“Key Proposals In The Draft Arbitration And Conciliation (Amendment) Bill 2024 What Changes For India”

Abstract

The Indian arbitration landscape stands on the precipice of its most significant transformation in nearly a decade. The Draft Arbitration and Conciliation (Amendment) Bill, 2024, made public by the Ministry of Law and Justice for stakeholder consultation, proposes a series of profound amendments to the Arbitration and Conciliation Act, 1996. This draft legislation is the culmination of years of judicial experience, stakeholder feedback, and a pressing need to position India as a premier hub for international commercial arbitration. Building upon the foundational changes introduced in the 2015, 2019, and 2021 amendments, the 2024 draft Bill seeks to address persistent structural and procedural challenges that have, thus far, impeded the efficiency and credibility of arbitral proceedings in India. The key proposals are multifaceted and ambitious. They include the establishment of a dedicated, sui generis Arbitration Council of India (ACI) to grade arbitral institutions and promote alternative dispute resolution (ADR); the introduction of a conclusive "Schedule" for fee determination to curb exorbitant costs; a stringent, timeline-bound framework for the appointment of arbitrators to eliminate court-related delays; the empowering of arbitral tribunals to act against "non-participating" parties; and a critical, albeit controversial, proposal to merge the two distinct regimes for the enforcement of domestic and international arbitral awards. This article provides a meticulous examination of these key proposals, analysing their potential implications for the future of arbitration in India. It delves into the historical context that necessitated these changes, the specific mechanisms proposed, the anticipated benefits for parties and practitioners, and the potential pitfalls and criticisms that the draft Bill must overcome. The overarching objective is to assess whether this legislative initiative will finally catapult India into the league of arbitration-friendly jurisdictions, fostering a ecosystem that is cost-effective, expeditious, and globally competitive.

1. Introduction: The Unending Quest for Arbitration Reform in India

The Arbitration and Conciliation Act, 1996, was enacted with the lofty ambition of revolutionizing dispute resolution in India. Based on the UNCITRAL Model Law, it promised party autonomy, minimal judicial intervention, and expedited enforcement of awards. However, over the years, the reality fell short of the aspiration. The act became mired in procedural delays, extensive judicial intervention, and high costs, earning India a reputation as an "arbitration-unfriendly" jurisdiction. This prompted a series of legislative interventions, beginning with the landmark 2015 Amendment, which was largely seen as a corrective measure to curtail judicial overreach and expedite proceedings. This was followed by the 2019 Amendment, which introduced a framework for the establishment of an independent arbitration council and accredited arbitral institutions, and the 2021 Amendment, which, among other things, unconditionally stayed the enforcement of an arbitral award where the underlying agreement was found to be induced by fraud or corruption.

Despite these efforts, systemic issues persisted. The appointment of arbitrators by courts remained a time-consuming process, the costs of arbitration continued to soar, the institutionalization of arbitration remained sluggish, and the dichotomy between the enforcement of domestic and international awards created procedural complexities. It is against this backdrop that the Draft Arbitration and Conciliation (Amendment) Bill, 2024, has been formulated. This draft Bill is not a mere tweaking of the existing statute; it is a comprehensive overhaul aimed at addressing the very foundations of these persistent problems. The government's intent is clear: to create a robust, self-sustaining, and world-class arbitration ecosystem within India. This article dissects the most significant proposals in the draft Bill, evaluating their potential to herald a new era for Indian arbitration.

2. The Arbitration Council of India (ACI): From Concept to Empowered Reality

One of the most ambitious proposals in the draft Bill is the formal constitution and empowerment of the Arbitration Council of India (ACI). While the concept was first introduced in the 2019 Amendment, the 2024 draft provides it with a concrete structure, expansive functions, and significant powers.

2.1. Composition and Structure:

The ACI is envisioned as a premier body, headed by a former Supreme Court Judge or Chief Justice of a High Court as its Chairperson. Its composition includes eminent persons with substantial knowledge and experience in institutional arbitration, including an eminent academician. This high-powered composition is intended to lend the ACI the requisite credibility and authority to perform its functions.

