History of ADR Legislation in India Since around 1772, conflicts could be referred to arbitration at either the parties’ request or at the court’s discretion. The Code of Civil Procedure was then passed in 1859, with sections 312 to 327 mentioning arbitration. However, in 1882, the parts relating to arbitration were repealed.
The Indian Arbitration Act, 1899 was passed in 1899 to implement an alternative dispute resolution process in India. The law was modelled on English law.
The CPC was then once more changed in 1908, and section 89 with the second schedule granted the courts broad authority to submit conflicts to ADR mechanisms. Then, upon reading Section 89 of the Indian Arbitration Act of 1899 and the 2nd schedule of the Code of Civil Procedure, 1908 both were found to effectively deal with arbitration.
After that, India ratified the Geneva Convention in 1937, and concurrent legislation in the shape of The Arbitration (Protocol and Convention) Act, 1937, was introduced. The Arbitration Act, 1940 was passed in place of The Indian Arbitration Act, 1899 and section 89 with the 2nd schedule of the CPC.
In force then, in India were the Arbitration (Protocol and Convention) Act, 1937 for the enforcement of foreign awards, and the Arbitration Act, 1940 for the referral of disputes to ADR mechanisms. Later, The Foreign Award (Recognition and Convention) Act, 1961 was passed, as India entered the New York Convention.
In the 1981 case M/s. Guru Nanak Foundation Rattan Singh & Sons, the Supreme Court provided an off-quote description of the Arbitration Act, 1940. Legal philosophers have wept and lawyers have laughed over how the processes under the statute are conducted, according to the statement. The act’s proceedings have grown increasingly complicated and prolix, offering a legal trap to the unwary at every stage, as evidenced by experience and several legal reports.
India ratified and accepted the UNCITRAL model legislation on international commercial arbitration in 1985. The Arbitration and Conciliation Act, 1996, which was modelled after the UNCITRAL model law, eventually repealed and consolidated The Arbitration (Protocol and Convention) Act, 1937; The Arbitration Act, 1940; and The Foreign Award (Recognition and Convention) Act, 1961. Section 89 with Order X (Rules 1A to 1C) was reintroduced in CPC in 2002 to improve the effectiveness and efficiency of the legislation. In 2015 and 2019, there were two amendments to the Act of 1966. However, we had a consolidated, single, effective, efficient, and good piece of legislation to deal with the ADR system.
Implications of Arbitration and Conciliation (Amendment) Act, 2021
On March 11th, 2021, the Central government passed the Arbitration and Conciliation(Amendment) Act, 2021, and on November 4th, 2020, it took force. The following are some of the key changes made by the Arbitration and Conciliation (Amendment) Act of 2021:
1. Automatic Stay on Awards
In cases where it is prima facie established that (a) the arbitration agreement or contract that serves as the basis for the award; or (b) the decision-making process itself, was motivated by, affected by, or related to fraud or corruption, Section 36 of the Act has been expanded to include that the court shall stay the award unconditionally.
The 2021 Amendment provided that the parties to the arbitration could approach the court by submitting an application contesting such award under Section 34, which includes, among other things, evidence of the arbitration agreement’s invalidity. However, Section 36(2) of the statute prohibits doing so unless the court finds it appropriate to do so. It was made clear in the 2015 Amendment Act that simply because a request to set aside an arbitral award has been made to the court, the arbitral award will not necessarily be automatically stayed.
The amendment to the proviso of Section 36(3) essentially helps parties in side- stepping the extra proceedings which have to be undergone to review and set aside an arbitral award and enables early detection of fraud.
2. Widening the Scope of Qualifications for Arbitrators
The Act’s section 43J has been replaced, and the new section stipulates that the regulations must describe the qualifications, experience, and norms for accrediting arbitrators. The Act’s Schedule VIII has been left out. These requirements were primarily focused on the arbitrator’s background as a lawyer, chartered accountant, cost accountant, or company secretary. Among other conditions, an officer of the Indian Legal Service who has had a law degree for more than ten years was required. The Schedule also set forth eight general standards that an arbitrator was required to abide by in order to qualify under the Act. They used to be ineligible under the Act if they didn’t fulfill one of the requirements mentioned in the Schedule.
The Amendment Act has increased the range of qualifications to include those with strong knowledge in a particular field by deleting the Eighth Schedule.
