The President of India has promulgated Arbitration and Conciliation (Amendment) Ordinance 2015 on 23.10.2015 bringing revolutionary changes i.e. no more departmental arbitrators, case to be completed within 12 months etc.

1. Proposed radical changes in,“The Arbitration & Conciliation Act, 1996”
Preface
The Law Commission vide its Report No. 246 has proposed various amendments to the Arbitration and
Conciliation Act 1996. The Hon’ble President of India promulgated THE ARBITRATION AND CONCILIATION
(AMENDMENT) ORDINANCE, 2015 on 23rd October, 2015. Considering the eagerness of the Govt. to reduce
fruitless litigation, instill confidence in foreign investors, the proposed amendment to the Arbitration and
Conciliation Act promulgated as an ordinance as the parliament was not in session.
The proposed amendments to the said Act will bring major revolution to the Arbitration process (procedural as
well as statutory) deviating from the existing act in many aspects. There is bound to be frequent discussions at
various forums i.e. by Legal experts and Institutions through seminars, papers and Lectures etc. for reaching
the consensus. However, the Law shall take a clear shape only after the various judgments in the litigation
consequent to the introduction of the amendments to the Act while the Institutions/Legal Society etc. have to be
in readiness to cope up with the changing environment.
The main objective of the amendment to the Act are namely, expediting of the arbitration cases delayed
inordinately, limiting the cost of arbitration (although debatable), discouragement to frivolous claims,
independent/impartial arbitrators, encouragement to Institutional Arbitration, making India friendly arbitration
seat to stop flying of cases to Singapore and other countries, diluting the stringent Conditions of Contract ,
jurisdiction of arbitrator, challenge of award and various other aspects. The salient amendments with their
objective and consequences, the deviation from the existing Act and its effect on the existing Arbitration process
and the various concerns are as follows:
1. Time bound Arbitration (avoidance of delays)
Hitherto, there was no time limit for the Arbitrators to expedite the arbitration process. Now it will be mandatory
for the arbitrator to make a disclosure of their ability to devote sufficient time to complete the arbitration
proceedings and publish the award expeditiously. (24 months for arbitration proceedings and 3 months for
publication of award). The arbitral tribunal has also been empowered to impose costs for frequent and
unnecessary adjournments in the light of Salem Advocate Bar Association case.
Moreover, the fee being fixed on the basis of amount of claim, the arbitrators shall not unnecessarily prolong the
arbitration to continue their meter inordinately. The arbitrators can now decide when the fee is chargeable to
them. The fixed fee implies that the arbitrators shall be paid on contract basis instead of daily basis and hence
an incentive for them to expedite the case.
The Law Commission Report provides that an application challenging the award, be endeavored to be disposed
of expeditiously and in any event within a period of 1 year from the date of service of notice. The Law Commission
Report also seeks to deal with each issue in a systematic and analytical manner. Separately, the Law
Commission Report also recommends that specialized and dedicated arbitration benches be constituted (as
done in the Delhi High Court). It is also provided that such an application (appointment of arbitrator u/s 11) be
endeavored to be disposed of expeditiously, and requires the Court to make an endeavor to dispose of the
matter within 60 days from the service of notice on the opposite party.
The above changes shall discipline the arbitrators and the parties to expedite the whole process and to take the
arbitration sincerely. The amendment doesn’t specify the action/remedy if the process is not completed within
24 months i.e. the mandate of the tribunal shall be terminated or the parties can agree to extend the time period.
2. Fees & Costs
Supreme Court in one of its judgment observed that the cost of arbitration can be high if the arbitral tribunal
consists of retired Judges and many a times exceeding the amount of dispute. Hence, the amendment specifies
the model fee schedule for guidance. The prescribed fees are not mandatory and applicable only in the case of,
fee not fixed by the parties. It is apprehended that the arbitral tribunal shall henceforth fix the fee as per the
model fee taking it as a moral support and it would be quite embarrassing for either of the parties to contest the
fee fixed by the arbitral tribunal. This introduction will not in any way lead to the reduction of fees by retired

2. judges but instead cause the fee of the Non retired Judges arbitrators increase abnormally e.g. if the total claim
of Claims and Counter claims is Rs.40.0 crore (say), the cost of arbitration as per model fee structure shall be
approx. Rs.30.0 lakhs. In some cases, the arbitrator may simply decide in 2 to 3 hearings that the tribunal has
no jurisdiction due to limitation or accord and satisfaction. Sometimes, the cost of claims may be quite high but
the issue may not be so complex to require many hearings for adjudication but the fee has been kept uniform.