2.2. Key Functions and Powers:

The ACI's mandate is broad and strategic, moving beyond mere regulation to active promotion and facilitation.

• Grading of Arbitral Institutions: The ACI is empowered to grade arbitral institutions on the basis of criteria such as infrastructure, quality and calibre of arbitrators, performance, compliance with time limits, and fees. This "grading" system is intended to create a market-driven mechanism where parties can make informed choices about which institution to use, thereby promoting healthy competition and quality standards among institutions.

• Accreditation of Arbitrators: The ACI will maintain a repository of accredited arbitrators, creating a transparent and reliable pool of qualified professionals. This addresses a key concern regarding the ad-hoc appointment of arbitrators who may lack the necessary expertise or training.

• Promotion of Arbitration, Conciliation, and ADR: The ACI is tasked with the proactive promotion of ADR mechanisms, including organizing conferences, workshops, and training programmes, and fostering collaborations with national and international institutions. This formalizes the role of a national body to champion the cause of ADR.

• Policy Making and Advocacy: The ACI will act as a think tank, making recommendations to the government on policy and regulatory measures to strengthen the arbitration ecosystem.

• Fixing of Fees: Crucially, the ACI is empowered to frame guidelines for the fees payable to arbitrators in arbitrations other than international commercial arbitrations, which is a direct response to the problem of unpredictable and often exorbitant costs.

2.3. Critical Analysis:

The establishment of the ACI is a welcome step. A centralized, expert body was long overdue to bring order and standardization to the fragmented Indian arbitration landscape. The grading system could be a game-changer, incentivizing institutions to improve their services. However, challenges remain. The success of the ACI will depend heavily on its independence from government influence. There are also concerns about potential over-regulation, which could stifle the flexibility that makes arbitration attractive. The effectiveness of its grading and accreditation processes will be closely watched to ensure they are fair, transparent, and not perceived as creating a state-controlled monopoly.

3. Tackling the Cost Conundrum: The Eighth Schedule and Fee Regulation

The high cost of arbitration has been a major deterrent for parties, often negating its benefits over traditional litigation. The draft Bill takes a two-pronged approach to address this issue.

3.1. The Conclusive "Schedule" for Fees:

The most direct intervention is the proposal to replace the existing Fourth Schedule, which provides a model fee structure, with a more robust and conclusive "Schedule." The key change is that the fees specified in this new Schedule will be mandatory and binding in cases where the arbitral institution is designated by the Supreme Court or High Court (under Sections 11(6A) and 11(6B)), or when parties approach the ACI for arbitrator appointment. This removes the ambiguity and discretion that often led to protracted disputes over arbitrator fees. The ACI is empowered to review and update this Schedule periodically, ensuring it remains realistic and contemporary.

3.2. Empowering the ACI to Frame Guidelines:

Beyond the Schedule, the ACI is also empowered to frame general guidelines for the fees payable to arbitrators. This provides a broader framework for cost determination, even in cases not directly covered by the mandatory Schedule.

3.3. Critical Analysis:

This is a bold and necessary measure. By making the fee structure mandatory in a significant number of cases, the draft Bill brings much-needed predictability and curbs the potential for arbitrators to charge disproportionately high fees. This will make arbitration more accessible, especially for small and medium-sized enterprises (SMEs). However, critics argue that a rigid, state-prescribed fee schedule could deter top-tier international arbitrators from accepting appointments in India, as their market-driven fees may be higher than the Schedule permits. The challenge for the ACI will be to strike a delicate balance between affordability and the need to attract and retain high-quality arbitral talent.

4. Streamlining Arbitrator Appointment: A Cure for Judicial Delays

The process of appointing arbitrators, particularly when parties fail to agree or when an institution defaults, has been a major source of delay. Sections 11(6) and 11(6A) of the Act, which deal with court-appointed arbitrators, have been the subject of extensive litigation. The draft Bill proposes a new, streamlined mechanism to tackle this problem head-on.

