2019 Amendments: Will parties be able to appoint foreign arbitrators in India-seated arbitrations?

[This guest post has been authored by Vedanta Vishwakarma and Sarthak Punetha, both studying in the penultimate year at Gujarat National Law University (GNLU), Gandhinagar.

They have a keen inclination towards arbitration and commercial dispute resolution.]

2019 Amendments: Will parties be able to appoint foreign arbitrators in India-seated arbitrations?

The Arbitration & Conciliation Act, 1996 (Arbitration Act/the Act) was amended recently in 2019 (2019 Amendments/Amendments). The intent of the legislature for enacting the 2019 Amendments was to make India a hub of domestic and international arbitration by bringing in changes in law for faster resolution of commercial disputes.

Among other things, the 2019 Amendments have introduced Section 43J to the Act. Schedule 8, which was introduced in Section 43J, laid down that no person would be appointed as an arbitrator unless such person is inter alia an advocate within the meaning of Advocate Act 1961 with 10 years work experience. Section 24 of the Advocates Act, 1961, also states that only citizens of India can be registered as advocates under the Act.

While the introduction of minimum qualifications and eligibility requirements for arbitrators may be well intended, the provisions in the Eighth Schedule may be problematic. Most strikingly, it appears that the Eighth Schedule in its present form has excluded the parties’ choice of appointing foreign individuals as arbitrators in India-seated arbitrations.

In this post, the authors have discussed the evolution of India’s position on appointment of foreign arbitrators in India-seated arbitrations. The authors have also critiqued the 2019 Amendments for their impact on this position.

Legislative position and intent

Subject to certain formal requirements, parties are free to agree on a procedure for appointing the arbitrator(s). The arbitration agreement may require parties to mutually select a sole arbitrator. It can also provide for a three-member tribunal, where each party will appoint one arbitrator and the two appointed arbitrators appointing the third and presiding arbitrator. If the arbitrator is not appointed in accordance with the agreed procedure, parties can make an application under Section 11 of the Act to the High Court or Supreme Court, as the case may be, in order to complete the appointment process.

In particular, Section 11(1) expressly provides that a person of any nationality may be appointed as an arbitrator, unless the parties agree otherwise. Therefore, the Act expressly contemplates the parties’ choice of appointing the arbitrator. Section 11(1) remains unchanged after the 2019 amendments.

Further, even the amended Section 11(9) provides that ‘in the case of appointment of sole or third arbitrator in an international commercial arbitration, the Supreme Court or the person or institution designated by that Court may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities’.

Judicial view before the 2019 Amendment

In Reliance Industries Ltd. & Ors v Union of India (2014), the Supreme Court touched upon various issues relating to the appointment of foreign arbitrators, while discussing the question in the context of the appointment of the third (presiding) arbitrator, when the parties had not reached a consensus on the appointment. The court delved into the question that whether the nationality of the arbitrator should be different from that of the parties to the dispute, so as to ensure his/her neutrality in the matter.

Among other things, the Court observed as follows,

  1. … But the ratio in the aforesaid cases cannot be read to mean that in all circumstances, it is not possible to appoint an arbitrator of a nationality other than the parties involved in the litigation. It is a matter of record that Clause 33.5 of the PSC provides that on failure of the second party to nominate its arbitrator, the Chief Justice of India may be requested to appoint the second arbitrator from amongst persons who are not nationals of the country of any of the parties to the arbitration proceedings. Therefore, in principle, it becomes apparent that the Respondents have accepted the appointment of the second arbitrator from a neutral country. Merely because, the seat of arbitration is in India, the applicable law is Indian Law; it does not become incumbent on the Court to appoint the third arbitrator, who is an Indian national. The concern of the Court is to ensure neutrality, impartiality and independence of the third arbitrator. […]’ (emphasis supplied)

The Court further quoted from the works of Redfern & Hunter and Gary Born to emphasise the importance of the sole or the third arbitrator being from a country different from that of the parties to the arbitration. The Court noted as follows:

“In any event, the neutrality of an arbitrator is assured by Section 11(1) of the Arbitration Act, 1996, which provides that a person of any nationality may be an arbitrator, unless otherwise agreed by the parties. There was no agreement between the parties that the third arbitrator must necessarily be an Indian national. The Court also noted that Section 11(9) of the Arbitration Act specifically empowers the CJI to appoint an arbitrator of a nationality other than the nationality of the parties involved in the litigation. In the circumstances, the Court held that it would not be impermissible for the Court to appoint an arbitrator who did not possess an Indian nationality.”

Similarly, in the case of Bar Council v. A.K. Balaji (2018), the Supreme Court held that foreign lawyers do not have an absolute right in conducting arbitrations in India. But this does not bar them in cases where rules of institutional arbitration are applicable or the matter is covered by provisions of Arbitration Act in view of Section 32 and 33 of the Advocates Act, 1961. They state that courts/authorities may permit persons who are not registered as advocates under the Advocates Act to appear before it.

Comments

The Eighth Schedule states that ‘a person shall not be qualified to be an arbitrator unless…’. Given the requirement of being an advocate in accordance with the Advocates Act 1961, the amendment leaves an ambiguity on the appointment of foreign counsel as arbitrators.  Nowhere is it explicitly mentioned that a foreign arbitrator can be appointed. Therefore, the Eighth Schedule in its present form can be interpreted to imply that no foreign legal professional and/or scholar can act as an arbitrator in India-seated arbitrations.

Separately, the amendments also prescribe requirements such as minimum experience and knowledge of Indian laws and so on, as preconditions for persons to be appointed as arbitrators. These proposals have been severely criticised by many experts and even sitting judges of the Supreme Court of India.

Concluding remarks

The impact of the 2019 Amendments on the arbitration landscape in India is controversial at best.

Although there are precedents confirming that parties can appoint foreign nationals as arbitrators, the 2019 Amendments have impliedly barred their appointment in India-seated arbitrations. Contrary to its intentions, therefore, the 2019  Amendments have arguably decreased India’s chances of becoming an attractive seat for international arbitration.

It would be advisable for the Legislature / appropriate authorities to revisit the Eighth Schedule and conclusively address this issue. As set out above, Section 43J provides that the Central Government has the power to amend the Eighth Schedule. It would be interesting to see, therefore, if the Central Government will exercise this power to include foreign lawyers and other nationals to eligible for being appointed as arbitrators in India-seated arbitrations.

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