India: The Changing Face Of Commercial Dispute Resolution In India

Last Updated: 30 November 2015
Article by Anubhuti Mishra

Introduction

In a historic move, on October 23, 2015, the President of India promulgated two ordinances which may have a far-reaching impact on the commercial dispute resolution system in India. This move comes in light of the government's constant endeavors to forge an investor-friendly environment in India. While the success of schemes like Make in India and Digital India are heavily reliant on investment, the protracted nature of dispute resolution process in India has always fueled apprehension in the minds of potential investors. To allay such apprehensions and overhaul the process of commercial dispute resolution, the Arbitration and Conciliation (Amendment) Ordinance, 2015 ("Arbitration Ordinance") and the Commercial Courts, Commercial Division and Commercial Appellate Division of the High Courts Ordinance, 2015 ("Commercial Courts Ordinance") (collectively, "Ordinances") have been promulgated. The Indian constitution empowers the President to promulgate ordinances when the Parliament is not in session. These ordinances have the same force and effect as acts passed by the Parliament.1 The Ordinances are to be tabled before the Parliament in the winter session for their assent.

This newsletter examines the potential impact of the Arbitration Ordinance in making dispute resolution in India time efficient and cost effective and briefly touches on the similar provisions contained in the Commercial Courts Ordinance.

1. The Ordinances

The Arbitration and Conciliation Act, 1996 (the "Act") has come under a lot of criticism in the recent years. In an effort to overhaul the dispute resolution process and fill gaps in the law as it stands at present, the 246th report of the Law Commission of India headed by Justice A.P Shah (retired) recommended several major changes to the Act. To effect the changes suggested by this report, a bill was introduced in the Parliament on August 26, 2015, following which the ordinance was promulgated to immediately give effect to these changes.

The Commercial Courts Ordinance was promulgated pursuant to another bill introduced in the Parliament on April 29, 2015 to establish dedicated courts to try "commercial disputes"2 with subject matter worth more than INR 100 million or about USD 150,000 or more. Since the term "commercial disputes" would include any dispute arising out of commercial agreements, any court intervention sought in commercial disputes involving an arbitration clause will be dealt with by commercial courts/divisions as long as the subject matter exceeds the above mentioned monetary limit. Commercial courts will be established at district level and commercial divisions and appellate divisions in the High Court. This ordinance also amends certain provisions of the Code of Civil Procedure ("CPC") in its application to disposal of commercial disputes.

2. Key changes

Some important changes that may impact the current dispute resolution process are as follows:

2.1 Time limits for resolution

Timely resolution of disputes is a key challenge faced in dispute resolution both in and out of courtrooms. In an effort to make the arbitration process time bound, the Arbitration Ordinance makes it mandatory for the tribunal to give the final award within 12 months from the date of first reference to the tribunal. This can be extended up to an additional 6 months with the consent of the parties, and any further extension sought by the tribunal requires the Court's consent. In such a case, the Court also has the discretion to reduce the arbitrators' fee by 5% for every month of delay and/or substitute one or more arbitrators on the tribunal. The ordinance also incentivizes arbitrators where the final award is passed within 6 months by entitling them to additional fees as agreed between the parties. Moreover, the parties may opt for fast-track arbitration, in writing, before or at the time of appointment of the tribunal. This fast-track process dispenses with the requirement for oral hearings and the final award is to be passed within 6 months. Appeals from any order passed by a court in relation to an international commercial arbitration or any domestic arbitration which would fall within the original jurisdiction of a High Court will be heard by commercial courts/divisions. The Commercial Courts Ordinance lays down a time limit of 6 months from the date of filing for disposal of appeals. Specifying time lines with penal fee deductions and incentivizing faster disposal of cases may prove to the necessary impetus for expediting the dispute resolution process.

2.2 Clarifying scope of judicial interference in arbitration

The scope of court intervention at various stages of an arbitration process has seen a lot of jurisprudential debate. Section 8 of the Act mandates Courts to refer parties to arbitration, where the dispute is subject to an arbitration agreement. In exercise of their powers under this section, Courts have often gone beyond merely examining the validity of the arbitration agreement. For instance, the Supreme Court has held that matters involving serious allegations of fraud and malpractice cannot be referred to arbitration and should rather be decided by Courts.3 Section 8, as amended by the Arbitration Ordinance, makes it compulsory for Courts to refer a matter to arbitration as long as it arrives at a prima facie determination regarding a valid arbitration agreement. A similar restriction has been imposed on the power of the Court in appointment of the tribunal under Section 11. Earlier, the Supreme Court, in Anil Kumar v. B.S. Neelkanta4, had held that the Court could look into arbitrability of the subject matter of the dispute before appointing a tribunal. The amendments to Section 8 and 11 of the Act restrict the scope for the Court's evaluation of arbitration agreements before the arbitration process commences.