4.1. The New Mechanism under Section 11(6A) to 11(6I):

The draft Bill introduces a detailed, time-bound procedure to replace the current, often open-ended, process.

• Application to Arbitral Institution: A party can now apply to an arbitral institution designated by the Supreme Court (for international commercial arbitration) or the High Court (for other arbitrations) for the appointment of an arbitrator.

• Stringent Timelines: The designated institution is mandated to dispose of such an application within 30 days. This is a radical departure from the current scenario, where such applications can languish in courts for years.

• Consequences of Default by Institution: If the designated institution fails to make the appointment within 30 days, the power to appoint automatically shifts to the ACI. The ACI, in turn, is also bound by a 30-day timeline.

• Finality of Appointments: An appointment made by the designated institution or the ACI under this process will be final and not subject to any challenge, except under the very limited grounds available for challenging an award under Section 34.

4.2. Critical Analysis:

This proposal, if effectively implemented, could be the single most impactful change in reducing pre-arbitration delays. By shifting the appointment function from overburdened courts to specialized arbitral institutions and the ACI, and by imposing strict, non-extendable timelines, the draft Bill addresses a critical bottleneck. The "deeming" provision that transfers power to the ACI in case of institutional default creates a fail-safe mechanism. The finality accorded to such appointments will also reduce satellite litigation challenging the appointment itself. The success of this mechanism, however, hinges on the capacity and efficiency of the designated arbitral institutions and the ACI. They must be adequately resourced to handle this responsibility within the compressed 30-day window.

5. Empowering the Tribunal: Dealing with the "Non-Participating" Party

A common tactical manoeuvre in arbitration is for a party, usually the respondent, to refuse to participate in the proceedings, hoping to derail them or create a ground for future challenge. The existing Act provided limited explicit powers to the tribunal in such scenarios. The draft Bill seeks to fortify the tribunal's authority.

5.1. Express Power to Continue Ex-Parte:

The draft Bill explicitly empowers the arbitral tribunal to continue with the proceedings and make an award on the basis of evidence before it if a party, without sufficient cause, fails to attend hearings or produce documentary evidence. While this power was implicitly recognized, its explicit codification removes any ambiguity and strengthens the tribunal's hand.

5.2. Power to Draw Adverse Inferences:

More importantly, the tribunal is now expressly empowered to draw adverse inferences against a non-participating party. This is a significant procedural weapon. It means that a party's refusal to contest a claim or produce evidence can be treated as an admission of the other party's case, making it easier for the participating party to secure a favourable award.

5.3. Critical Analysis:

This amendment aligns Indian arbitration law with best practices in international arbitration. It reinforces the principle of party autonomy and the correlative duty to cooperate in the process one has agreed to. By providing clear statutory backing for ex-parte proceedings and adverse inferences, the draft Bill disincentivizes dilatory tactics and ensures that a recalcitrant party cannot hold the entire process hostage. This enhances the efficiency and integrity of the arbitral process.

6. The Unification of Enforcement Regimes: A Paradigm Shift

Perhaps the most conceptually radical proposal in the draft Bill is the merger of the enforcement regimes for domestic awards and international commercial arbitral awards seated in India.

6.1. The Existing Dichotomy:

Currently, the Act creates a distinction:

• Domestic Awards (Section 36): An award is enforceable as a decree of a civil court. The court's role is largely ministerial.

• International Commercial Arbitral Awards (seated in India) (Section 2(2) read with Section 36): These are also treated as domestic awards for enforcement purposes but arise from disputes with a foreign element.

• Separately, Foreign Awards (from arbitrations seated outside India) governed by the New York Convention or the Geneva Convention are enforced under Part II of the Act (Sections 44 to 60), which provides a different, more limited procedure.

6.2. The Proposed Change:

The draft Bill proposes to do away with the separate treatment for international commercial arbitral awards seated in India. It seeks to amend Section 2(2) and Section 36 to create a single, unified regime for the enforcement of all awards resulting from arbitrations whose seat is in India, regardless of whether they are purely domestic or international commercial in nature. They will all be enforced under the same procedure as a decree of the court.

