India anticipates new arbitration laws

Far-reaching changes to India’s Arbitration and Conciliation Act are expected to be passed by the Indian government in the next few months. This crucial development demonstrates the government’s commitment to drastically reducing the timescales for resolving commercial disputes in India, making India a more attractive place to do business.

Amendments to the Arbitration and Conciliation Act 1996 (the Act) were first approved by the Union Cabinet in December 2014, in the form of an ordinance. However, the ordinance was withdrawn before it received presidential assent and the amendments were put before Parliament. Although Parliament was due to pass the amendments during a budget session in late February 2015, turmoil relating to the controversial Land Acquisition Bill has pushed developments back to a later session.

The amendments are based on the recommendations of the Law Commission of India in its Report No. 246. The recommendations seek to speed up and improve the arbitration process. The exact amendments to the Act have not been revealed to the public, so an in-depth analysis must wait. However, Sadananda Gowda, the Minister of Law & Justice, has revealed that “… most of the recommendations of the Law Commission have been accepted. While some have been incorporated in the law itself, some of the recommendations will be used while framing rules.”

The Law Commission first proposed extensive amendments to the Act on August 6, 2014. It sought to address the significant problems that “plague the present regime of arbitration in India”. This was not the first attempt to modernise Indian arbitration law. Support for change has grown in recent years, and the proposed amendments to the Act come at a time when both the government and the judiciary are seeing the benefits of a pro-arbitration stance in India.

The Act – which was based on the UNCITRAL Model Law and designed to cover both international and domestic arbitration – has long been considered ineffective because it contains various ambiguities which have led to problems with the timing and cost of arbitrations and the enforcement of arbitral awards. The Law Commission spells out the issues in the following terms:

The Act has now been in force for almost two decades, and in this period of time, although arbitration has fast emerged as a frequently chosen alternative to litigation, it has come to be afflicted with various problems including those of high costs and delays, making it no better than either the earlier regime which it was intended to replace; or to litigation, to which it intends to provide an alternative.

The changes put forward seek to deal with these issues. We can look to the contents of the Law Commission report to shed some light on what we can expect to see in the amended Act. The Report’s key proposals focus on the following

• Institutional arbitration: The Report highlights the need to actively encourage institutional arbitration throughout India and proposes setting up a specific body tasked with this role. Emergency arbitrator provisions are included in the amendments, bringing the Act in line with new institutional rules. There has been a surge in activity by international arbitral institutions with both the LCIA and the SIAC opening offices in India recently.
• Pre-arbitral judicial intervention: The Report recommends reducing the scope for early judicial intervention to situations where the court finds that the arbitration agreement does not exist or is null and void. Where the court is prima facie satisfied that there is a valid arbitration agreement, it is required to refer the dispute to arbitration and leave the existence and validity of the arbitration agreement to be finally determined by the tribunal.
• Delays in court: The Report recommends that specialised and dedicated arbitration benches are set up within the courts, to circumvent the delays and other problems associated with court applications. It has been reported in the Indian press that new legislation will be enacted shortly on the establishment of commercial benches in high courts, together with a national litigation policy. The Report also proposes that arbitrator appointments can be delegated by the courts to specialised, external persons or institutions to speed up the appointment process and that a one-year time limit is imposed for challenges to arbitration awards. In a move aimed at appeasing foreign investors, the more commercially oriented High Court will be given the power to determine disputes arising out of an arbitration agreement where foreign parties are involved.
• Enforcement: The Report recommends a narrower interpretation of “public policy” when used as a ground for resisting the recognition and enforcement of foreign arbitral awards. This is in line with a string of Supreme Court decisions such as Shri Lal Mahal v Progretto Grano Spa [2013] and Associate Builders v Delhi Development Authority [2015]. It also proposes a specific provision for setting aside domestic awards for patent illegality.
• Foreign-seated arbitrations: The Report proposes amendments which seek to strike a balance between reducing judicial intervention in foreign arbitrations and ensuring that redress is available to a party seeking protection of assets located in India.
• Costs and fees: The Report provides a general “loser pays the winners” reasonable costs’ rule to be included in the Act, as well as a regime for calculating costs. Arbitrators will also be able to issue cost orders against parties bringing frivolous claims. The Report also proposes the introduction of a model schedule of fees for domestic ad hoc arbitrations, with the intention of reducing expensive arbitrator costs.
• Neutrality of arbitrators and availability: Arbitrators will be required to disclose circumstances that may give rise to justifiable doubts as to his or her independence or impartiality. Arbitrators will also be required to disclose circumstances likely to affect his or her ability to devote sufficient time to the arbitration and complete it within 24 months, with the award delivered three months thereafter.
• Other amendments: The Report makes other significant recommendations, including changes aimed at discouraging the practice of frequent adjournments in arbitration and making interim orders made by arbitral tribunals in domestic arbitrations more effective. The Report imposes conditions to stays ordered during applications to set aside awards; confirms that allegations of fraud and corruption may be arbitrated; expands the definition of “party”; and provides a more flexible market-based approach for awarding interest on sums awarded.

The proposed changes go some way to achieving the Law Commission’s desire for fairness, speed and economy in resolution of disputes and fit within the government’s aim – repeatedly highlighted by Prime Minister Narendra Modi – to attract maximum foreign investment by improving the ‘ease of doing business’ in India. The Report reads very much like a bill, leaving little to be done by the government; therefore we expect and hope to see an amended Act that is nearly identical to the Report.