ROLE OF CONFINDENTIALITY IN ARBITRATION LAW IN INDIA
Updated: Oct 7, 2022
Author: Manisha Chakravarti, V year of B.A.,LL.B.(Hons.) from Jagran Lakecity University, Bhopal
There are various reasons why it is crucial to maintain confidentiality in arbitration, including legal limitations, ethical considerations, and special contractual arrangements between parties like a firm and its employees. As they do not want their conflicts to be a topic of public discussion, confidentiality is seen as one of the primary reasons why parties choose arbitration as a method for dispute resolution. The objective is to preserve the sensitive material that may be the subject of an arbitration since its exposure may result in irreparable loss. This is because the parties exchange extensive documents and information during arbitration. For the aforementioned reason, arbitration hearings are kept private. But is maintaining confidentiality actually feasible? Why is maintaining confidentiality important? Is there a confidentiality obligation in arbitration? What does the arbitration law of India say about arbitration? What are the drawbacks of the arbitration amendment act? In this article, the author will discuss Section 42-A, which was added to the Arbitration and Conciliation Act of 1996 by a 2019 amendment.
The confidentiality of its proceedings is one of the factors that makes arbitration a popular choice as a conflict settlement method. The parties, arbitrators, and everyone else participating in the arbitration process is bound by the requirement of confidentiality to keep all information pertaining to any aspect of the arbitration proceedings strictly confidential.
Confidentiality in Arbitration
The principle of confidentiality is crucial in alternative dispute resolution mechanisms. Arbitration proceedings are built on autonomy; the parties determine the procedure. To comprehend confidentiality, we must first distinguish between confidentiality and privacy. The distinction between these two names is pretty minimal. Confidentiality in arbitration is a much broader concept than privacy. Third-party participation in arbitration procedures is prohibited by privacy, which effectively prevents third-party intervention. Confidentiality, on the other hand, is the requirement on the parties not to reveal any information regarding the arbitration procedures to any third party.
Privacy and confidentiality are notions that are intertwined. It would be hard to keep an arbitration hearing confidential if it was open to strangers. If it is held in secret but guests are allowed to tell others what happened, the privacy of the proceedings is meaningless. While many people think and believe that confidentiality extends to arbitration, there are several exceptions.
Parties in India have the option of using institutional arbitration or ad hoc arbitration. When engaging in institutional arbitration, the parties are required to abide by the institution's regulations; but, when engaging in ad hoc arbitration, the parties are free to include a confidentiality clause in the arbitration agreement.
Confidentiality as a notion was only statutorily applicable in conciliation under Section 75 of the Arbitration and Conciliation Act, 1996,(Arbitration Act)[i], aside from the broad requirement placed on advocates and attorneys to keep any discussions, counsel, documents, etc. confidential with reference to a case under Section 126 of the Indian Evidence Act, 1872. This was modified with the passage of the Arbitration and Conciliation (Amendment) Act, 2019 (2019 Amendment)[ii].
Is there a confidentiality obligation in arbitration?
Many people view arbitration as a confidential procedure due to its private character. As a result, the arbitration proceedings will not only be kept private between the parties, but also confidential, meaning that no information about the arbitration's existence, its subject matter, its evidence, its preparation and exchange, its documents, or the arbitrators' decisions may be disclosed to third parties. It also means that the only people who can attend the arbitration hearing are the parties to the arbitration, their legal representatives, and people who have been specifically given permission by each party. Each of these people is considered to be bound by a duty of confidentiality on behalf of the party they are representing.
Although there is debate over this confidentiality's legal efficacy. Many people believe this to be a basic benefit of arbitration over court decisions, which are in the public domain, frequently published, and cited as precedent. The recognized presumption is that no publication occurs during an arbitration hearing unless one party requests it. Arbitration proceedings are often kept private.
Why is it important to maintain confidentiality?
Maintaining confidentiality is crucial for a variety of reasons, such as compliance with the law, moral obligations, and special agreements between parties, such as between a company and its clients or employees. The importance of confidentiality is emphasized across a wide range of professions, including those in technology, finance, business, law, education, and counseling. Confidentiality is a major element in arbitration. Moreover, confidentiality is the reason why many parties choose arbitration as the means of dispute resolution.
