Ishant S. Joshi and Vatsala Tyagi*
Introduction
The inclusion of Appellate Arbitral Tribunals (hereinafter: “AAT”) under Section 34A of the Draft Arbitration and Conciliation Amendment Bill, 2024 (hereinafter: “Draft Bill”) marks a transformative step in India’s arbitration regime. By allowing arbitral institutions to establish AATs to entertain applications for setting aside arbitral awards under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter: “Act”), the draft bill introduces a two-tiered arbitration mechanism. While this possible insertion has the potential to enhance arbitration practices and reduce judicial intervention, it also brings significant challenges and ambiguities that require careful examination before the draft bill is brought before the parliament.
The AAT, as envisioned in the draft bill, will derive its authority from the parties' consent. If parties opt for this mechanism, they effectively transfer the power of setting aside awards from the courts to the AAT. Furthermore, the provision retains the right to appeal under Section 37 of the Act.
Codifying Two-Tier Arbitration
Section 34A of the draft bill (hereinafter: “Section 34A”) has in essence, codified the judgment in M/S Centrotrade Minerals & Metal Inc. v. Hindustan Copper Ltd.. The Supreme Court, in this case, upheld the validity of two-tier arbitration clauses, affirming the parties’ right to an appellate mechanism. By codifying this right through Section 34A, the draft bill can eliminate ambiguity regarding two-tier arbitration. By offering an appellate platform, the draft bill enhances India’s attractiveness as an arbitration-friendly jurisdiction, particularly for international commercial disputes.
Impartiality and Composition of AAT
A question may arise as to what is going to be the composition of the AAT? Some might be sceptical of the AAT because the same institution will decide on the award when it goes to appeal. For example, when an award is decided by DIAC, then if the parties opt for Section 34A, that same institution will decide on the validity of the award. These concerns can be mitigated by introducing a clause outlining the AAT's composition, which shall include both domain experts (e.g., specialists in fields like cement or medicine, depending on the case) and legal professionals like retired judges and lawyers. This dual composition ensures balanced decision-making, addressing both legal and technical conflicts effectively. In lieu of this, there are two approaches for the constitution of the appellate tribunal: (i) either the parties participate in choosing the arbitrators for the AAT, or (ii) the arbitral institutions alone are given this power. The latter ensures impartiality and independence, as the tribunal is constituted purely for review purposes. Although this may raise eyebrows in a party-oriented arbitration process, it aligns with the need for objectivity in appellate adjudication. Further, this approach will also preserve the institutions independence, reducing scope for conflict of interests.
Moreover, Section 34(1B) of the draft bill further supports this approach by mandating the AAT to formulate specific grounds for appeals based on the award passed by the original tribunal, enabling skilled and focused adjudication. This seemingly limits party autonomy in so far as their right to challenge awards on other grounds. However, it is essential to sustain the valued traits of finality and time efficiency of arbitration.
Addressing Limitation Periods
Another challenge is posed by absence of a clear limitation period for invoking the AAT. The absence of a defined timeline for invoking the AAT could lead to procedural abuse and unnecessary delays. This shall undermine the paramount objective of streamlining the appellate process. The draft bill must also clarify the interplay of this limitation period with the enforcement of the original award. Inspiration can be drawn from international models such as the JAMS Optional Arbitration Appeal Procedure (hereinafter: “JAMS”) and the AAA Optional Appellate Rules (hereinafter: “AAA”), which suspend enforcement of the initial award until the appellate process is concluded. The limitation period for the initiating enforcement shall only commence after the appellate award. The Bill must delineate such intricacies to prevent procedural inefficiencies.
Applicability to Ad-Hoc Arbitrations
Section 34A is not applicable to ad hoc arbitrations but only to institutional arbitrations. This exclusion risks fragmenting the arbitration landscape and undermining the uniformity of arbitration jurisprudence. Section 34A should be made applicable to ad hoc arbitrations, provided that parties adopt agreed-upon institutional rules or engage an arbitral institution, ensuring consistency with institutional arbitration practices. It could be mandated that parties engaging in ad hoc arbitration utilize the same arbitral institution or adopt identical arbitral rules if they wish to include an AAT clause under Section 34A. Extending Section 34A to ad hoc arbitrations, with appropriate safeguards, would ensure that all parties, irrespective of the arbitration’s nature, can benefit from the AAT framework.
In light of this, it appears unnecessary for the AAT to be inapplicable to ad hoc arbitration proceedings. There appears no practical reason for this exclusion.
Cross-Appeals: An Overlooked Necessity
A critical oversight in the draft bill is its failure to address the need for a cross-appeal mechanism. A cross-appeal occurs when one party triggers the appellate arbitration clause (AAT), but the opposing party believes that the appeal is unlikely to yield meaningful results or that the issue at hand is too trivial compared to the cost and time involved in constituting an AAT and undergoing the appellate process, which is typically expensive. In such cases, as the draft bill currently stands, the opposing party would have no recourse but to be drawn into a lengthy and costly appellate process, with limited impact.
To ensure fairness, the Draft Bill could incorporate a cross-appeal provision, allowing the opposing party a fixed period from the date an appeal is filed under Section 34A to submit a cross-appeal, thereby mitigating the risks of unnecessary escalation and ensuring a more balanced appellate process. Inspiration can be drawn from procedures such as the JAMS and AAA appeal procedures, both of which provide a seven-day window for filing a cross-appeal after an application for appeal is submitted to the appellate tribunal.
