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CONFIDENTIALITY V. TRANSPARENCY IN ARBITRATION REGIME - INDIAN CONTEXT

- Vanshita Gupta


Confidentiality is considered to be one of the most important hallmarks of arbitration, among other things and transparency in publication of arbitral awards ensures relevancy, reliability, development of arbitral case laws and committed public support. But does confidentiality and transparency co-exist or are they mutually exclusive to each other, seems to be particularly noteworthy to be answered?


It is a common practice among body corporates to opt for arbitration since it is more flexible, streamlined, accords scope for greater autonomy, confidentiality together with fast-track procedure, less procedural and structural barriers, etc. Body corporates share trade secrets, IP disputes, technical know-how, sensitive financial information, incompetence during arbitral proceedings towards which they do not want unwarranted publicity or media trials; and due to such reasons, they generally incorporate a confidentiality clause in the agreement to avoid effect on long standing goodwill of the company. This ensures that all the information remains exclusive among the parties, arbitrators and/or witnesses/experts.

It bears noting to the fact that Section 70 and 75 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the ACA’) provide for two different levels of confidentiality that shall be advocated by the presiding member and the parties to the dispute, in the conciliation process adopted as a means of dispute resolution by them. The proviso appended to the main clause of Section 70 of the ACA elucidates confidentiality on an internal level where it is incumbent upon the conciliator to retain certain information as disclosed by one party when it is apprised by the party on the specific condition of keeping it confidential. Whereas, Section 75 of ACA, 1996 precludes the parties and the conciliator from disclosing the information that flows throughout the conciliation proceedings, save as otherwise provided in the provision. However, such practice was mandated in the conciliation proceedings, not in arbitration process in the ACA.


The Arbitration and Conciliation (Amendment) Act, 2019 (hereinafter referred to as ‘the Act’), the provisions of which, are based on the recommendations of the High-level Committee led by Justice BN Srikrishna (HLC)[i] introduced a new Section 42A which imposes upon the parties, arbitrators, and the arbitral institution, a mandatory stipulation to maintain confidentiality regarding the arbitral proceedings, except when its disclosure is indispensable for the purpose of implementation and enforcement of the award. The said provision is verbatim to S. 75 of ACA, instead of considering the proposals of the HLC. While the HLC recommended three exceptions to the obligations of confidentiality, i.e. if required by legal duty, to protect or enforce a legal right, or to enforce or challenge an award before a court or judicial authority[ii]; the legislature sought it important to carve out just one exception, thus creating ambiguity and limiting its scope of application, which might manifest itself as preposterous. The provision begins with a non-obstante clause, thereby precluding the operation of other provisions under any law being in force at the time, thus giving it an overriding effect. It thus attaches a relatively broad obligation on the entities, even when they have a duty to disclose certain information before the regulatory bodies such as SEBI[iii], as mandated by law. Correspondingly, the legislature failed to circumspect the interplay between various provisions of the Act to be read in conjunction with S. 42A creating ambiguity, thus calling for judicial intervention, such as- in reference to S. 9 of the Act relating to interim measures by Court and S. 42A since the exception carved out in S. 42A is analogous to post-award stage, or with reference to appointment of expert u/s. 27 to report on specific issues since information shall be made confidential among the entities mentioned in S.42A, or Court’s assistance in taking evidence[iv], Court’s intervention when the arbitral tribunal has failed to dispose off the case within the time limit specified[v], Court’s discretion in determining costs[vi] or S. 34 application for setting aside the arbitral award.


The implication of the effect of this provision, in addition to the abovementioned, has been attempted to summarize under the following points:


  1. One of the important facets of arbitration is party autonomy[vii] and operation of S. 42A puts a serious dent to it since the parties would be tied up to the mandatory requirement of maintaining confidentiality as opposed to being at liberty to decide on the issue. The provision shall, therefore, create a legitimate expectation, rather than being mandatory in nature to uphold the pillars of both autonomy and confidentiality.

  2. The application of S. 42A will create an indeterminate lacuna while reading it with S. 43K of the Act which attributes a duty on the Council[viii] to maintain electronic depository of arbitral awards taking place in both institutional and ad-hoc arbitration in such manner, as may be specified by regulations, impeding them to co-exist. The HLC foresighted the concern of confidentiality and recommended that only the Courts should be given access to the depository for the limited purpose of accessing the award under challenge, but the drafters of the Act, 2019 seem to have disregarded the proposal blatantly. On another note, if the practice of keeping all awards confidential is carried forward, it might color arbitration shadowed by arbitrariness and demotivated arbitrators with no fear of public disapproval, thus giving no scope for accountability and stability, the basic elements of transparency.