2.3 Streamlining process for interim relief

Section 9 of the Act provides for court intervention, not just before, but also during and after the arbitration but before enforcement of the award for interim relief and enforcement. There has been a strong need to streamline the scope of interim relief associated with the process of dispute resolution. Section 9 of the Act allowed parties to approach Courts for interim relief, at any time before arbitration commences till the award is enforced. This option has now been restricted up to the constitution of the tribunal. Once the tribunal is constituted, for the duration of the arbitration, the parties can only approach the tribunal for interim relief under Section 17 of the Act and interim orders passed by the tribunal are enforceable as a Court order. Moreover, since these provisions pertaining to interim relief granted by Courts fall within Part-I of the Act5, it has led to judicial disagreements over the applicability of such provisions to international arbitrations which are covered in Part-II of the Act. Earlier, the Supreme Court in Bhatia International v. Bulk Trading6, had held that Part-I shall be applicable to international commercial arbitrations outside India, unless expressly excluded by the parties. In BALCO v. Kaiser Aluminum Technical Services7, the Supreme Court reversed this and held that once the parties have decided to have arbitration outside India no interim relief can be granted by Indian courts. This raised ambiguity with regard to the forum where interim orders could be sought in arbitrations held outside India but where the assets are located in India. Seeking interim relief outside India but then enforcing in India brings with it a different set of challenges in terms of enforcement of such foreign judgments/orders in India. The Arbitration Ordinance clarifies this position by making only certain provisions of Part-I applicable to international arbitrations, viz., interim relief granted by Courts under Section 9 and appeals from such interim orders under Section 37 of the Act.

2.4 Reinforcing enforcement provisions

One of the most important aspects of arbitration has been the finality and enforcement of awards. Section 34 of the Act contains grounds for challenging an award, which includes, inter alia, conflict with the public policy of India. The Supreme Court, in the past, has given very wide interpretations to this ground in ONGC v. Saw Pipes8 and DDA v. R. S. Sharma.9 The Arbitration Ordinance clarifies this position by stating that the ground of "conflict with the public policy of India" would arise only if: (a) the award was induced or affected by fraud or corruption, (b) the award is in conflict with the fundamental policy of Indian laws (barring any review of the merits of the dispute) or (c) the award is in conflict with the basic notions of morality and justice. This restricts the scope of judicial interpretation of the unbridled horse called "public policy". Any challenge made under this section has to be disposed of within 1 year from the date on which notice is served on the other party. The Arbitration Ordinance also amends Section 36 of the Act to clarify that mere filing of application challenging an arbitral award does not, by itself, render such award unenforceable, unless the Court where such award is being challenged grants a stay to that effect. This nullifies the interpretation taken by the Supreme Court in National Aluminium Co. Ltd. v. Pressteel and Fabrications,10 wherein it was held that pending a challenge to the award under Section 34 of the Act, there is an automatic stay on the operation of an arbitration award. Further, the amended provision also requires the Court to ask for security against payment of money before granting such stay on enforcement. These provisions fortify the finality of the arbitral award for effective enforcement.

2.5 Cost of the dispute

The Arbitration Ordinance has inserted Section 31-A in the Act, giving the tribunal the discretion to award costs as well as to decide the quantum and terms of payment of costs. Both Ordinances lay down the factors that the Court/tribunal must take into account while determining the award of costs, which include, inter alia, (a) the conduct of parties, (b) whether a party has succeeded partly in the case, (c) any frivolous counter-claims filed to delay the proceedings, and (d) whether any reasonable offer to settle has been refused.

3. Anticipated impact

The changes introduced by the Arbitration Ordinance, along with the introduction of commercial courts and divisions, aim to make the dispute resolution process more efficient in terms of time, cost and procedural efficacy. Apart from prescribing indicative timelines for disposal of cases, both Ordinances have incorporated safeguards against dilatory tactics by giving discretion to the court/tribunal to order costs based on reasons recorded, and even award costs to the unsuccessful party based on a number of factors. Similarly, incorporating international best practices like case management hearings will go a long way in ensuring that courts and tribunals adhere to these timelines. This would ensure that all necessary parties conduct themselves with the objective of expediting dispute resolution.

Conclusion

The Ordinances have introduced some radical changes which will hopefully aid and expedite the resolution of commercial disputes both in and out of the court room. However, the long term impact of these Ordinances can only be seen if and when they are passed by the Parliament. Ordinances are temporary in nature and will lapse if they are not passed by both houses of the Parliament within six weeks of their reassembly. The Parliament is scheduled to reassemble for its winter session from November 26, 2015. Though the bills corresponding to these Ordinances had been tabled earlier in the Parliament, they had not been passed to give them statutory force. If the Ordinances are allowed to lapse this time, without being passed by the Parliament, the legislative process will have to start afresh, with re-introduction of the respective bills in both houses of the Parliament. This would defeat the purpose behind promulgation of the Ordinances, i.e., to enforce the necessary changes in law with immediate effect. Therefore, the Parliament needs to give its assent to these Ordinances within the specified time limit so as to enforce the proposed legal changes, and bridge the gap between intent and implementation of the law.

Footnotes

1 Article 123, Constitution of India

2 This includes disputes arising out of ordinary mercantile transactions and different agreements like franchising, distribution and licensing, used in trade and commerce

3 N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72

4 AIR 2010 SC 2715; See also A.P.T.D.C v. Pampa Hotels Limited, AIR 2010 SC 1806

5 This Part applies only to arbitrations taking place within the territory of India

6 (2002) 4 SCC 105

7 (2012) 9 SCC 552

8 (2003) 5 SCC 705

9 (2008) 3 SCC 80

10 (2004) 1 SCC 540

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Dhir & Dhir Associates
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Dhir & Dhir Associates
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions