Delhi High Court judges flag proposed changes to arbitration law for interference in ICA

Delhi High Court judges Justices Tara Vitasta Ganju and Tejas Karia on Saturday expressed concerns over the Draft Arbitration & Conciliation (Amendment) Bill 2024 which expands the scope of "patent illegality" as a ground to interfere in International Commercial Arbitration (ICA)..Justice Ganju expressed reservations about the scope of judicial intervention in foreign arbitral awards under the proposed amendments. "Patent illegality applying to ICA is possibly problematic. What we are looking at is more intervention than we would like," she said.Justice Ganju also noted that such a provision may come in the way of India’s aspirations of becoming an arbitration hub in the future.Echoing her concerns, Justice Karia batted for exclusion of ICA from the patent illegality standard, citing subjectivity in judicial interpretation. "Indian courts are efficient, but there is a perception issue. Patent illegality varies from court to court—how do we re-appreciate evidence without reopening it?" he asked. The judges were speaking at a roundtable organised by PHD Chamber of Commerce and Industry on the topic “Draft Arbitration & Conciliation (Amendment) Bill 2024 Challenges and Opportunities.”.Patent illegality is a judicially evolved ground under Indian arbitration law that allows courts to set aside arbitral awards in domestic cases. First articulated by the Supreme Court in ONGC v. Saw Pipes (2003) and later refined through cases like Associate Builders v. DDA (2015) and Ssangyong Engineering v. NHAI (2019), the doctrine was formally codified in the 2015 amendment to the Arbitration and Conciliation Act, 1996, through an explanation to Section 34(2A). It applies only to domestic awards and not ICA and covers contraventions of Indian law, contractual terms or decisions that are irrational or perverse on their face. However, errors of law or fact are not sufficient unless they reflect a fundamental illegality. The doctrine has been controversial due to its subjective nature and potential for judicial overreach, with concerns that courts may re-examine the merits of disputes under the guise of patent illegality.The 2024 amendments propose to expand the scope of patent illegality to ICA well creating an uproar among the practitioners of arbitration. .The roundtable saw participation from Justices Ganju and Karia, retired Justice Mukta Gupta, Senior Advocates Percival Billimoria and Kadambari Singh, and key government functionaries including Dr Rajiv Mani, Secretary, Legislative Department, Ministry of Law and Justice, and Avnit Singh Arora, Director, Department of Legal Affairs. The session was moderated by Manish Lamba, General Counsel, DLF Cyber City..Senior Advocate Percival Billimoria defended the extension of patent illegality to foreign arbitral awards, reasoning that parties with perverse awards must have a recourse against it. “ I find it very hard to contemplate a situation in which a party does not have recourse. We don’t want awards that are patently illegal,” he said.The judges also highlighted that the proposed amendment to Section 9 of the Act contemplates that a party cannot seek interim order from the court once the arbitral tribunal is formed. Section 9 of the Arbitration and Conciliation Act, 1996 empowers parties to seek interim relief from courts before, during or after arbitration but before enforcement of the award. The amendment however proposes to remove the word ‘during’ from the section, which would mean that once an arbitral tribunal is formed, they can only seek interim reliefs from the tribunal. Among other changes, the bill addresses emergency arbitration, clarifies the definitions of seat and venue and introduces more stringent timelines for arbitration proceedings and related court matters..One of the key proposals in the proposed amendments is the creation of an appellate tribunal to challenged arbitral awards.The Law Ministry has found limited support for the concept of an appellate arbitration mechanism during stakeholder consultations, according to Dr. Rajiv Mani, Secretary (Legislative Department). "In one of the conferences last month we studied feasibility of having mechanism for appellate arbitration panel. Majority of opinions were not in favour,” he said."We have a long history of arbitration in the country. The issue which emerges is what is the arbitration ecosystem in the country. Indian parties also prefer arbitration outside India. What is lacking in our system that is not as per the aspiration of the parties," he added.Dr. Mani elaborated on the evolution of arbitration law in India."2015 amendment was quite comprehensive" and the "2019 [amendment] was aimed at promoting institutional arbitration." He highlighted that the "establishment of arbitration council has not happened till now due to administrative reasons," he stated..Speaking about the current draft bill, Dr. Mani stated, "Coming to major amendments which we now propose to carry forward. We are now providing for conduct of arbitration electronically. Concept of conciliation has been subsumed in the overall definition of mediation. Definition of court is to be sync with commercial courts.. Emergency arbitration now gets statutory recognition. Similarly timelines for court were not clear. The main emphasis was to reduce the need of parties to approach court during arbitration. These main focus areas amendment has been proposed."The amendment proposes a Section 9A that grants statutory recognition to emergency arbitrations, however it recognises institutional awards and not ad-hoc awards. On the aspect of emergency arbitration, Justice Karia noted that since majority of the arbitrations in India are ad-hoc, it would be useful if its scope is expanded to include them under the provision..Former Delhi High Justice Mukta Gupta highlighted the timelines set in the amendment Act and said that was a welcome change."One of the best things I like in this amendment is making more timelines. Challenge to section 16 must be in 30 days, this schedule will be very helpful. Section 37 to be decided in 60 days, I don't know how practical this is," she opined. Justice Gupta also noted that the provision for partial setting aside of arbitral awards under Section 34 is "the need of the hour". .Senior Advocate Kadambari Singh underscored the importance of stakeholder consultation before bringing laws into force. "There is a Japanese practice called Nemawashi, which mean building consensus by laying proper groundwork-quietly consulting stakeholders to prepare for change. It fosters unity, ownership and lasting collaborate," she said. Singh also extensively spoke to Shwetha Bidhuri, Director & Head (South Asia) of Singapore International Arbitration Centre (SIAC), about the process to onboard arbitrators to their permanent panels and how such a system could be used in India, especially considering its vast talent pool. The panelists concluded by expressing hope that the bill sees the light of the day and becomes law in 2025.