There has to be some connection of fee with the number of hearings and the amount of claim.
The model fee prescribed by the Law commission is as follows:
Sum in Dispute (Rs.) Model Fees (Indicative)
Upto Rs. 5,00,000/- Rs. 45,000/-
Above Rs. 5,00,000/- and upto Rs. 20,00,000/- Rs. 45,000/- + 3.5% of the claim amount over
and above Rs. 5,00,000/-
Above Rs. 20,00,000/- and upto Rs.
1,00,00,000/-
Rs. 97,500/- + 3% of the claim amount over
and above Rs. 20,00,000/-
Above Rs. 1,00,00,000/- and upto Rs.
10,00,00,000/-
Rs. 3,37,500/- + 1% of the claim amount over
and above Rs. 1,00,00,000/-
Above Rs. 10,00,00,000/- and upto Rs.
20,00,00,000/-
Rs. 12,37,500/- + 0.75% of the claim amount
over and above Rs. 1,00,00,000/-
Above Rs. 20,00,00,000/- Rs. 19,87,500/- + 0. 5% of the claim amount
over and above Rs. 20,00,00,000/- with a
ceiling of Rs. 30,00,000/-
* In the event, the arbitrator to be appointed is a Sole Arbitrator, he shall be entitled to an additional amount of
25% on the fee payable as per the table set out above.
It would be advisable to fix the fee of the arbitrators while drafting the arbitration agreement so that there is
check on unusual high fee in view of the subject to clause still existing in the proposed amended Act. Even if
one of the parties has the right to appoint the arbitrator, the fees must be fixed in the arbitration agreement so
that in the eventuality of appointment of arbitrators by the High Court, the fees remain unchanged.
A new sub-section, ”Regime for costs” has been introduced for cost payable by one party to another, though not
mandatory, but recommendatory since it is the liberal attitude of the tribunals of not awarding costs. This leads
to frivolous points being raised in appeals or frivolous appeals being filed in the courts. The general rule would
be that the unsuccessful party will be ordered to pay the cost to the successful party but for contrary decision,
reasons will have to be recorded in writing. Other circumstances i.e. frivolous claims/counter claims,
adjournments, dilatory tactics, effort to settle the case etc. shall be kept into consideration.
The above principle ensures that the “costs follow the event” regime governs all arbitrations/ arbitration related
court litigation. Such a regime would disincentivize frivolous proceedings and inequitable conduct. The basis of
the above provisions is Rule 44 of the Civil Procedure Rules of England.
3. Independence/Impartiality of arbitrators
The Law Commission Report has proposed amendments requiring mandatory written disclosures from the
prospective arbitrator(s) with regard to any circumstances which is likely to give rise to justifiable doubts as to
his independence or impartiality such as the existence either direct or indirect, of any past or present relationship
with or interest in any of the parties or in relation to the subject matter in dispute, whether financial, business,
professional or other kind. (Introduced Fourth, Fifth, Sixth and Seventh Schedule). There is an express bar of
certain persons though waivable but only subsequent to the dispute. i.e. even if the parties have mutually agreed
for appointment of such arbitrators, they shall not be eligible to be appointed as arbitrator provided that the
parties subsequent to the dispute waive the provision by an express agreement in writing.
So far the Courts have held the appointment of arbitrators by one of the parties who may be their employees,
Counsel etc. Originally this practice was followed by Govt. dept. But of late, the same practice has been followed
by Private Institutions and even Real Estate firms with the Buyers.

3. This is a welcome step in view of the Principle of Natural Justice. The list though very exhaustive, but still there
shall be disputes as regard to present/past relationship and interpretation for inclusion/exclusion of certain
impartiality. However, the time is not far off when the liberty to appoint the arbitrator by one party alone shall
also cease as there are still chances that the arbitrator appointed by one party alone shall have the soft corner
towards the party appointing him as an arbitrator.
