Court and the Supreme Court
while acting in exercise of jurisdiction under Section 11 of the Act take steps
to refer disputes to institutionalized arbitration; and (c) recommended legal
sanction to “emergency arbitrator”, which is a popular and
effective remedy provided for by leading international arbitration
institutions.

 

Expeditious Proceedings

 

The
Law Commission Report has recommended that: (a) an application for appointment
of an arbitrator be disposed of within 60 (sixty) days from the date of service
of notice on the opposite party; (b) arbitration proceedings shall be commenced
within 60 (sixty) days from the day of grant of interim measures failing which
the interim measure of protection shall cease to operate; (c) challenges to
arbitral awards shall be decided expeditiously and in any event within a period
of 1 (one) year from the date of notice to the respondent; (d) arbitrator shall
disclose whether he is in a position to finish the arbitration with 24 (twenty
four) months and render award within 3 (three) months; and (e) the arbitral
tribunal should hold proceedings on continuous days and no adjournments shall
be granted unless sufficient cause if made out and costs may be imposed on the
party seeking adjournment.

 

Setting Aside Of
Domestic Award & Recognition/Enforcement Of Foreign Awards

 

The
Law Commission Report has recommended that in cases of foreign awards and
awards passed arising out of international commercial arbitration in India, a
narrower construct be given to “public policy”, as so to
include only: (i) the fundamental policy of Indian law; and (ii) the most basic
notions of justice or morality. With a view to do away with the unintended
uncertainties caused by the Supreme Court’s judgment in ONGC v. Saw
Pipes, (2003) 5 SCC 705, the Law Commission Report has proposed specific
provisions dealing with setting aside of the domestic award on grounds of patent
illegality. The test of “patent illegality on the face of the award”
has been restricted only to domestic awards not resulting from an international
commercial arbitration.

 

Judicial Intervention In
Foreign Seated Arbitration

 

The
Law Commission Report has reinforced the judgment of the Supreme Court in Bharat
Aluminum and Co. v. Kaiser Aluminum and Co., (2012) 9 SCC 552. The Law
Commission Report has recommended that: (a) the Indian courts will have
jurisdiction under Part I of the Act, only when the seat of arbitration is
within India; (b) certain provisions in Part I of the Act, such as Section 9
(interim relief), Section 27 (court assistance for taking evidence), Section
37(1)(a) and 37(3) (appealable orders), will remain available to parties in a
foreign seated arbitration; and (c) legal recognition be accorded to the terms
“seat” and “venue”, consistent with
international usage. The proposed changes will not affect applications pending
before any judicial authority, relying upon the law set out by Bhatia
International v. Interbulk Trading SA, (2002) 4 SCC 105.

 

Interim Measures

 

The
Law Commission Report has: (a) recommended that once the arbitral tribunal has
been constituted, the Court shall not entertain an application under Section 9
of the Act for interim measures unless circumstances exist making the remedy
under Section 17 not efficacious; (b) clarified the wide range of powers of the
arbitral tribunal to grant interim measures; and (c) provided teeth to interim
orders of the arbitral tribunal in as much as they can be enforced like court
orders.

 

Challenge To An Arbitral
Award

 

The
Law Commission Report recommends that in cases of international commercial
arbitration the challenge to an arbitral award shall be decided by the High
Court even if such High Court does not exercise civil jurisdiction. The
challenge to an arbitral award on grounds of patent illegality appearing on the
face of the award is restricted to only domestic arbitration and not
international commercial arbitration.

 

No Automatic Stay Of The
Arbitral Award

 

The
Law Commission Report recommends amendments to do away with the present regime
where the mere filing of a challenge petition to the arbitral award under
Section 34 of the Act acts as an automatic stay of the award. It has been
recommended that an application has to be filed seeking to stay the operation
of the award and the court is required to record reasons in writing for grant
of such stay. While considering the grant of stay, the provisions for stay of
money decree under the provisions of Code of Civil Procedure, 1908 would apply.

 

Reduces Scope For
Objections At The Time Of Appointing Arbitrators Or Referring The Dispute To
Arbitration

 

It
has been recommended that questions regarding the existence of an arbitration
agreement (that are raised in proceedings under Section 8 and 11 of the Act)
shall be referred to arbitration and the arbitral tribunal shall decide such
issues.