On the other hand, the duty to maintain confidentiality imposes an obligation on the parties to not disclose any information about the proceedings of arbitration to third parties. It may include information relating to witnesses, pleadings, submissions, transcripts, etc. So, confidentiality places a larger burden on the parties to the agreement by not only discouraging third-party involvement in the hearings but also by not allowing them to disclose any information.
Most jurisdictions across the world have focused on protecting arbitral awards from the general public and keeping them confidential. In addition to this, there are two other aspects of confidentiality in arbitration: the confidentiality of the arbitration proceedings; and the documents or evidence submitted before the Arbitral Tribunal. The former involves all those who are either parties to the dispute and are present during the proceedings or have obtained any knowledge of the same by being a witness before the Tribunal or by being an employee, administrative personnel, or counsel of the parties to the dispute by imposing an obligation to maintain confidentiality. All of these people have a duty to keep any information they may have to themselves. It should be noted, nonetheless, that not all jurisdictions require witnesses appearing before the Arbitral Tribunal to keep their identities secret.
maintaining the confidentiality of any documents or evidence that is presented to the tribunal, including any that the parties have produced to support their case and that they rely on. This includes any submitted proof or declarations made in court by any party. There is little global agreement on the extent and application of confidentiality in arbitration. Different legal systems have different perspectives on the same. But first, let's look at the definition and application of confidentiality.
Confidentiality in arbitration law in India
Section 75 of the Arbitration and Conciliation Act of 1996 governs the issue of secrecy. However, such a clause is only applicable in the case of conciliation, not arbitration. In India, arbitration did not offer sufficient comfort to parties in commercial disputes keen on maintaining confidentiality, inhibiting the growth of arbitration as a preferred mode of dispute resolution in India. The High-Level Committee (HLC) was formed to review the institutionalization of arbitration mechanisms in India[iii], chaired by Justice B N Srikrishna (Srikrishna Committee), a retired judge of the Supreme Court of India. In its report to the government of India, it recommended that:
"A new provision may be inserted in Part I of the ACA providing for confidentiality of arbitral proceedings unless disclosure is required by legal duty, to protect or enforce a legal right, or to enforce or challenge an award before a court or judicial authority".[iv]
According to the recommendations, the Arbitration & Conciliation (Amendment) Bill, 2019 was passed by the Rajya Sabha on July 18th, 2019 with the purpose of making India the hub of international and domestic arbitration and promoting institutional arbitration. A previous bill was cleared by the Lok Sabha in August 2018 but could not be passed by the Rajya Sabha and lapsed following the dissolving of the 16th Lok Sabha. Finally, the Arbitration and Conciliation (Amendment) Act, 2019 was enacted, which contains various essential changes, one of which is the introduction of Section 42A, wherein the principle of confidentiality was extended to arbitration proceedings as well. Section 42A states that:
“Notwithstanding anything contained in 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 implementation and enforcement of the award”[v]
This section of the bill is concerned with the confidentiality of the information and imposes an obligation on the parties to maintain the confidentiality of the arbitral proceedings. It includes one exceptional situation in which disclosure is permitted, which is the implementation and enforcement of the award.
Section 42A simply restricts itself to the disclosure of awards for its implementation and enforcement. This means that everything else in an arbitration proceeding, including evidence, arguments, etc., cannot be disclosed or relied upon in subsequent court proceedings.
Moreover, Section 42A is a non-obstante clause, which means that it overrules the effect of other laws and makes it mandatory for the parties to abide by the provision. This deprives the parties of their autonomy,
What is not clear here is whether the obligations on a party seeking to introduce confidential details from an arbitration proceeding in a court. Parties seeking arbitration may initiate a court proceeding for aid or dismissal of the order passed by the arbitrator, or third parties may approach the court for seeking reference to an arbitration proceeding. In such situations, the parties seeking court involvement may require confidential data from arbitration proceedings in the courts. Section 42A has not included any of these points within its scope. There is a need to establish more than one exception in section 42A of the act. It is important to note that the provision begins with a non-obstante clause and ends with contradictions. This provision could lead to a conflict of laws and it is vital that more exceptions should be included, and this bill should be debated more.
