CONFIDENTIALITY IN THE INDIAN ARBITRATION ACT – A HALF-HEARTED ATTEMPT?

Source : The MDU

This Article has been authored by Harshit Kumar Mishra, a final-year student of law at Bharati Vidyapeeth University.

Introduction

Confidentiality is one of the primary reasons parties opt for arbitration to resolve their disputes. They wish to keep the evidence as well as the procedure confidential too. Various jurisdictions have their own perspective and understanding of confidentiality as there is no confidentiality clause in the UNCITRAL Model Law. Until now, the general obligation on the advocates not to disclose attorney-client communication, advice, etc. under section 126 of the Indian Evidence Act, 1872 did not offer sufficient comfort to the parties in the dispute, thereby inhibiting the growth of arbitration. Although, section 79 of the Arbitration and Conciliation Act, 1996 talks about confidentiality; however, it is only restricted to conciliation.

‘Confidentiality’ Under the Indian Arbitration Act

Section 42A of the Indian Arbitration Act deals with the aspect of confidentiality. Sec 42A provides that “Notwithstanding anything contained by any other law for the time being in force, the arbitrator, the arbitral institution and the parties to the arbitration agreement shall maintain the confidentiality of all arbitral proceedings except award where its disclosure is necessary for the purpose of implementation and enforcement of award.”

Sec 42A was inserted via the 2019 amendment act based on the recommendation given by the High-Level Committee Report. The HLC observed that there was no express provision on confidentiality and that confidentiality is practised in some manner, globally. The provision has various shortcomings too.

Drawbacks of Section 42A

Exclusion of Witnesses, Stenographers and other parties

The section provides that only arbitrators, the arbitral institution and parties are obligated to abide by the principle of confidentiality. However, this section does not talk about witnesses, stenographers or any other person who is witness to the arbitration proceedings. Ergo, the confidentiality provision does not apply to them, which is a massive drawback in this provision.

Court Intervention

Court intervention may be initiated by the parties relating to a particular arbitration proceeding under various sections of the Arbitration Act. The provision is silent on such matters. The only exception to this provision is disclosure for implementation and enforcement of the award.

Third Parties seeking a reference to proceedings

There is always a possibility that third parties may approach the court to seek reference to the arbitration proceedings as they are directly or indirectly affected by such proceedings. In the case of Mahanagar Telephone Nigam Ltd Vs. Canara Bank, the Supreme Court of India allowed non-signatories to claim such reference by establishing their degree of involvement. The court as well as the parties shall require confidential data from the proceedings to establish such a claim. However, because of Section 42A it seems impossible to do so as the use of word ‘notwithstanding’ shows that this is a non-obstante clause. Ergo, the courts in India would have to carve out a new rule of divulging confidential data in a court proceeding. They would need to strike a balance between the interest of the parties and confidentiality. The courts in the UK and Singapore have also considered this facet.

The Public Interest Test

The aspect of confidentiality remains ambiguous under the international arbitration regime because there is no uniform confidentiality provision. UNCITRAL is also silent on such aspects. For example, Article 37(1) of the International Centre For Dispute Resolution (ICDR) Rules requires the arbitrators and the parties to keep the award and proceedings confidential. However, it is subject to an agreement between the parties to the contrary. In comparison, Article 6 of Appendix 1 and Article 2 of Appendix 2 of the International Chamber of Commerce (ICC) Rules require the arbitrators and the arbitral institution to maintain confidentiality but is silent about the parties’ duty with regards to confidentiality.

The courts in the UK and Singapore have laid down the ‘public interest’ test in adjudicating the matters relating to confidentiality in arbitration. In the case of AAY v. AZV, [2012] SGHC 116, the Singapore High Court held that the arbitration proceedings were to be conducted in the chamber instead of the open court as an open court hearing may lead to the revelation of documents that were of specific public interest.

Similarly, the English Commercial Court in The Chartered Institute of Arbitrators v. B allowed the exception of public interest to allow disclosure of documents in an arbitrator’s disciplinary proceedings. This shows that the principle of public interest prevailed in the maintenance of the quality of arbitrators over the principle of confidentiality. The court had also delved into the harm which the institution would face if public access is granted.