  3. In the similar vein, S. 42A puts an embargo only on the parties, arbitrator and the arbitral institution to uphold the principles of confidentiality in the arbitral proceedings, but does not recognize the ancillary entities, who might breach confidentiality such as witnesses, third party funders, experts appointed under S. 26 and such.

  4. There are various facets revolving around confidentiality in arbitration. One school of thought propagates the idea that confidentiality adds on as additional benefit to body corporates choosing arbitration in contrast to litigation, since it opens avenues to parties attempting to safeguard any ‘sensitive commercial information’ shared during the proceedings. Whereas, another school of thought believes that it is in the interest of general public to publish arbitral awards who have a legitimate stake, violation of which would tantamount to infringement of such right.[ix] This especially holds ground when the government is made a party to the dispute and the operation of S. 42A estop the entities to disclose information.

  5. The drafting of the provision seems to be half-baked since it does not provide for any liability in case of non-compliance of confidentiality obligations, neither does it provide a workable mechanism for the protection of information. Accordingly, it creates wide anomalies and lacunae in the procedure, inviting judicial intervention.


CONCLUSION AND RECOMMENDATIONS


Albeit the attempt of legislature to secure confidentiality is a welcome step, but the narrow construction of the provision attracts more vice than value. The drafters have failed to strike a balance between confidentiality and ensuring transparency by imposing upon the bodies, mandatory requirement of guarding confidentiality in the arbitral proceedings. A middle ground can be sought to prevent clash between the same through a practical framework where interests of both body corporates and stakeholders is met. A reference is made to the recently introduced Hague rules on Business and Human rights, 2019[x] where a perfect and neutralized blend between both can be seen. The rules guarantee high degree of transparency by making the main documents of arbitration public, withholding documents containing sensitive information[xi] and; introduces an arrangement where the proceedings are generally made public with an exception to hold private proceedings of certain part where confidential/sensitive information is shared or to champion the integrity of the arbitral process[xii].


Similar framework can be adopted in the Indian Arbitration regime so that both confidentiality and transparency can co-exist where routine business information can be made public and sensitive commercial information can be retained by players of the proceedings. In the similar tone, the language of S. 42A should be re-amended in a manner that it is made directory, rather than being imposing. This will serve a two-fold objective, i.e., firstly, it will ensure greater party autonomy, an essential element of arbitration, where the parties intending to have closed proceedings can include the clause of confidentiality either in their arbitration agreement or according to the rules of arbitration institution in which they apply; secondly, if the parties are indifferent on the clause of confidentiality, then publication of arbitral awards can bear persuasive value for future players and arbitrators, which in turn will help develop arbitration jurisprudence, evaluation of arbitrators, and transparent and consistent resolution of disputes. In furtherance of the same, a roster of efficient arbitrators can be maintained based on the quality of arbitral award, so that the future parties can appoint an arbitrator based on his considerable experience in handling similar factual proceedings. This practice can go a long way in ensuring transparency of process, accommodating both public interest and confidentiality values, if preferred by parties.

[i] Justice Srikrishna Committee Report to Review the Institutionalization of Arbitration in India (2017), available at http://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf. [ii] id at 72. [iii] E.g. Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations Reg. 7H (2015). [iv] Arbitration and Conciliation (Amendment) Act § 28 (2019). [v] Arbitration and Conciliation (Amendment) Act § 29A (2019). [vi] Arbitration and Conciliation (Amendment) Act § 31A (2019). [vii] Stefano Azzali, Confidentiality vs. Transparency In Commercial Arbitration: A False Contradiction To Overcome, Transnational notes, NYU Centre for Transnational Litigation and Commercial Law (Dec. 28, 2012), https://blogs.law.nyu.edu/transnational/2012/12/confidentiality-vs-transparency-in-commercial-arbitration-a-false/. [viii] Arbitration and Conciliation (Amendment) Act § 43A(b) (2019). [ix] E.g. The Right to Information Act §8(1)(d) (2002). [x] The Hague rules on Business and Human rights Arbitration, Centre for International legal cooperation (December 2019), available athttps://www.cilc.nl/cms/wp-content/uploads/2019/12/The-Hague-Rules-on-Business-and-Human-Rights-Arbitration_CILC-digital-version.pdf. [xi] The Hague rules on Business and Human rights Arbitration Art.35 (2019). [xii] The Hague rules on Business and Human rights Arbitration Art.35 (2019).

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