 

Parties To Arbitration

 

In
consonance with the judgment of the Supreme Court in Chloro Control
India Private Limited v. Severn Trent Water Purification Inc. and
others, (2013) 1 SCC 641, the definition of the word “party”
to an arbitration agreement has been expanded to also include persons claiming
through or under such party. Therefore, even non-signatories to the arbitration
agreement may be covered in cases involving inter-related contracts or, group
companies.

 

Arbitrability Of Fraud
And Complicated Issues Of Fact

 

The
Law Commission Report recommends that questions of fraud, serious questions of
fact and law are expressly arbitrable, putting a rest to the confusion created
by recent judgments of the Supreme Court.

 

Disclosure By The
Arbitrator

 

Recognizing
that independence and neutrality of the arbitrator is critical to the entire
arbitration process, the Law Commission Report has recommended that the Fourth
and Fifth Schedule be inserted that set out grounds that give rise to
justifiable doubts as to the independence or impartiality of arbitrator, and
the conflict of standards based on the IBA guidelines. The arbitrator is
required to make certain disclosures to ensure that independence and neutrality
standards are met. The arbitrator is also required to disclose if there exist
circumstances that are likely to affect his ability to devote sufficient time
and to complete the arbitration within 24 (twenty four) months and pass the
award within 3 (three) months thereafter. The disclosures also require the
arbitrator to disclose his ongoing arbitrations.

 

Costs

 

The
Law Commission Report recommends the loser-pays rule to act as a deterrent to
frivolous litigation. It has been recommended that an arbitral tribunal have
the discretion to determine the amount of costs including the reasonable costs
towards the fees and expenses of the arbitrators, legal fees, and expenses
towards conducting arbitration. It has also been recommended that the conduct
of parties will be a determining factor in awarding costs including the refusal
of a party to unreasonably refuse a reasonable offer of settlement made by the
other party.

 

Cap On The Fees Of The
Arbitrator

 

The
Law Commission Report has recommended addition of the Sixth Schedule suggesting
model fees in case of domestic ad-hoc arbitration other than international
commercial arbitration with a view to ensure that the arbitration process does
not become very expensive.

 

Power Of The Arbitral
Tribunal To Award Interest

 

The
Law Commission Report has recommended amendments to Section 31 of the Act to
clarify the powers of the arbitral tribunal to grant compound interest as well
as to rationalize the rate at which default interest ought to be awarded and
move away from the statutory 18% (eighteen percent) interest in the present
regime to a market based determination in line with commercial realities.

 

CONCLUSION

 

The
Law Commission Report is a step in the right direction to overhaul the system
of arbitration in India. If the recommendations are accepted, the systemic
malaise and the problems that arbitration faces in India is likely to be
redressed and this will go a long way in making India an arbitration hub.

However, some concerns still remain. After the Law Commission Report was
submitted to the Government, the Supreme Court recently passed a judgment
in ONGC v. Western Geco, 2014 (9) SCC 263
(“Western Geco”) which has broadened the scope of “fundamental
policy of Indian Law” to include the requirement of arbitral tribunals
to follow a “judicial approach” and the “wednesbury
principle of reasonableness”. This would open floodgates for challenge
to an arbitral award as review of the award on merits would be permitted. This
is not a good development. Keeping this in mind, the Law Commission of India
has submitted a Supplementary Report on February 6, 2015 (the
“Supplementary Report”), to the Ministry of Law and Justice, seeking
to nullify the effect of the Western Geco judgment. However, the Supplementary
Report may not be adequate to curtail the applicability of Western Geco. While
these events are being watched closely and are being widely perceived as a sign
of good things to come, it will be interesting to see to what extent the Government
will accept the Law Commission Report and how soon these changes are
introduced, and if the amendments stand the scrutiny of the judiciary.

 

Mediation
is a safe, informal and confidential method to resolve issues involving simple
and complex contract disputes, payment disputes, cases based on
miscommunication, matter pertaining to product satisfaction as well as safety
issues, matters relating to service satisfaction issues, employment disputes,
insurance disputes, debt disputes, disputes relating to Personal injury, civil
rights and small claim matters.

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