Interaction with Time Limits for Awards
The interaction between Section 34A and Section 29A of the Act, which governs time limits for arbitral awards, also warrants reconsideration. Under the current provision, in cases of domestic arbitration, the tribunal is required to deliver its award within 12 months from the date of completion of pleadings, with the possibility of an extension if both parties consent. Further extensions may be granted by the court.
However, the inclusion of a two-tier arbitration process necessitates a revaluation of these timelines. A significant legal gap exists here as there is a lack of clarity on how the timelines for the arbitral award and the appellate process will interact. An appellate arbitration system is an additional procedural layer to the existing regime, which must be provided its exclusive time outlines. Drawing from international practices, the Draft Bill might better outline how the timelines should be adjusted in the context of a two-tier system. Without such provisions, the Draft Bill risks introducing more uncertainty and procedural delays, contrary to its intent of streamlining arbitration. The draft bill must account for the extended procedural framework that a two-tier arbitration system entails, ensuring that the prescribed time limits are both realistic and conducive to an efficient resolution of disputes.
Enforcement Challenges
Another significant issue pertains to the validity of enforcing the initial award while it is under challenge before the AAT. Leaving the matter of enforcement to the discretion of the AAT would unnecessarily prolong the arbitration process. Therefore, the statute must explicitly clarify the status of the initial award—rendered by the arbitral tribunal in the first instance—when a second-tier arbitration clause under Section 34A is invoked.
Guidance can be drawn from international arbitral frameworks, such as JAMS and AAA appeal procedures both of which stipulate that the initial award cannot be enforced while an appeal is pending. This principle could be further expanded to include a provision stating that the initial award cannot be enforced until the expiration of the limitation period for filing an appeal before the AAT, a limitation period that should also be clearly defined in the bill.
Financial Implications and Accessibility
The financial implications of AAT proceedings also merit attention as the Draft Bill misses a crucial legal gap—how cost regulation mechanisms should be integrated into the Draft Bill. The resource intensive nature of such proceedings limits its accessibility for smaller parties or less complex disputes. Without such regulation, the Draft Bill risks skewing arbitration in favour of well-resourced parties, undermining the principle of equal access to justice. The current version does not offer any substantial protections for smaller or less-resourced parties in terms of capping the fees associated with the AAT process. Legal systems like the ICC have addressed this issue by capping costs for arbitration proceedings, ensuring broader accessibility and the Draft Bill can incorporate a legal framework similar to it to mitigate financial barriers.
Ensuring Exclusivity of the Appellate Arbitral Tribunal
AATs can significantly ease the burden on the courts. However, the draft bill must explicitly state that under Section 34A, appeals must be made to the AAT rather than the court. The Draft Bill should include provisions that ensure exclusivity of the AAT as the first point of appeal, with judicial intervention allowed only in exceptional circumstances. Drawing from international arbitration practices where appeals are exclusively handled by specialized appellate bodies (e.g., ICC), the Draft Bill could propose incorporating a similar exclusivity clause to prevent redundant judicial oversight and ensure the AAT's intended role. Providing parties with an option to choose authority of appeal would be redundant and will make Section 34A superfluous.
Impact of the Appellate Arbitral Tribunal on Grading of Arbitral Institutions
Another concern is how the AAT interacts with the grading of arbitral institutions. The Arbitration Council of India (ACI) is tasked with grading arbitral institutions according to quality and overall performance. Additionally, arbitrators will need to familiarize themselves with this new statutory right available to parties. The impact of AAT on the grading process and overall quality of arbitration is yet to be observed.
Moreover, the grading criteria must devise consistent and specific standards for appellate proceedings requiring arbitral institutions to meet specific standards for appellate processes, which would impact their grading. This will ensure India to become an arbitration friendly place for International Commercial Arbitration.
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Ensuring Consistency in Interpretations
Another critical shortcoming is the scope for varied interpretations of Section 34(2) of the Act by different arbitral institutions. For instance, ground for public policy under Section 34 of the Act, could be construed differently by AATs of different arbitral institutions. Hence, it is essential to ensure that various AATs do not end up creating their own interpretations of established law. This divergence affects the predictability of arbitration outcomes as parties may not know what to expect when their dispute reaches an AAT.
The said dilemma can be addressed by including clear guidelines on the standardization of grounds for setting aside awards across different arbitral institutions. The said grounds can be developed by following legal precedents, such as M/S Centrotrade Minerals & Metal Inc. v. Hindustan Copper Ltd., to suggest how a uniform approach could be implemented. Without such clarity, the Draft Bill risks creating a fragmented arbitration system, where parties face uncertainty about how different AATs may apply the law.
Conclusion
In conclusion, the AAT as envisioned under Section 34A of the draft bill is an innovative step in India’s arbitration journey. By addressing the challenges of judicial overreach and promoting institutional arbitration, the draft bill paves way to position India as a global arbitration hub. The draft bill can reduce the burden on courts and prevent judicializing of arbitration.
However, its success hinges on resolving key ambiguities, such as limitation periods, enforcement mechanisms, and interpretative consistency. By incorporating clear guidelines and stakeholder feedback, the draft bill can create a robust and efficient appellate mechanism.
*The authors Ishant S. Joshi and Vatsala Tyagi are 4th year and 3rd year B.B.A L.L.B (Hons.) students at National Law University, Odisha.
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