4. Institutional arbitration
The Law Commission Report has laid stress on institutional arbitration since its structured procedure and
administrative support provides it the distinct advantages, which are unavailable to parties opting for ad hoc
arbitration. The spread of institutional arbitration however, is minimal in India and has unfortunately not really
kick-started. Presently, the Act is institutional arbitration agnostic – meaning thereby, it neither promotes nor
discourages parties to consider institutional arbitration. The changes suggested by the Commission attempts to
encourage the culture of institutional arbitration in India, which the Commission feels will go a long way to redress
the institutional and systemic malaise that has seriously affected the growth of arbitration.
The Commission has, therefore, recommended the addition of Explanation 3 to section 11(6A) of the Act with
the hope that High Courts and the Supreme Court, while acting in the exercise of their jurisdiction under section
11 of the Act will take steps to encourage the parties to refer their disputes to institutionalized arbitration.
Explanation 3: The High Court may take steps to encourage the parties to refer the disputes to institutionalized
arbitration by a professional Indian or International Arbitral Institute.
Similarly, the Commission seeks to accord legislative sanction to rules of institutional arbitration which recognize
the concept of an “emergency arbitrator” – and the same has been done by broadening the definition of an
“arbitral tribunal” under section 2(d).
The Government may also consider formation of a specialized body, like an Arbitral Commission of India, which
has representation from all the stakeholders of arbitration and which could be entrusted with the task of, inter
alia, encouraging the spread of institutional arbitration in the country.
To name the few, ICA (Indian Council of Arbitration) associated with FICCI, Indian Road Congress, Nani
Palkhivala Arbitration Centre are already working and many more may come in the near future depending upon
the location and the subject matter. The retired Govt. servants, Judges, Lawyers can contribute to the dispute
resolution in their fields by participating in such Institutions.
5. Setting aside of award
The challenge of awards and uncertainty in the courts had increased drastically after the decision of ONGC vs.
Saw Pipes Ltd. The Supreme Court held in Shri Lal Mahal case that the expansive construction accorded to the
term “public policy” cannot apply in foreign awards. However, the proposed amendment has further restricted
the scope of setting aside the award on the ground of conflict with public policy i.e.
(a) the making of the award was induced of affected by fraud or corruption or was in violation of section 75
or section 81; or
(b) it is in contravention with the fundamental policy of Indian law; or
(c) it is in conflict with the most basic notions of morality or justice.
The restricted provisions seeking to set aside or challenge the enforcement of arbitral awards will instill greater
confidence in arbitration as an effective and speedy dispute resolution mechanism for finality. As per the
proposed provisio, the award cannot be set aside merely on the ground of an erroneous application of the law
or by re-appreciating evidence. Hence, the arbitrators shall be required to take extreme judicial care preferably
having insight of Law aspects as such award may henceforth go unchecked.
Hitherto, as per the decision in ONGC vs. Saw Pipes the awards could be set aside if the same were not in
accordance with the terms of the Contract. This has been diluted and as per amendment, the tribunal shall
decide having regard to the terms of the contract indicating that term of contract are not mandatory . How the
Tribunals and Courts shall interpret, “regard to the terms of the contract” will get clear in the time to come.

4. 6. Automatic stay of enforcement (likely to be amended)
The Supreme Court in National Aluminium observed, “However, we do notice that this automatic suspension of
the execution of the award, the moment an application challenging the said award is filed under section 34 of
the Act leaving no discretion in the court to put the parties on terms, in our opinion, defeats the very objective of
the alternate dispute resolution system to which arbitration belongs._ _ _ _” Accordingly sub-section 36(2) has
been added which states that the filing of such an application shall not by itself render the award unenforceable,
unless upon a separate application made for that purpose, the Court grants stay of the operation of the award
in accordance with the provisions of sub-section(3) hereof,”. The Courts may also direct the applicants to deposit
the award amount or portion thereof prior to any stay of the award being granted, thus reducing the incentive to
litigate.
7. Interim orders by the arbitral tribunal
Under section 17, the arbitral tribunal has the power to order interim measures of protection. However, the
efficacy of section 17 is seriously compromised given the lack of any suitable statutory mechanism for the
enforcement of such interim orders of the arbitral tribunal.
Hence, the Commission has, recommended amendments to section 17 of the Act which would give teeth to the
orders of the Arbitral Tribunal and the same would be statutorily enforceable in the same manner as the Orders
of a Court.
8. Interest on Sums Awarded
The issue of compound interest/ future interest remained controversial with divergent decisions i.e. whether the
sum on which post award interest is payable, included the interest accrued till the date of award. The controversy
has been set to rest after the 3 Judge Bench decision in Hyder Consulting vs. Governor of Orissa. in November,
2014 after the report of Law Commission.
