India: Arbitration Act Amended

Last Updated: 28 October 2015
Article by Khaitan & Co

On 23 October 2015, the President of India has promulgated The Arbitration and Conciliation (Amendment) Ordinance, 2015 (Ordinance) which provides for the amendments to the Arbitration and Conciliation Act, 1996 (Act). Some of the important amendments brought about by the Ordinance are as follows:

  1. The term 'Court', as defined under Section 2(1)(e) of the Act, has been amended and now includes High Courts having jurisdiction to hear appeals from decrees of courts subordinate to it. This amendment is in relation to International Commercial Arbitrations and more specifically to High Courts which do not exercise Ordinary Original Civil Jurisdiction;
  2. The Ordinance provides that the provisions of Sections 9, 27, 37(1)(a) and 37(3) shall apply to International Commercial Arbitrations, even if the place of arbitration is outside India, so long as the award made or to be made is enforceable and recognised under Part II of the Act;
  3. Section 9(2) of the Act now provides that the arbitration has to commence within a period of 90 days from the date on which an order under Section 9 has been obtained by a party or within such further time as the court may determine;
  4. The Ordinance has provided for vast changes as regards appointment of an arbitrator under Section 11 of the Act. The Ordinance provides for that the court while considering an application under Sections 11(4), 11(5) or 11(6), shall notwithstanding any judgment, decree or order of any court, confine itself only to the existence of an arbitration agreement. The amendments to this Section further provides that before appointing an arbitrator, the court shall seek a disclosure in writing from the prospective arbitrator to clarify any justifiable doubts as regards his independence or impartiality;
  5. The amendments to Section 11 of the Act also provides that in cases where an arbitrator has to be appointed for an International Commercial Arbitration, the court for such purposes shall be the Supreme Court. The Ordinance further provides that all applications under Section 11 for appointment of an arbitrator shall be disposed off within 60 days;
  6. With a prime focus to make arbitrations more economical, the Ordinance has followed the footsteps of various arbitration institutions and has now provided for a fee structure to be followed as regards the payment of fees to the arbitral tribunal with a maximum fee cap of INR 3,000,000 (Indian Rupees Three Million Only) in cases where the commercial value of the dispute exceeds INR 200,000,000 (Indian Rupees Two Hundred Million Only). The same has been provided for under Section 11(14) of the Act and further in the Fourth Schedule to the Ordinance;
  7. Section 12(1) of the Act now requires for disclosure to be made by the arbitrator proposed to be appointed, in writing, as to the existence of any direct or indirect relationship with the parties or interest in the subject matter of dispute, which may give rise to any justifiable doubts as regards his independence and impartiality;
  8. The Amendment seeks to expand the scope of Section 17 of the Act by giving the tribunal the power to provide interim measures, if applied for, even after the making of the award, but before it is enforced. The amendment to this Section further provides that all orders passed by the tribunal under this Section, subject to any order passed in an appeal under Section 37 of the Act, shall be deemed to be an order of the court and shall be enforceable in a manner as provided under the Code of Civil Procedure;
  9. A new Section 29A has been inserted which provides that an award shall be made by the tribunal within a period of 12 months from the date the tribunal enters reference. It further provides that the parties, may by consent, extend the period for a further period not extending 6 months. This Section also provides for a penalty to be imposed on the arbitrator by way of reduction of fees, in cases where the timeline as specified under this section has not been adhered to by the tribunal. The Section also empowers the court to in such cases, terminate the mandate of the tribunal and substitute them with another tribunal and enable the proceedings to continue from the stage where the mandate had been terminated;
  10. Section 29B, again in continuation to the new Section 29A of the Act provides for a fast track procedure of arbitration. This procedure, if adopted by the parties, provides that the arbitration shall decide the dispute and pass an award within 6 months from the date of reference. The tribunal shall decide the dispute only on the basis of written pleadings, documents and submissions and no oral hearing shall be conducted unless requested by both the parties or such hearing is called for the tribunal to seek certain clarification, as may be required;
  11. The Ordinance has amended Section 34 of the Act to now include a new provision Section 34(2)(b) which provides that an award shall be in conflict with the public policy of India, only if:
  • the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or 81 of the Act;
  • it is in contravention with the fundamental policy of Indian law; or
  • it is in conflict with the basic notion of morality or justice.
  1. Section 34(2)A has been inserted to include that an award passed in an arbitration other than International Commercial Arbitration, may also be set aside, if the court finds that the award is vitiated by patent illegality;
  2. The most crucial amendment to the provisions of Section 34 of the Act has been brought out in the newly inserted Section 36(2), which sets out that a mere filing of an application under Section 34 of the Act to set aside the award shall not by itself render the award unenforceable, unless the court grants an order of stay on the operation of the award. This now implies that a proceeding to enforce the award as well as a challenge to set aside the award may run parallel to each other, unless otherwise the operation of the award has been stayed;
  3. A proviso to Section 36(2) has been provided and states that while considering an application for grant of stay of an award for payment of money, the court shall have due regard to the provision for grant of stay of money decree under the Code of Civil Procedure, 1908;
  4. The amendment to clauses (a) and (b) of Section 37(1) of the Act has been broadened to now include the following:
  • Refusing to refer the parties to arbitration under Section 8 of the Act;
  • Granting or refusing to grant any measure under Section 9 of the Act; and
  • Setting aside or refusing to set aside an arbitral award under Section 34 of the Act.
  1. With regard to Part II of the Act, the Ordinance has provided for very few amendments. The key amendments are only with regard to Sections 47, 48, 56 and 57 of the Act wherein explanations and provisos have been suitably amended to be in consonance with the amendments as made to the provision of Part I of the Act;

Comment

The Ordinance has laid the step to bringing the standard of domestic arbitration at par with international/ institutional arbitration by bringing in amendments that make domestic arbitration more cost effective and time efficient. It has taken into consideration all the important judicial pronouncements concerning the subject and in doing so has clarified the anomalies that had been created by these various pronouncements. The prime focus of this Ordinance has been to ensure minimal judicial interference.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at legalalerts@khaitanco.com

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