Select Page

Closing the Gap: A Case for Confidentiality Reforms in Indian Arbitration

Article by Kabir Chaturvedi & Kopal Chaturvedi

Confidentiality in arbitration serves as both a shield to protect sensitive information and a sword to promote candour among disputing parties. Further, as the Federal Court of Australia recently noted, “confidential arbitration can be attractive to parties wishing not to have their dirty laundry aired in public, or wishing to maintain an ongoing commercial relationship with each other by excluding interference or pressure that might come from their dispute being aired publicly”. Thus, for India to become ‘the next hub for international arbitrations’, it is imperative to have a robust mechanism to protect and enforce confidentiality. However, despite the recent amendment in the Arbitration and Conciliation Act of 1996 (‘Arbitration Act’) to protect the confidentiality obligation, the gaping holes in the new provisions do little to address the issues around ensuring enforcement of confidentiality in the country. This article identifies the shortcomings of the existing statutory regime regarding confidentiality and provides possible remedies to address them.

The Pitfalls in the Existing Regime

After the recommendation of the B.N. Srikrishna Committee to include a new provision in Part I of the Arbitration Act designed to safeguard the sanctity of confidentiality in arbitral proceedings, Section 42-A of the Arbitration Act was introduced through the 2019 Amendment. This section stipulates that arbitrators, arbitral institutions, and parties to the arbitration agreement must maintain confidentiality throughout arbitral proceedings, except for the disclosure of the award when necessary for its implementation and enforcement. However, this provision falls short of fully implementing a mechanism to protect confidentiality for the reasons elucidated below:

Firstly, Section 42-A only imposes the obligation to maintain confidentiality in arbitral proceedings upon “the arbitrator, the arbitral institution and the parties to the arbitration agreement”.  However, parties often refer disputes to arbitration due to their complex nature. This requires involvement of non-signatories like expert witnesses for comprehensive adjudication of disputes. While such parties may not be actively involved in arbitrations, they are nonetheless part of the proceedings. Further, as per the Supreme Court’s recent landmark decision in Cox and Kings, parent companies which are non-signatories to arbitration agreement can also be made parties to arbitration proceedings by applying the Group of Companies (‘GOC’) doctrine if their consent to be bound by the agreement is implicit through their conduct. Therefore, while the involvement of non-signatories is now practically a certainty in arbitration proceedings, Section 42-A does not extend the obligation of confidentiality to such parties to the proceeding.

Secondly, Section 42-A only exempts the parties from the obligation of confidentiality in cases where “disclosure is necessary for the purpose of implementation and enforcement of award”. However, parties often seek judicial intervention for interim relief under Section 9 of the Arbitration Act when the relief which could be granted by the arbitral tribunal under Section 17 of the Arbitration Act is deemed to be inefficacious. The provision does not address such situations or provide exception for the same.

Further, while confidentiality is essential for fostering candid discussions and protecting sensitive commercial information, there are instances where the public interest demands transparency. Therefore, confidentiality in arbitral proceedings cannot be absolute, and exceptions need to be codified to discard the obligation in cases where there arises a conflict between transparency and confidentiality. The exception of transparency to maintaining confidentiality has also been duly recognized by Foreign Courts in a catena of decisions[1].

Thirdly, the absence of a mechanism to enforce confidentiality obligations and the recourse available to the arbitral tribunal in cases of non-conformity with this provision is perhaps what renders this provision toothless. In theory, it could be argued that an award passed in a proceeding where the obligation to maintain confidentiality has been breached would be against the public policy of India due to a violation of Section 42-A, and hence the award would be liable to set aside. However, this would not only undermine the efficiency of arbitral proceedings but also give the party breaching the obligation of confidentiality to escape unscathed.

Lastly, while the Arbitration Act 1996 recognizes the importance of confidentiality in arbitration, it lacks detailed provisions on privacy. The absence of explicit statutory guidelines leaves room for interpretation, leading to uncertainty and potential disputes over the scope of confidential information.

Suggested Remedies

Binding Non-Signatories

With regards to the extension of the confidentiality obligations to non-signatories, the authors believe that the Supreme Court’s decision in Cox and Kings has provided a firm foundation for the legislature to amend Section 42-A and extend the confidentiality obligation to non-signatories. The Court in Sunkist, Thixomat v. Takata Physics International Co.[2] was faced with a similar problem, where the non-signatory subsidiary alleged that the confidentiality provision of the contract had been breached and requested for arbitration of disputes. The court ruled that because of the close relationship between the subsidiary and the parent company, the fact that both entities sought an identical remedy and because the claims arose “from one common nucleus of operative facts,” they were “intimately founded in and intertwined with the underlying contract obligations” and had to be referred to arbitration. Therefore, courts can use the GOC doctrine to enforce confidentiality obligations upon a non-signatory which is part of the same corporate group as a signatory and/or is closely connected to the dispute.

Necessary Exceptions

From the issues outlined above, it is evident that Section 42-A of the Arbitration Act does not account for the many situations where confidentiality obligations may need to be discarded. Hence, the authors propose the following exceptions:

Firstly, to address situations where parties seek judicial relief at an interim stage, the authors believe that the exceptions of disclosure necessary for protecting or pursuing a legal right or interest of the party can be borrowed from Section 18 of the Arbitration Act of Hong Kong to avoid any unnecessary litigation arising out of a conflict between Section 9 applications under the Arbitration Act and confidentiality obligations.

Secondly, where parties still want to maintain confidentiality while seeking interim relief, Section 22 and Section 23 of the Singapore International Arbitration Act (“SIAA”) provides an appropriate solution. Section 22 of SIAA provides that the proceedings under the act before the courts shall be heard otherwise than in open courts, on the application of any party to the proceedings. Further, Section 23 of SIAA gives the courts power to issue necessary directions regarding what information relating to the proceedings may be published, provided the parties mandatorily consent to such publication.

Thirdly, to further make the provision more robust with regard to exceptions to the confidentiality obligations, the authors also suggest that the exception of the ‘disclosure being made with the consent of the parties, to the parties’ advisor, for the protection of the legitimate interest of the third party, and by order of the court’ be borrowed from Section 14B of the New Zealand Arbitration Act of 1996 to ensure party autonomy is protected and there is no conflict between the two cornerstones of arbitration.

Lastly, the exception of necessary disclosure in the interest of public or justice is necessary to align the statute and the jurisprudence on the issue.

Consequences of Breach

For the provision of confidentiality to be effective, it is necessary that it provides for consequences in case a party is found to be in breach of obligation. The consequences must depend on the degree of the breach and may range from grant of damages to invalidating the respective order/proceedings during which such breach takes place.

Conclusion

In conclusion, addressing the shortcomings in India’s confidentiality provisions demands immediate attention. Drawing insights from foreign jurisdictions, urgent amendments are imperative. It is crucial to emphasize that the proposed remedies do not advocate a sweeping extension of confidentiality across all arbitral documents. Instead, they advocate a tailored approach—confidentiality granted solely to documents mutually agreed upon by the involved parties. Striking a balance between transparency and protection, this nuanced adjustment is pivotal for fostering a robust legal framework that aligns with global standards, ensuring the efficacy and fairness of arbitral proceedings in the Indian context.

[1] AAY v. AZV [2012] SGHC 116; The Chartered Institute of Arbitrators v. B [2019] EWHC 460 (Comm); Esso Australia Resources Ltd. v. Plowman (1995) 183 CLR 10.
[2] No. 01 Civ. 5449(RO), 2001 WL 863566 (S.D.N.Y. July 30, 2001).
077761