India is often seen as the black sheep of international arbitration. Prior to 2012, Indian courts were severely criticized for their unwelcome intervention in foreign-seated arbitrations and lengthy, expensive ad hoc arbitration proceedings were seen as stumbling blocks to a pro-arbitration environment. Moreover, the Arbitration and Conciliation Act, 1996 did little to address these issues.
In an attempt to make India an arbitration friendly jurisdiction, India brought in the New Year 2016 with a new arbitration law- the Arbitration and Conciliation (Amendment) Act, 2015, which took effect on 1 January 2016. The Arbitration and Conciliation (Amendment) Act, 2015 is in keeping with the Modi Government’s agenda of attracting foreign investment by projecting India as an investor friendly country having a sound legal framework. However, whether the new law will give arbitration in India the facelift it needs remains to be seen.
The Arbitration and Conciliation (Amendment) Act, 2015 – A Magic Wand For Arbitration in India?
The Arbitration and Conciliation Amendment Act, 2015 (the “New Act”) came into effect on 1 January 2016, following receipt of the President’s assent on 31 January 2015. The New Act amends the Arbitration and Conciliation Act, 1996 (the “Principal Act”). The New Act reflects the recommendations proposed by the Law Commission of India in its Report No. 246 of 6 August 2014 and Supplementary Report of 6 February 2015 on the public policy developments post Report No. 246.
The following are the main reforms introduced by the New Act, in a nutshell:
(i) High Courts to have exclusive jurisdiction over matters of international commercial arbitration:
The definition of “court” in Section 2 of the Principal Act has now been amended by the New Act to state that the relevant court for all matters of international commercial arbitration shall be the High Courts (the “Court”).
Parties therefore no longer have to approach the lower courts, which may be located in remote areas, for matters related to international commercial arbitration.
(ii) Power of the arbitral tribunal to grant interim measures:
The New Act provides that the arbitral tribunal shall have power to grant all kinds of interim measures which a court is otherwise empowered to grant under the Principal Act, during the arbitral proceedings or at any time after making the arbitral award, but before it is enforced. Any order issued by the arbitral tribunal for grant of interim measures shall be deemed to be an order of the court, and shall be enforceable in the same manner as if it were an order of the court, under the Code of Civil Procedure, 1908. This development empowers a tribunal considerably, given that previously interim measures granted by a tribunal could not be enforced easily, and therefore had no teeth.
(iii) Powers of the Court to provide interim relief:
Unlike the Principal Act, the New Act discourages the Court from accepting an application for interim relief following the constitution of the arbitral tribunal, unless the party seeking such relief can prove that the arbitral tribunal is unable to provide a similar effective remedy.
Moreover, where a party secures an interim measure of protection from the Court prior to the commencement of arbitration proceedings, the New Act provides that the arbitration proceedings must commence within 60 days from the grant of such interim measure, or a within a time period specified by the Court, failing which the interim measure will cease to operate.
This discourages parties from using interim measures of protection as a dilatory tactic to impede arbitration proceedings.
(iv) Power of the Court to refer parties to arbitration:
The Principal Act provides that if any action is brought before a court that is the subject matter of an arbitration agreement, the court must refer the parties to arbitration. Unlike the Principal Act, the New Act however requires the Court to satisfy itself that all parties to the said action are parties to the arbitration agreement, and that the arbitration agreement is not null and void, prima facie, before making such a referral.
Courts are thus prevented from blindly referring parties to arbitration, without ensuring that the parties will be able to get the desired relief through arbitration proceedings.
(v) Recourse against an arbitral award based on public policy:
The New Act extends the public policy grounds specified in the Principal Act to include the setting aside of an award if it is in conflict with morality, justice or the fundamental policy of Indian law.
However, the New Act does not allow the setting aside of an international commercial award under the guise of public policy, on the grounds of a patent illegality appearing on the face of the award.
The patent illegality ground, which was outlined by the Indian Supreme Court in the controversial cases of Phulchand Export Ltd v. OOO Patriot and ONGC v. Saw Pipes, has thus been reversed by the New Act, to prevent parties and courts from misusing the public policy argument to reopen the merits of a foreign arbitral award in an enforcement proceeding.
(vi) The independence of arbitrators:
The New Act amends the Principal Act to ensure neutrality of arbitrators, such that a person who is approached in connection with possible appointment of arbitrator is required to disclose the existence of any relationship or interest of any kind which is likely to give rise to justifiable doubts, in writing. The New Act therefore adopts the standards laid down in the IBA Guidelines on Conflicts of Interest in International Arbitration. Under the enw Act, such person is also required to disclose any circumstances, which are likely to affect his ability to devote sufficient time to the arbitration and complete the arbitration within the specified period.
(vii) Appointment of an arbitrator by the courts:
The New Act grants the Supreme Court of India or any authority designated by it the power to appoint a sole or third arbitrator, where the parties or co-arbitrators are unable to reach an agreement as to such appointment, or the relevant arbitral institution fails to make this appointment. Under the Principal Act, the Chief Justice of India had this power.
Moreover, unlike the Principal Act, the New Act provides that an application for appointment of an arbitrator or arbitrators shall be disposed of by the Supreme Court as expeditiously as possible, and an endeavour shall be made to dispose of the matter within 60 days from the date of service of notice on the opposite party.
(viii) The time limit for making an arbitral award:
The New Act inserts a provision whereby the arbitral tribunal must render the award within a period of twelve months from its constitution, which may be extended by a further period of six months. If the award is not rendered with the specified or the extended period, the mandate of the arbitral tribunal shall be terminated, unless the Court extends the time limit of rendering the award. The Court also has the power to penalize the arbitrators by reducing up to 5% of their fees.
(ix) Fast track procedure for arbitral proceedings:
The New Act provides for a fast track procedure for conducting arbitral proceedings, subject to the parties’ agreement. In such cases, the arbitral tribunal shall decide the dispute on the basis of written pleadings, documents and written submissions and shall not hold an oral hearing. The award is to be made within a period of six months from the date of the constitution of the arbitral tribunal.
(x) A comprehensive costs regime:
The New Act contains detailed provisions related to costs that may be determined and ordered by the Court or an arbitral tribunal in relation to any proceeding under the New Act.
However, sceptics wonder if the New Act is overambitious, especially in terms of the stringent time limits imposed for the rendering of awards and the feasibility of fast track procedures. It is also doubtful whether India’s overburdened legal system has the infrastructure to attain the objectives of the New Act. Moreover, the extent to which the New Act will successfully limit court intervention is unclear, given that courts have powers such as the granting of extensions in the time limit for rendering the award. The New Act also fails to address emergency arbitration procedures.
Nevertheless, despite these lacunae, the New Act will hopefully breathe new life into India’s arbitration regime, and be a significant step towards making India one of Asia’s hubs for international arbitration.