Drawbacks to the Amendment Act
i. Transparency vs. Confidentiality: Whether transparency or confidentiality is more important has frequently come up in conversation. It may be argued that because court proceedings are transparent and open to the public, as opposed to arbitral proceedings, which are confidential and not open to the public, the general public has more faith in court proceedings. No third person has access to the arbitrator's decision-making process or the award. The court's decision, on the other hand, is made public in open court. Transparency also ensures justice and increases the confidence of parties involved in arbitration. The credibility of arbitrators is frequently contested in court as a result of parties' frequent complaints that there is no responsibility on the part of the arbitrator because the hearings take place in a closed room. Due to the aforementioned factors, many people believe that publishing arbitral awards will both strengthen the parties' faith in arbitration and advance the field of jurisprudence. Arbitrators will exercise caution while making decisions because they are worried about how they are seen by the public. Parties will find it simpler to choose an arbitrator based on reputation if awards are published. Although the concept of transparency may seem appealing, it cannot be denied that confidentiality is a crucial aspect that attracts parties to arbitration as a form of dispute resolution. As a result, the idea of publishing awards is challenging to put into practice.
ii. No Repercussions for Violation: The 'Ubi Jus Ibi Remedium' premise is absent from Section 42A. The breach of confidentiality has no repercussions. This goes against the fundamental tenet that there is a right, there is a remedy. A severe setback for the arbitration in India is caused by the 2019 amendment's lack of a remedy for the parties whose confidentially is violated by anyone.
iii. Outsiders in the Arbitration Proceedings: Aside from the parties to the arbitration procedures, there are outsiders who are unfamiliar with the agreement yet participate in the arbitration proceedings, such as counsel for the parties, witnesses, stenographers/transcribers, tribunal secretary, translators, and so on. They have access to the private data generated during the arbitration but are not subject to the arbitration agreement. Section 42-A fails to address this problem since it is silent on these third parties' obligation to keep the arbitral record secret.
Supreme Court of India in the case Mahanagar Telephone Nigam Ltd. v. Canara Bank[vi]. The enabled non-signatories to request arbitration by demonstrating their level of involvement in the contract. These referrals may necessitate the revelation of secret material obtained during arbitration proceedings. As a result, Indian courts must determine the extent to which confidential material should be shared in court proceedings. They must find a balance between the party claiming an exception to section 42A and the general obligation of confidentiality.[vii]
iv. Drafting not clear: Section 42A of the Act is not drafted clearly. It does not specify how confidentiality would be ensured in the arbitration-related court proceedings, which might seriously jeopardize the confidentiality of the parties. Given the frequency with which the parties to the arbitration approach the court, this becomes problematic. For instance, the Act allows for the joining of parties under Section 8, temporary court reliefs under Section 9, the appointment of arbitrators through the court under Section 11, and requests to have awards set aside under Section 34, among other provisions.
v. Non-obstante Clause on Disclosure Obligations: The non-obstante clause contradicts several Indian domestic laws, rules, and regulations. Section 42A begins with the non-obstante clause, which would overrule the provisions which are inconsistent with it or would succeed over any other law in force. This would affect the disclosure requirements which are to be satisfied with by the corporations. Corporations owe disclosure obligations to various stakeholders, who would, according to conventional theory, be strangers to the arbitration, but certainly have a legal interest in the progress and result of the arbitration.
Like in insurance and reinsurance companies may owe responsibilities of disclosure to each other. For example, under the SEBI Listing Obligations and Disclosure Requirements Regulations, 2015, listed companies are asked to make some disclosures by way of periodic filings, statements, reports, documents and information reports. The concerned information allows investors to follow the performance of a listed company over regular intervals of time and to make an estimation of the current status of a listed company.
Similarly, under Section 134 of the Companies Act, 2013[viii], a company is obliged to disclose material information by way of the board of directors’ report and the annual returns on its website. For example, during a settlement, merger, or amalgamation a company is required to disclose all material facts relating to the company before the National Company Law Tribunal (NCLT). The non-obstante condition would cause a serious conflict of interests. The application of Section 42A is thus required to be balanced with the other laws that are already there.
vi. Non-recognition of “Public Interest” or “Interests of Justice” as an exception to confidentiality: “Interests of justice” is not identified as an exception to confidentiality under Section 42A. This might be a serious problem, admitting arbitration is relied upon by the government bodies as a method of dispute resolution, and people are interested to know about the steps taken by the concerned bodies. This becomes even more relevant, because the result at times may have an impact on the legal interests of the public.[ix]
Non-recognition of this exception might cloud the accountability in the form of confidentiality. In Esso Australia Resources Ltd v. Plowman[x], the High Court of Australia did not realize the implied duty of confidentiality. However, it observed that had the duty of confidentiality existed, it would have been the matter of the exception of “public interest” as people have the rightful expectation to know what occurred in the arbitration.