Moreover, the substitution of Section 43J specifies that the qualifications of arbitrators would be determined by “regulations,” which, as defined by Section 2(1)(j), include regulations set by the Arbitration Council of India. By giving the Council this authority rather than specifying requirements for arbitrators, it is possible to designate arbitrators who have expertise in a wider range of subjects than law, chartered accounting, etc.
On a global scale, each nation has its own requirements for arbitrators. There are a few common guidelines that must be observed, though. The qualifications of arbitrators in some circumstances must be based on the person’s nationality, according to the United Nations Commission on International Trade Law’s (UNCITRAL) 1985 Model Law on Arbitration, which also describes the role of various involved stakeholders in arbitration proceedings. The Amendment Act also grants the Commission the discretion to take the provisions of the UNCITRAL Model Law into consideration when appointing foreign arbitrators by substituting Section 43J.
The growth of the Indian ADR system is very clear from the yearly notification of back-to-back modifications. Over the past few years, a number of measures and amendments have been put out to make our nation more and more arbitration- friendly. Scholars have both praised and criticized these new adjustments from various perspectives. Others see it as a simple desire to address the objectives of alternative dispute resolution. Some regard these modifications as improvements for improved international support and involvement.
The Amendment creates a new stage for the award to demonstrate its power while, on the one hand, preventing compromise of the arbitrator appointment process. India needs to make the process of enforcing an award simpler by lessening the likelihood that the parties will employ delay strategies. It cannot be disputed that a country’s enforcement system directly affects its ease of doing business and, as a result, the inflow of foreign capital.
Insofar as it corrects the 2019 Amendment’s inconsistencies, the Amendment will be beneficial, however, it might not be well received by international investors. Foreign investors will still prefer to have the seat elsewhere due to their concern that the award may join the long list of ongoing legal cases.
Mediation Bill 2021
In July 2021, the Chief Justice of India Justice V. Ramana while giving a speech at the India- Singapore Mediation Summit, said that “Mediation should be made mandatory as a First Step in Dispute Resolution and that a Law should be framed in this regard.
The Ministry of Law and Justice circulated the Draft Mediation Bill, 2021 on November 5th, dated October 29, 2021 (Draft Bill), available for public discussion, and requesting input from all parties.
The Draft Bill seeks to enable and advance mediation in India, notably institutional mediation for conflict resolution, to promote community mediation, and to make online mediation a respectable and affordable procedure. As India is a party to the Singapore Convention on Mediation, it wants to create an independent law on mediation and takes into account the international practice of using the terms “conciliation” and “mediation” interchangeably.
Key Elements of the Mediation Bill 2021
- Pre-litigation mediation: Before going to court or some tribunals, parties must attempt to resolve their civil or business disputes through mediation. The court or tribunal may refer the parties to mediation at any time if they desire it, even if pre- litigation mediation fails to result in a settlement.
- Conflicts unsuited to mediation: The Bill includes a list of conflicts that are unsuited to mediation. These include conflicts involving claims made against juveniles or people who are not of sound mind, criminal prosecution, and third-party This list may be changed by the national government.
- Applicability: The Bill will be applicable to mediations held in India if they (i) involve only Indian parties, (ii) involve at least one foreign party and are related to a commercial dispute (i.e., international mediation), and (iii) if it is explicitly stated in the mediation agreement that the Bill will apply to the mediation. The Bill will apply to (a) business disputes and (b) other disputes as notified if the federal or state governments are parties.
- Process of mediation: The mediation will be private and must be finished in 180 days (may be extended by 180 days by the parties). After two sessions, a party may leave the mediation. The rules established by the Supreme Court or High Courts must be followed when conducting court- annexed mediation.
- Mediators: Mediators may be chosen by I the parties in a written agreement or (ii) a provider of mediation services (an institution administering mediation). Any conflict of interest that would cast doubt on their objectivity must be disclosed. The mediator may then be replaced by the parties.
- Indian Mediation Council: The Indian Mediation Council will be established by the national government. A chairperson, two full-time members (with mediation or ADR expertise), three ex-officio members (including the Law Secretary and the Expenditure Secretary), and a part-time member from an industry association will make up the Council. The Council’s duties include: (i) registering mediators; (ii) recognising mediation service providers and institutes; and which train, educate, and certify mediators.