So far, thought was that the arbitral tribunal was bound to pay post award statutory interest @ of 18% though it
was discretionary for the tribunal to fix the rate of interest. To keep the rate of interest as per market forces, the
Act is amended and, unless the award otherwise directs, carry interest at 2% per annum more than the current
rate of interest from the date of the award to the date of payment.
9. Arbitrability of fraud and complicated issues
Hitherto, there were divergent views of the Court whether issue of Fraud is arbitratble and hence the Law
Commission Report to bring the entire controversy to rest and make fraud expressly arbitrable and has proposed
insertion of section 16(7), ““(7) The arbitral tribunal shall have the power to make an award or give a ruling
notwithstanding that the dispute before it involves a serious question of law, complicated questions of fact or
allegations of fraud, corruption etc.” Now the fraud can be alleged without having to fear that the allegation would
be used to evade arbitration.
10. Parties to arbitration
The Law Commission in its report stated, “ a party does not necessarily mean only the “signatory” to the
arbitration agreement. In appropriate contexts, a “party” means not just a signatory, but also persons “claiming
through or under” such signatory – for instance, successors-of-interest of such parties, alter-ego’s of such parties
etc.”
Taking a clue from the judgment of the Supreme Court of India in Chloro Controls6, the definition of the word
'party' to an arbitration agreement has been expanded to also include persons claiming through or under such
party and modified section 2(h) as, “party" means a party to an arbitration agreement or any person claiming
through or under such party.
This would mean that going forward, arbitration may not be limited simply to signatories of the arbitration
agreement but even include sub-contractors, back to back contracts etc.

5. 11. Statement of Defence/Counter Claims
The submission of Counter claims was opposed on the ground that they were not referred by the respondent
through the appointing authority. Hence, to save the time and it falls within the scope of arbitration agreement,
a new explanation to sec23 has been introduced, “
Explanation: In his defence the respondent may also submit a counter claim or plead a set off, which shall be
treated as being within the scope of reference and be adjudicated upon by the arbitral tribunal notwithstanding
that it may not fall within the scope of the initial reference to arbitration, but provided it falls within the scope of
the arbitration agreement.
12. Appointment of an arbitrator(Administrative/Judicial Powers)
The Law Commission Report proposes to make appointment of an arbitrator an administrative decision to be
carried out by the High Court or the Supreme Court, as the case may be. As per S.B.P. vs. Patel Engineering
decision, the decision of the Chief Justice was held to be a Judicial decision taking away the powers of the
tribunal to decide its own jurisdiction under Sec16 when the appointment of the Arbitrator was made by Courts
under sec 11. The decision of SBP case had also been differently interpreted in different ways i.e. very stale
and dead claims and controversial dead claims etc.
To set the controversy at rest and save the burden of the Courts in dealing with number of applications for the
appointment of arbitral tribunals, the Explanation has been added in Section 11 i.e.
Explanation 1: If the High Court is prima facie satisfied regarding the existence of an arbitration agreement, it
shall refer the parties to arbitration and leave the final determination of the existence of the arbitration
agreement to the arbitral tribunal in accordance with section 16, which shall decide the same as a preliminary
issue.
Explanation 2: For the removal of any doubt, it is clarified that reference by the High Court to any person or
institution designated by it shall not be regarded as a delegation of judicial power.
Explanation 3: The High Court may take steps to encourage the parties to refer the disputes to institutionalized
arbitration by a professional Indian or International Arbitral Institute.
Conclusion
The Law Commission Report attempts to streamline the alternative dispute resolution process to expedite the
settlement of disputes, rationalization of costs, impartiality/independence of arbitrators, time bound decisions by
Courts/Arbitral Tribunals, avoidance of unnecessary adjournment and dilatory tactics, the predictability of the
law etc. This is likely to arrest the flow of arbitration cases outside India to great extent due to the confidence
measures through the amendments.
However, to what extent the amendments will affect the outcome, shall depend how the Courts interpret the
Law after the amendments which the time to come shall only tell but it is definitely a positive step in the
direction of alternative dispute resolution in India.
It would be my pleasure to have an interaction to exchange the views if interested in the topic on
arbitration.
(M.K.Gupta)
Executive Director
Engineering Projects (India) Limited
9899300900 mkg_irse83@yahoo.co.in