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Proposed Amendments to Court Definition in Arbitration: Enhancing Clarity and Promoting Institutional Arbitration

The Expert Committee on Arbitration, in its February 2024 report, has recommended crucial amendments to the definition of 'Court' in the Arbitration Act. Here's a breakdown of the proposed changes and the rationale behind them:


Definition of Courts: The proposed insertion of new section 2A defines 'Courts' primarily based on jurisdiction over the arbitration's seat. If the seat is undetermined, jurisdiction over the subject matter of arbitration will be considered. This amendment aims to bring clarity and precision to court jurisdiction in arbitration proceedings.


Consequential Amendment to Section 42: In line with the revised definition, a consequential amendment to section 42 will be made to ensure alignment with the proposed changes in court jurisdiction.


Promoting Institutional Arbitration: To further incentivize institutional arbitration, the Committee suggests that for arbitrations with a Specified Value of Rs. 50 crores or higher, the jurisdictional High Court under section 2(1)(e) should be designated. This High Court must have original jurisdiction or jurisdiction to hear appeals from subordinate courts where the arbitration is seated. If no seat is determined, the court with jurisdiction over the subject matter of arbitration will be considered. This measure aims to streamline the arbitration process and encourage institutional arbitration.


Calculation of Specified Value: The proposed definition specifies that the Specified Value will be calculated based on the principles outlined in section 12 of the Commercial Courts Act, 2015, ensuring consistency and clarity in determining the threshold for jurisdiction.


REASONS FOR RECOMMENDATIONS:


a) Recognition of Arbitration Seat: The Committee acknowledges the significance of the arbitration's seat, as highlighted by key rulings like BALCO v. Kaiser Aluminium Technical Services Inc. (2012) 9 SCC 552 , Indus Mobile Distribution Pvt Ltd v Datawind Innovations Pvt Ltd & Ors. (2017) 7 SCC 678, and more recently in BGS SGS SOMA JV v. NHPC (2020) 4 SCC 234. Therefore, it proposes to give statutory recognition to the seat of arbitration, ensuring uniformity and adherence to established legal principles.


b) Addressing Jurisdictional Challenges: In scenarios where parties opt for a neutral seat or agree on a seat after approaching different courts, the proposed amendment prioritizes the court with jurisdiction over the arbitration's seat. This addresses jurisdictional challenges and ensures a coherent legal framework for arbitration proceedings.


c) Enhancing Clarity and Promoting Institutional Arbitration: The amendments aim to provide clarity on court jurisdiction for both international commercial and domestic arbitrations, considering the rise in institutional arbitrations and varying claim amounts. By designating the jurisdictional High Court for institutional arbitrations with a Specified Value of Rs. 50 crores or more, the amendments seek to promote institutional arbitration and streamline the arbitration process.


In summary, the suggested changes are a big move towards enhancing clarity, encouraging institutional arbitration, and creating a stronger legal framework for arbitration in India. These steps are expected to make arbitration in the country smoother and more effective.

 

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