vii. Effect of the Non-obstante Clause on the Right to Information Act, 2005: The Right to Information Act, 2005[xi] (“RTI Act”) is important legislation for ensuring transparency and accountability. Reasons for non-transparency can exist in the context of government contracts and arbitration. It is exactly why Section 2(f)[xii]of the RTI Act includes contracts, records, documents, and generally any material in any form to involve contracts, documents or records there under and even the arbitral awards.
The position is now likely to be unsettled because Section 42A includes the non-obstante clause. Public authorities that are required to keep all records and information under the RTI Act may take advantage of Section 42A and conceal material information in the guise of confidentiality, thereby contradicting the idea of the RTI Act to a certain extent.
viii. Non-recognition of Protection of Party’s Legal Right as an Exception to Confidentiality: It is a very common situation, where one of the parties to the arbitration is confronted with the necessity to disclose the award to a third party for establishing the legal right in a separate conflict. Nevertheless, Section 42A does not recognize “party’s legal right” as an exception to confidentiality, which might form difficulty. In Hassneh Insurance Co of Israel v Steuart J Mew[xiii], Queen’s Division Bench recognized the party’s legal right as an exception to confidentiality, as disclosure of award or the details relating to it, helps the party to establish a defense or use as a reason for the cause of action.
The importance of confidentiality in the arbitration process cannot be overstated. Arbitration has grown in popularity in recent years due to the concept of confidentiality. Even while there are numerous benefits, it may not always be compatible with the concept of public policy. As a result, it is critical that the parties maintain partial confidentiality and partial transparency in the public interest.
Arbitration is commonly seen to have a significant advantage in terms of confidentiality. However, due to legal differences between jurisdictions and varying treatment under institutional arbitration rules, parties to arbitration should not expect the existence of arbitration, the evidence, and the award to be kept quiet. To try to retain confidentiality, parties should include clear confidentiality provisions in their arbitration agreement and explore the matter by including confidentiality terms in an arbitrator's procedural rules or an order from the arbitral tribunal.
As the preceding explanation shows, the challenges in establishing confidentiality duties are limitless. The country's arbitration system has been plagued by problems over the last decade; this modification would further worsen the situation. Parties can choose between ad hoc and institutional arbitration under the Arbitration and Conciliation Act of 1996. If the former is chosen, the parties can include a confidentiality clause in the Agreement; if the latter is chosen, the parties need to adhere to the rules already specified by the institution. In any case, the parties are expressing their autonomy.
1. The Arbitration and Conciliation Act, 1996
2. The Arbitration & Conciliation (Amendment) Act, 2019
3. The Indian Evidence Act, 1872
4. The Companies Act, 2013
5. Right to Information Act, 2005
[i] Section 75: Confidentiality. —Notwithstanding anything contained in any other law for the time being in force, the conciliator and the parties shall keep confidential all matters relating to the conciliation proceedings. Confidentiality shall extend also to the settlement agreement, except where its disclosure is necessary for purposes of implementation and enforcement. [ii] https://egazette.nic.in/WriteReadData/2019/210414.pdf [iii] https://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf [iv]S 13, Report of the High-Level Committee to Review the Institutionalization of Arbitration Mechanism in India, available at- https://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf [v]S 42A, Arbitration and Conciliation (Amendment) Act, 2019 at https://egazette.nic.in/WriteReadData/2019/210414.pdf [vi]Civil Appeal Nos. 6202-6205 of 2019 [vii] https://main.sci.gov.in/supremecourt/2014/11020/11020_2014_6_1501_15918_Judgement_08-Aug-2019.pdf [viii] https://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf [ix]https://lawcommissionofindia.nic.in/reports/185thReport-PartIIIA.pdf [x]  HCA 19, 183 CLR 10 [xi] https://rti.gov.in/rti-act.pdf [xii] https://indiankanoon.org/doc/1516599/ [xiii](1992),  2 Lloyd’s Rep 243 (QB)