6.3. Critical Analysis:

This proposal is aimed at simplifying the legal framework and eliminating unnecessary procedural distinctions. The government's rationale is that the seat of arbitration determines the curial law, and therefore, all awards from a India-seated arbitration should be treated equally. This move is intended to bolster the status of India as a neutral seat for international commercial arbitration, signalling to the world that India treats all awards from its soil with parity.

However, this proposal has attracted significant criticism. The original distinction was not arbitrary. International commercial arbitrations often involve complex cross-border elements, and parties have historically preferred a distinct legal recognition for such awards. The concern is that merging the regimes might inadvertently subject international awards to the same level of judicial scrutiny (at the challenge stage under Section 34) as domestic awards, potentially diluting the pro-enforcement bias that is crucial for attracting international parties. The judiciary's approach in interpreting the unified provision will be critical in allaying these fears.

7. Other Notable Amendments

Beyond these major changes, the draft Bill introduces several other refinements:

• Confidentiality: It introduces explicit provisions for maintaining the confidentiality of arbitral proceedings, except where disclosure is necessary for implementation and enforcement of the award. This brings Indian law in line with international standards and addresses a key concern of commercial parties.

• Statement of Claim and Defence: The timeline for filing the statement of claim and defence is now linked to the "date of completion of the arbitrator's appointment," providing a clearer starting point than the vague "date of constitution of the tribunal."

• Written Arguments and Oral Hearings: The draft Bill clarifies that the tribunal can decide whether to conduct oral hearings for arguments or proceed solely on the basis of documents and other materials, providing greater procedural flexibility.

• Waiver of Right to Object: The provisions related to the waiver of the right to object are made more stringent, preventing parties from sitting on potential grounds for challenge and raising them only after an adverse award.

8. Potential Challenges and The Road Ahead

While the Draft Arbitration and Conciliation (Amendment) Bill, 2024, is a monumental step forward, its journey from draft to effective law is fraught with challenges.

• Implementation is Key: The success of the ACI and the time-bound appointment mechanism depends entirely on effective implementation. The ACI must be constituted with individuals of unimpeachable integrity and expertise.

• Judicial Interpretation: The Indian judiciary has historically played a pivotal role in shaping arbitration law. How the courts interpret the new provisions, especially the unified enforcement regime and the finality of institutional appointments, will determine their practical efficacy.

• Risk of Over-Regulation: There is a fine line between facilitating a robust ecosystem and creating a bureaucratic, state-controlled one. The ACI must function as a facilitator, not an overbearing regulator.

• Capacity Building: Arbitral institutions in India need to rapidly scale up their infrastructure and administrative capacity to handle the increased responsibility and strict timelines imposed by the draft Bill.

9. Conclusion: A New Dawn for Indian Arbitration?

The Draft Arbitration and Conciliation (Amendment) Bill, 2024, is a testament to the Indian government's serious commitment to reforming its dispute resolution landscape. It is a thoughtful, comprehensive, and in many parts, courageous piece of draft legislation. By addressing the core issues of cost, delay, and institutional support with specific, structural solutions, it has the potential to fundamentally alter the arbitration narrative in India.

The proposals to create a powerful ACI, mandate a conclusive fee schedule, impose strict timelines for arbitrator appointments, and empower tribunals are all unambiguously positive steps. The unification of enforcement regimes, while controversial, is a bold attempt to simplify the law and promote India as a seat.

No legislative reform is perfect, and the draft Bill will inevitably be subject to debate and refinement during the consultation process. However, its underlying vision is clear: to create an arbitration regime that is efficient, cost-effective, reliable, and globally respected. If enacted and implemented in its true spirit, the Arbitration and Conciliation (Amendment) Act, 2024, could well be the catalyst that finally establishes India as a premier arbitration destination, boosting investor confidence and unclogging the overburdened court system. The draft Bill is not just an amendment; it is a statement of intent, promising a new dawn for arbitration in India.

