INTRODUCTION:

The much awaited amendments to Arbitration and Conciliation Act 1996 have finally seen light of the day but only through an ordinance i.e. Arbitration and Conciliation (Amendment) Ordinance, 2015 promulgated on 23 Oct 2015. Even this ordinance had to wait for 1 ½ decades to finally get the current shape. The earlier Arbitration and Conciliation (Amendment) Bill, 2003 based on recommendations in 176^th report of Law Commission¹ had to be withdrawn by government from Rajya Sabha for further review. Ministry of Law and Justice invited suggestions from all stakeholders on the proposed Amendments through a consultation paper² in 2010. Thereafter, the amendments were reframed and presented in 246^th report of Law Commission³ on 05 Aug 2014. Initially the government decided to go for the ordinance route after clearance by Union cabinet on 29 Dec 2014 but decided against sending it to the President at the last minute. However, after a lapse of 10 months again the ordinance route has been adopted in the form of Arbitration and Conciliation (Amendment) Ordinance, 2015 promulgated on 23 Oct 2015.

Several government and public sector organizations in India are engaged in infrastructure development of the nation. Infrastructure and Project Monitoring Division (IPMD) of Ministry of Statistics and Programmer Implementation (MSPI) designed and published Standard Contract Clauses in Contract Document For Domestic Bidding⁴ in 2005 for these public organizations to adopt. This document also included clauses in respect of Dispute Resolution as well which primarily conformed to practices and clauses followed by World Bank, ICC, UNCITRAL and FIDIC. However, till date no uniformity has been achieved specifically in respect to Dispute Resolution techniques. This has lead to huge loss of public money through cost and time overrun and litigations in government infrastructure contracts. Unprofessional approach towards dispute resolution by the government agencies has contributed towards unresolved disputes spanning over decades. Contradicting interpretations of several sections of Arbitration and Conciliation Act 1996 by the courts over the last two decades has also not helped in speedy resolution of disputes in infrastructure contracts. Therefore, there are lot of expectations from the amendments now enforced through the ordinance to address not only the problem areas in dispute resolution system in government infrastructure contracts but also undo several rulings of the apex court which are against the spirit of the Act of minimum interference by the courts.

OBJECTIVES OF THE STUDY:

The study aims to discuss the most significant amendments of the Arbitration and Conciliation (Amendment) Ordinance, 2015 and their expected impact on Dispute Resolution in government infrastructure contracts in India.

Most Significant Amendments:

The ordinance has duly considered the recent recommendations of the law commission’s 246^th report but it is not entirely based upon this report. There have been certain omissions and additions from the report to finally arrive at the text of the ordinance. Some of the most significant amendments specifically in reference to government infrastructure contracts are discussed below.

Strict time limit for Arbitrator to publish the award:

There have been abnormal delays in concluding the arbitration proceedings especially in government infrastructure contracts. In several cases the Supreme Court has adversely commented on these abnormal delays. The Supreme Court in North Eastern Railway v. Triple Engg. Work⁵, came down heavily on the government dept. (Railways) where arbitration in respect of two contracts with M/S Triple Engineering Works could not be concluded by Government appointed Arbitrators in 20 years. In another case Union of India v. Singh Builders Syndicate⁶, the arbitration proceedings could not be concluded even after a lapse of a decade by the government appointed arbitrator. In fact in one of the running Arbitration cases in Military Engineer Services involving Commander Works Engineer, Jhansi and M/S Mk Prabhakar, the Arbitration process is still alive 26 years after the appointment of first of the seven arbitrators appointed till date. In another case Indian Oil Corporation Limited v. S.P.S. Engineering Ltd.⁷ there have been 2 rounds of Arbitrations spanning a total period of 7 years but the actual claim of IOCL for award of risk and cost amount is still eluding them.

As per a new section 29A added through the ordinance, the arbitral tribunal will have to publish the award within a period of twelve months after constitution. This period is extendable with consent of both parties by 6 months only. Thereafter, further extension has to be obtained only from the court after showing sufficient cause. In case court finds the delay attributable to arbitral tribunal, it can penalize by ordering reduction in fee of the arbitrator(s) or even replacing them. In case the delay is attributable to any of the parties, the court can impose exemplary costs. Apart from penal provisions, there is motivational provision for additional fee in case the Arbitrator publishes the award within 6 months. Another new section 29 B provides for fast track procedure by dispensing oral hearing or other technical formalities by arbitral tribunal to finalize the award within a period of 6 months. Similar provisions also existed in the Arbitration and Conciliation (Amendment) Bill, 2003, although no such proposals were found in the Law Commission 246^th report.

Therefore, these new provisions of the Act are definitely going to act as deterrent as well as motivational tool for the parties and the arbitral tribunal to conclude the Arbitration proceedings within the stipulated timeframe. It is expected that with implementation of these provisions, the abnormal delays specifically in respect of government infrastructure contracts as discussed in the cases above shall be eliminated.