- Agreement reached through mediation: Other than community mediation, agreements reached through mediation will be final, binding, and enforceable in the same way that court judgements are. They could be contested for the following reasons: (i) fraud; (ii) corruption; (iii) impersonation; or (iv) relating to issues that are unsuitable for mediation.
- Community mediation: Attempts at community mediation may be made to settle disagreements that could have a negative impact on the peace and harmony among local residents. A panel of three mediators will oversee it (may include persons of standing in the community, and representatives of resident welfare associations).
Missing Pieces of Legislation
- Public Policy Issue An international mediated settlement may be contested under the Bill on various grounds, one of which is that it violates India’s “public policy.” The Bill then clarifies that one of the grounds under which the settlement agreement may be held to be in conflict with the public policy of India is if it is in contravention with the “fundamental policy of Indian law,” borrowing language from the Arbitration and Conciliation Act (“Arbitration Act”). The phrase “basic policy of Indian law” has not been defined in the Bill, similar to the Arbitration Act, leaving the interpretation of the phrase to the discretion of the Courts. The public policy ground has been routinely abused by the parties in an arbitration to postpone the implementation of an award, despite the Courts’ efforts to put some clarification on the phrase in recent years. The exact boundaries of the word also remain ambiguous. Similar issues are expected to arise when international mediated agreements are enforced, so further clarification is needed in this area.
Many of the provisions in the aforementioned Bill are ambiguous and need to be clarified. For instance:
- If a party has more than one place of business, the one with the closest ties to the mediation agreement is the party’s primary place of business, according to Explanation 1 to Subsection (1) of Section 2. The aforementioned explanation is ambiguous and poorly written. The definition of the phrase “closest relationship to the mediation agreement” is not made explicit in the Bill. Such misconception may imply and lead to a variety of additional legal disputes.
- Without attempting to define or clarify the parameters of “gross impropriety,” the Bill states that a domestic mediated settlement may be contested. The parties may have a lot of room to reject the implementation of a settlement agreement if there is a lack of clarity by claiming that any and all challenges are motivated by “gross “
- Even though the Bill has notably offered a list of disagreements that may not be appropriate for mediation, it is imperative to add other tests, rules, or criteria that may be used to determine if a dispute is appropriate for The terminology used in Schedule II of the Bill, which is related to Section 7 and gives the list of disputes not suitable for mediation, and Section 7 of the Bill, which provides the substantive provision relating to instances not suitable for mediation, are inconsistent. Schedule II lists “disputes which may not be suitable for resolution through mediation under Part 1,” contrary to Section 7 that “mediation under this Part shall not be conducted for resolution of any dispute.” A clarification of the legislative intent by harmonising and using the same terminology for the said section and Schedule would lead to a lesser degree of confusion and provide the much-needed clarity, even though there are precedents that show that Section 7 of the Bill would prevail as against Schedule II.
III. Lack of Refinement
- What rules would apply to an international mediation that takes place in India but deals with non-commercial disputes that have arisen under foreign law and is not covered by either Part I or Part III of the Draft Bill is not specified in the legislation.
- The Bill makes no mention of the repercussions of failing to register a mediated settlement agreement.
- The Bill omits some of the crucial details pertaining to secrecy under the Civil Procedure Mediation Rules because it fails to recognise the layers linked to confidentiality in mediation. For instance, Rule 20(2) of the Civil Procedure Mediation Rules, among other things, states that “when a party gives information to the mediator subject to a specific condition that it be kept confidential, the mediator shall not disclose that information to the other party” The Bill makes no reference to the aforementioned premise. Instead, a less nuanced, more universal principle has been incorporated into the Bill.
In India, there has never been a specific piece of legislation passed with the intention of mediating disputes. Therefore, the initiative to codify the legislation on mediation is a wise move because it will greatly reduce the backlog of cases in the Indian judicial system and ensure that the people receive justice promptly.
In conclusion, the Bill is undoubtedly a step in the right direction for the acknowledgment and development of mediation and includes a fair share of beneficial aspects. In addition to fostering more confidence and trust in the mediation process, a stand-alone law on mediation will facilitate the resolution of conflicts between enterprises and commercial entities in India. At the same time, it is crucial that the drafters solve the shortcomings and issues mentioned above in order to guarantee that the Mediation Act, once it is passed, contains detailed rules that, in actuality, make the ADR mechanism of mediation more convenient.
(Source: This article is published in souvenir of National Tax Conference which was held on 6th & 7th August, 2022 at New Delhi)