Here are some questions and answers on the topic:

1. What is the primary objective behind establishing the Arbitration Council of India (ACI) as proposed in the draft Bill?

The primary objective behind establishing the Arbitration Council of India is to create a centralized, expert body that can promote, regulate, and grade the entire arbitration ecosystem in India. The ACI is designed to function as the nodal institution for improving the standards and credibility of arbitration. It aims to achieve this by accrediting arbitrators to ensure a pool of qualified professionals, grading arbitral institutions based on their infrastructure and performance to help parties make informed choices, and promoting India as a global hub for arbitration through policy advocacy and training. By taking over the function of framing guidelines for arbitrator fees and assisting in appointments, the ACI seeks to bring uniformity, transparency, and professionalism to a currently fragmented system.

2. How does the draft Bill propose to tackle the persistent problem of high costs in arbitration proceedings?

The draft Bill tackles the problem of high costs by making the fee structure for arbitrators conclusive and mandatory in a wide range of cases. It proposes replacing the existing model fee schedule with a binding "Schedule." This Schedule will govern the fees in all cases where an arbitral institution is designated by the Supreme Court or a High Court for appointing an arbitrator, or when parties approach the Arbitration Council of India for an appointment. This measure removes the discretion that often led to unpredictable and exorbitant costs, providing parties with certainty and affordability from the outset of the proceedings. Additionally, the ACI is empowered to frame broader guidelines for fees, further reinforcing the objective of cost control across the arbitration landscape.

3. What is the new, time-bound mechanism for appointing arbitrators when parties fail to agree, and why is it significant?

The new mechanism mandates that an application for the appointment of an arbitrator must be made to a designated arbitral institution rather than directly to the courts. This designated institution is then legally bound to dispose of the application and appoint an arbitrator within a strict timeline of thirty days. Should the institution fail to do so, the power to appoint automatically shifts to the Arbitration Council of India, which also must complete the appointment within a subsequent thirty-day period. This is highly significant because it directly addresses one of the biggest sources of delay in Indian arbitration, where court-led appointments could take years. By transferring this function to specialized institutions and imposing stringent, non-extendable deadlines, the draft Bill ensures that arbitrations can commence without protracted pre-procedural delays.

4. How does the draft Bill empower an arbitral tribunal to handle a non-participating or uncooperative party?

The draft Bill empowers an arbitral tribunal by explicitly granting it the authority to continue with the proceedings ex-parte if a party, without sufficient cause, fails to attend hearings or produce documentary evidence. More importantly, it equips the tribunal with the statutory power to draw adverse inferences against such a non-participating party. This means the tribunal can legally interpret a party's refusal to participate or present evidence as an admission of the other party's allegations. These express provisions arm the tribunal with clear legal tools to counter dilatory tactics, ensuring that a recalcitrant party cannot sabotage the process and that the arbitration can proceed efficiently and fairly towards a final award.

5. What is the controversial proposal regarding the enforcement of awards, and what are the arguments for and against it?

The most controversial proposal is the unification of the enforcement regimes for domestic awards and international commercial arbitration awards seated in India. Currently, these are treated as distinct categories, but the draft Bill seeks to merge them so that all awards from a India-seated arbitration are enforced under the same procedure as a domestic court decree. The argument for this change is that it simplifies the legal framework and reinforces the principle of territoriality, where the seat of arbitration determines the governing law for enforcement, thereby promoting India as a unified and neutral seat. The argument against it is that this merger could potentially subject international awards to the same level of judicial scrutiny as domestic awards at the challenge stage, which might dilute the pro-enforcement bias crucial for attracting international parties who value a distinct and limited scope of intervention for their cross-border disputes.

Disclaimer: The content shared in this blog is intended solely for general informational and educational purposes. It provides only a basic understanding of the subject and should not be considered as professional legal advice. For specific guidance or in-depth legal assistance, readers are strongly advised to consult a qualified legal professional.