Professionalism in Arbitration Process:

In the Singh Builders Syndicate case discussed above the Supreme Court has criticized the contract conditions where serving employees of the government department are appointed as Arbitrators. The apex court held this as one of the reasons for abnormal delays owing to their frequent transfers, thus making a mockery of the process. It even suggested the government to phase out arbitration clauses providing for serving officers as arbitrators and encourage professionalism in dispute resolution by resorting to institutional Arbitration. Taking a clue from the above observations of the apex court, the ordinance has modified section 12 which along with new provisions in fifth, sixth and seventh schedules have made the serving employees of the concerned government department ineligible for appointment as an arbitrator. Even the employee shall not be eligible for appointment as Arbitrator for three years immediately after retirement. This amendment is expected to have a huge impact on the Arbitrations in government infrastructure contracts in India as majority of departments have contract conditions with their serving employee as an Arbitrator. Thus, the government departments are left with no alternative but to adopt a more professional approach by outsourcing the administration of dispute resolution process to a professional body. Institutional Arbitration is acclaimed and adopted worldwide to resolve commercial disputes due to its distinct advantages over in-house ad hoc arbitration. As an alternative, departments like NHAI and DMRC have already made a panel of their own by pooling in retired professionals with rich experience in government and private infrastructure organizations as well as from legal fields. With arbitrations conducted by more competent and experienced professionals, the quality of process and award are bound to improve.

Eliminating Delays in litigation:

In the case of G. Ramachandra Reddy and Company v. Union of India and another⁸, the litigation to set aside the award spanned for 17 years including 4 years of execution petition filed after the said judgment. The government department concerned was Military Engineer Services (MES) and this litigation resulted in final payment of Rs. 5.32 Crore to the contractor against the principal awarded amount of Rs.1.23 Crore. In another case J.G. Engineers Private Limited v. Union of India⁹ involving premier infrastructure building organization Central Public Works Department (CPWD), a litigation running for a decade through the hierarchy of courts increased the govt. liability from Rs.1.05 Cr (principal awarded amount) to final liability of Rs. 3.40 Cr. In Oil and Natural Gas Corporation v. Wig Brothers Builders and Engineers Private Limited¹⁰, the matter was agitated right up to the apex court for 16 years but yielded only a meager relief for the public sector entity. The above cases pertain to applications filed to set aside the award under section 34. The Ordinance has added new sub-sections 34 (5) and (6) stipulating a timeframe of 1 year for the courts to dispose of these applications. Thus, it is expected that the issue of abnormal delays shall be effectively dealt. However, no provisions have been stipulated in the ordinance for an eventuality where a court defaults to stick to the laid down timeframe.

Promptness in Appointment of Arbitrators by the Courts:

Other prominent litigations pertain to appointment of Arbitral Tribunal through the interference of the court under section 11. The appointment of Arbitrator was considered to be an administrative function of the Chief Justice of High/Supreme Court. However, a seven (07) judge constitutional bench of the Supreme Court on 26 Oct 2005 in S.B.P. & Co. Vs Patel Engineering Ltd. & Anr¹¹, declared it to be a judicial function of the concerned Chief Justice. Thus, mere existence of an Arbitration Agreement was not considered enough to appoint an arbitrator. Courts also needed to go into the details of the dispute to ascertain the existence of a live claim before giving a judicious decision on appointment of the Arbitrator. This judgment came in for strong criticism from the promoters of Alternative Dispute Resolution system for increasing intervention of Courts against the spirit of the Act. It lead to occurrence of abnormal delays in deciding the appointment of Arbitrator applications. In one of the infrastructure contracts pertaining to Military Engineer Services (MES) in Union of India v. Master Construction Company¹², it took 10 years of litigation which finally culminated into rejection of the request of the contractor for appointment of an arbitrator. The ordinance has reversed the Patel Engineering judgment by clearly confining the scope of the courts to examine only the existence of Arbitration agreement while deciding the applications for appointment of arbitrator under section 11. This in a way reaffirms that the appointment of arbitrator shall again be considered as an Administrative function of the Court and not a judicial function. Simultaneously, a new sub-section 11 (13) has been added specifying a timeframe of 60 days for the courts to decide such applications. Thus, with clear definition of court interference and timeframe for disposal of application, the time required for appointment of arbitrators through courts is expected to reduce drastically.

Grounds to Challenge Award:

To accomplish the objective of minimum court interference, Section 34 provided very limited grounds for challenge of the award. Even these grounds relate to the process of arriving at the decision rather than examining the award on its merit. However, ONGC Vs Saw Pipes Ltd¹³, added certain additional grounds which required scrutiny of the award and hence more judicial interference. These grounds considered to curb the powers of Arbitrators were not appreciated specifically in the context of International commercial Arbitration. The ordinance has reversed the Saw Pipes judgment to a large extent despite adding patent illegality appearing on the face of the award as a ground to set aside a domestic award with a rider that an erroneous application of the law by Arbitrator or re-appreciating evidence by the Court shall not form the basis for setting aside the award. These changes and a timeframe set to dispose of the application in 1 year are expected to streamline the infrastructure contracts related litigations for the better.

Prompt Enforcement of award:

As per section 36 of the Act, filing of an application to set aside the award under section 34 automatically stayed the operation of the award till the same is rejected by the court. As seen from the various cases in the above discussion, the subsequent litigation drags for years. This not only deprives the successful party to enjoy the awarded amount but the liability of other party also keeps escalating due to accumulation of future interest. The split judgment of the Supreme Court in the case Hyder Consulting (UK) Limited v. Governor, State of Orissa, Through Chief Engineer¹⁴, has allowed merging of awarded amount and pre-award interest into the ‘sum’ for calculating the future interest under section 31 (7) (a) which is akin to interest over interest without actually calling it as same. Although Law commission in its 246^th report had recommended similar amendment to be made in the Act, the ordinance has not included such provision. Thus, with judgment in Hyder case prevailing as on date, the future interest liability of the unsuccessful party shall escalate even further. Thus, prompt implementation of award is in the interest of both the parties. The ordinance by suitably amending clause 36 has tried to enforce speedy implementation of the award by deleting the provision of automatic stay on filing of application for setting aside of the award. Only conditional stay by court with due regard to provisions of Code of Civil Procedure, 1908 has now been stipulated. The General Conditions of Contract of National Highways Authority of India (NHAI) have already incorporated prompt interim implementation of the award in their Model Engineering, Procurement and Construction (EPC) Agreement¹⁵ document. As per the agreement, there is a provision of mandatory award payment protected by a Bank Guarantee of suitable amount before challenge of award in the Court. More government departments shall have to follow the NHAI formula to match the new provisions of the ordinance. Thus, neither the interest liability increases during litigation nor there is any anxiety about recovery from the contactor in case the Court sets aside the award.

CONCLUSION:

Thus, the Arbitration and Conciliation (Amendment) Ordinance, 2015 has come as a refreshing legislation to ease out process of the resolution of disputes specifically related to government infrastructure contracts. With timeframes fixed for each stage in the ordinance, it is expected to bring down the overall dispute span by reducing the spans of various stages like litigation period for appointment of arbitrator through court (60 days), actual period of arbitration proceedings (6/12 months) and litigation period for setting aside the award (12 months). It shall also bring professionalism in dispute resolution through institutional arbitration. Provision for prompt enforcement of the award shall actually benefit both parties. Thus, these amendments shall go a long way in building sound and efficient dispute resolution mechanism for government infrastructure contracts.

REFERENCES:

1. Law Commission of India. (Sep 2001). 176th Report on Amendments to the Arbitration and Conciliation (Amendment bill) 2001. New Delhi: Government of India. Retrieved Dec 15, 2011 from http://lawcommissionofindia.nic.in

2. Ministry of Law & Justice, Government of India. (2010, April). Proposed Amendments to the Arbitration & Conciliation Act 1996: A Consultation Paper. Retrieved Aug 10, 2012, from Ministry of Law & Justice from: http://lawmin.nic.in/la/consultationpaper.pdf

3. Law Commission of India. (Aug 2014). 246th Report on Amendments to the Arbitration and Conciliation Act 1996. New Delhi: Government of India. Retrieved Aug 15, 2014 from http://lawcommissionofindia.nic.in

4. Ministry of Statistics and Programme Implementation. (2005, Apr). Contract Document For Domestic Bidding. Retrieved May 23, 2012 , from mospi.nic.in: http://mospi.nic.in/Mospi_New/upload/contract_document.pdf

5. North Eastern Railway v. Tripple Engg. Work, (2014) 9 SCC 288

6. Union of India v. Singh Builders Syndicate, (2009) 4 SCC 523

7. Indian Oil Corporation Limited v. S.P.S. Engineering Ltd. AIR 2011 SC 987 .

8. G. Ramachandra Reddy and Company v. Union of India and another (2009) 6 SCC 414

9. J.G. Engineers Private Limited v. Union of India (2011) 5 SCC 758

10. ONGC v. Wig Brothers Builders and Engineers Private Limited (2010) 13 SCC 377

11. S.B.P. & Co. Vs Patel Engineering Ltd. & Anr (2005) 8 SCC 618

12. Union of India v. Master Construction Company (2011) 12 SCC 349

13. ONGC Vs Saw Pipes Ltd (2003) 5 SCC 705

14. Hyder Consulting (UK) Limited v. Governor, State of Orissa, Through Chief Engineer (2015) 2 SCC 189

15. Ministry of Road Transport and Highways. (2012, Aug). Model Engineering, Procurement and Construction (EPC) Agreement for Construction of 2-lane National Highway Works. Retrieved Mar 7, 2013, from morth.nic.in: http://morth.nic.in/writereaddata/linkimages/Model%20EPC%20document-0989722812.pdf

Received on 10.11.2015 Accepted on 12.12.2015

Int. J. Tech. 5(2): July-Dec., 2015; Page 281-284

DOI: 10.5958/2231-3915.2015.00036.X