The President of India has enacted an ordinance to amend the Arbitration and Conciliation Act, 1996. The changes include conferring original jurisdiction exclusively on High Courts to deal with the enforcement of and challenge to international arbitration awards as well as prescribing timelines to streamline arbitration and related court proceedings.
On 23 October 2015, the President of India has enacted an ordinance (Ordinance) to amend the Arbitration and Conciliation Act, 1996 (Arbitration Act). These changes are effective immediately and clearly demonstrate the government's desire to gain the confidence of the business and investor community.
The Arbitration Act was enacted by the Indian parliament to provide an effective and expeditious dispute resolution framework, which would inspire confidence in the Indian dispute resolution system. The objective was to provide for an arbitral procedure which was fair, efficient and capable of meeting the needs of the specific arbitration and at the same time minimizing the supervisory role of courts in the arbitral process.
Though the Arbitration Act has been in force for nearly two decades, it has been afflicted with various problems including those of high costs and delays, especially due to certain judicial precedents that prevented India from positioning itself as an arbitration-friendly jurisdiction. Therefore, to ensure smooth and prompt settlement of domestic as well as international commercial disputes, a need to amend the Arbitration Act was increasingly felt.
The Ordinance introduces several changes in the Arbitration Act. Some of the key changes are noted below:
1. An arbitration agreement may now be concluded by way of electronic communication between parties.
2. The 'Court' competent to entertain any proceedings in connection with an international commercial arbitration, will be the High Court of the concerned State, having territorial jurisdiction. Therefore, courts below the High Court will not have any jurisdiction to deal with matters concerning international commercial arbitrations.
3. Entities registered in India, even if their central management and control is outside India, will be treated as domestic parties. Consequently, an arbitration involving such an entity and another Indian entity will not be considered an international commercial arbitration.
4. Parties to an international commercial arbitration (including those seated outside of India) may now seek interim measures of protection from Indian Courts under Section 9 of the Arbitration Act, unless there is an express agreement between the parties to the contrary. Any such order passed by an Indian Court having original jurisdiction under Section 9 will be appealable. However, no second appeal will lie from the decision of the appellate court.
5. The arbitral tribunal's powers to grant diverse interim measures of protection have been widened. The arbitral tribunal will now have powers akin to a Civil Court in this regard. Moreover, an interim order of an arbitral tribunal granting such measures will be enforceable in the same manner as a decree of a Civil Court.
6. A judicial authority, on application by one of the parties to an arbitration agreement, will refer parties to arbitration, only after a prima facie examination of whether or not such arbitration agreement exists. Hence, courts are no longer empowered to make conclusive determinations regarding the existence of an arbitration agreement.
7. The qualifications and conflict of interest requirements for appointment of an arbitrator have been made more stringent:
(a) A prospective arbitrator is now mandated to make a written disclosure in the form prescribed in the Ordinance as to any circumstances which may give rise to doubts regarding his impartiality.
(b) A new schedule (Fifth Schedule) has been added containing express grounds which shall guide the Court appointing an arbitrator in determining whether such circumstances exist.
(c) A new schedule (Seventh Schedule) has also been added which lays down grounds on which an arbitrator will become ineligible for appointment. However, in order to maintain the status quo, these requirements shall not apply to arbitrators who have already been appointed before the commencement of the Ordinance. Parties may also waive these grounds for ineligibility by an express agreement in writing.
8. A model schedule of fees (Fourth Schedule) has been introduced which the High Courts are to take into account before framing rules regarding the determination of an arbitrators fees.
9. Various timelines have been put in place and procedures have been streamlined for the speedy and effective conclusion of arbitration proceedings as well as the disposal of applications/petitions:
(a) An application for the appointment of an arbitrator is now required to be disposed of by the Supreme Court or High Court, as the case may be, within 60 (sixty) days from the date of service of notice of the application on the opposite party.
(b) In case a respondent fails to communicate his statement of defence, the arbitral tribunal now has the discretion to treat his right to submit a statement of defence as forfeited.
(c) An arbitral tribunal is now obligated to make an award within a period of 12 (twelve) months from the date it enters into the reference. This period may be extended by mutual consent of the parties up to a period of 6 (six) months. Thereafter, it can only be extended by the Court, on sufficient cause.
(d) An application for setting aside an award under Section 34 of the Arbitration Act is required to be disposed of by the Court within a period of 1 (one) year. Significantly it has been clarified that, the mere filing of an application for challenging the award would not automatically stay execution of the award.
(e) The arbitral tribunal is obligated to ensure that, as far as possible, oral hearings for the presentation of evidence or for oral arguments are held on day-to-day basis.
(f) A new section has been introduced providing for a fast track procedure wherein parties may mutually opt to have their disputes settled solely on the basis of written pleadings and documents. Under this procedure, the tribunal is obligated to make an award within 6 (six) months from the date it enters into the reference.
10. The Ordinance has clarified the existing position of law that a challenge to an arbitral award, on the ground of public policy can only be maintained if it is contrary to the fundamental policy of Indian Law and will not entail a review on the merits of the dispute.
11. The Ordinance underscores that the arbitrator will award actual costs reasonably incurred towards legal fees, fees and expenses of the arbitrators, the administrative fee in relation to the arbitration process. Factors such as conduct of the parties, delay in the disposal of arbitration proceedings on account of any frivolous counterclaim, refusal to accept a reasonable offer to settle the dispute, would be relevant in this regard.
Many of the changes brought in through the Ordinance recognize established norms and principles of domestic as well as international commercial arbitration at par with arbitration friendly destinations such as England, Singapore, France and Hong Kong. It is expected that the Ordinance will eventually be formally legislated through the parliamentary process substantially in its current form.
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