Therefore, the principle of public interest can be a legitimate and natural exception to Section 42A; however, in the absence of a legal provision, the Indian courts have to establish such a principle.

Conflict with Indian Domestic Laws

The non-obstante clause is a conflict with several Indian domestic laws, rules and regulations. When the arbitral party is a company, there are several SEBI regulations as well as Companies Act provisions which could lead to a conflict. For example, the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015requires the companies to make disclosures by periodic filing, reports and any information that enables the investors to check on the performance of the company. Likewise, the Companies Act, 2013 mandates the companies to submit the board of directors report, annual return, CSR policy and financial statements on its website. The company is also required to disclose information about any merger, acquisition or amalgamation plans to the National Company Law Tribunal (NCLT).

A literal interpretation of Section 42A would mean that the companies need not make such disclosures if it relates to an arbitration proceeding. The companies can take undue advantage of this provision by refusing to disclose certain information even if such disclosure is not even remotely related to the arbitration proceedings.

Infringement on Party Autonomy

One of the advantages of arbitration is party autonomy. Parties are at liberty to decide the procedure of arbitration, the applicable laws, appointment of arbitrators and all aspects related to arbitration. Section 42A infringes upon the very concept of party autonomy. Generally, the arbitration provisions are ‘subject to an agreement by the parties’ but section 42A has no such provision. The non-obstante clause makes it even worse for party autonomy as they will have to follow this provision mandatorily.

No Consequences for Violation

Section 42A lack the principle of ‘Ubi Jus Ibi Remedium’. There are no consequences for the violation of confidentiality. This is contrary to the basic principle of where there is a right, there is a remedy. The 2019 amendment does not have any remedy available to the parties whose confidentiality is violated by anyone, creating a significant setback for the arbitration in India.

Electronic Depository

Section 43K of the Act says that the Arbitration Council of India shall maintain an electronic depository of arbitral awards made in India. However, the Act does not specify who will have access to such depository. This does not in the least reflect on the recommendations given by the committee. The High-Level Committee had recommended the creation of such depository and said that only the courts would have access to such awards. This raises a genuine concern with regards to the confidentiality and protection of data.

Conclusion

Insertion of an explicit confidentiality provision is a good start towards making India a global arbitration hub. However, there are too many complications to such provisions. The non-obstante clause seems to have created more problems than solutions. The provision seems to ignore the conflict between the arbitration agreement and the Arbitration Act. This gives rise to many questions such as- (i) What if parties had already incorporated the confidentiality clause in their arbitration agreement even before the amendment?; (ii) Does the amendment have a retrospective effect or will such provision lead to another tussle like the 2015 amendment?.

The Act is silent on whether any dispute with respect to confidentiality can be raised and, if yes, who has the jurisdiction – the tribunal or the courts.

The Act also fails to provide for the confidentiality of court proceedings arising from arbitration proceedings. The Act should have covered such aspects. These factors would help the parties to maintain proper confidentiality of their proceedings. Without such provisions, as soon as a party approaches the court, the proceedings will become public knowledge, thereby defeating the purpose of confidentiality.

India already has a Data Protection Bill, 2019 tabled in the parliament. If passed, Section 42A will again create a tussle with the Act because of its nature. The government has completely ignored such factors which will do more damage than provide adequate remedy for the arbitral parties, especially when the parties are from a different jurisdiction.

The Act fails to address such concerns of the parties with regards to the publication of awards. Various international arbitral institutions have provisions with regards to the publication of awards. The question of whether the publication of awards with the consent of the parties will amount to a violation of Section 42A finds no answers in the Arbitration Act.

With such drawbacks, the courts would have to intervene, which defeats the objective of reduced court intervention in arbitral proceedings; an objective that the Government of India has been trying to achieve for the last five years. Thus, there is a need for change in this area which can be brought in by consulting various international arbitral institutions to bring the arbitration laws in the country up to the global standards.