India: India Modernizes Its Arbitration System: U.S. Companies Should Consider Arbitration Clauses In Indian Commercial Contracts

This piece was co-authored by:
Sherbir Panag, Partner at the Law Offices of Panag & Babu in New Delhi, India.
Aanchal Basur, Partner at the Law Offices of Panag & Babu in New Delhi, India.

The Indian court system has gained an unfortunate reputation for being notoriously slow, cumbersome, unpredictable, and unreliable, which makes solving commercial disputes in India a challenging ordeal. India ranks near the bottom in the World Bank's rankings of contract enforcement; it takes an average of over 1,400 days — more than three years — for a dispute to finally see the light of day, and in a typical case, 40% of a claim's value is eroded by litigation expenses. The Law Commission of India, in its 245th Report, noted that the problem of delay in the Indian judicial structure "is not only enormous but also complex" and explained that it would require an overhaul of the judicial system to ensure that problems of delay and pendency are adequately addressed.1

Unfortunately, India's arbitration system was not, until recently, much better than the court system. In October 2015, India amended its arbitration laws in an effort to bring them "in tune with global best practices" and to make India "a leading arbitration jurisdiction."2 On the one-year anniversary of the new law, India's Prime Minister observed that the new arbitration law "has made the arbitration process easy, timely and hassle-free."3

Arbitration Under the 1996 Law

Before 2016, arbitration in India was governed by the Arbitration and Conciliation Act 1996 (1996 Act). This law faced constant and harsh criticism from practitioners and parties alike.

  • Delay
    Under the 1996 Act, arbitration proceedings were becoming protracted, and sometimes an award was not rendered for years. This delay could largely be attributed to excessive interference by courts in the arbitral process.
  • Hesitation To Refer a Dispute to Arbitration
    Parties also faced challenges because courts were hesitant to refer a dispute to an arbitral tribunal. In contrast to the international approach to arbitration, courts in India had started reviewing the substantive validity of the arbitration agreement, refusing to refer disputes to arbitration even when arbitration agreements were prima facie valid.
  • No Code of Ethics
    The old regime also did not instill confidence regarding the neutrality of arbitrators. Arbitrators, and in particular party-appointed arbitrators, were not subject to any express code of ethics.
  • Stay of Enforcement Proceedings
    Under the 1996 Act, the losing party in an arbitration could obtain a stay of the execution of the award merely by filing an application to set aside the award with an Indian court. This would serve as an easy route to stall the enforcement proceedings.
  • The "Unruly Horse" of Public Policy
    Lower courts in India, responsible for reviewing arbitration awards, were hostile toward arbitration proceedings and, therefore, awards could easily be set aside on vague "public policy" grounds.

These and other features of the 1996 Act made arbitration in India tedious and uncertain, and parties hesitated to choose India as their preferred seat of arbitration.

Arbitration After the 2015 Amendment

The 1996 Act was amended by the Arbitration and Conciliation (Amendment) Act, 2015 (Amending Act), which came into force on October 23, 2015. The amendments were largely based on the 246th Report of the Law Commission of India and were intended to remedy some of the perceived problems with the arbitration process in India, in order to encourage parties to arbitrate more disputes. The most notable amendments are:

  • International Arbitrations Are Now Supervised by High Courts
    Non-Indian parties will benefit immensely from the new regime, which designates the High Courts (India's intermediate appellate courts) as the relevant court to hear all applications related to an international commercial arbitration. The High Courts are more favorable to commercial arbitration; therefore, this change makes it likely that arbitration proceedings will not be as frequently disrupted by the hostile court orders that were issued by lower courts under the 1996 Act before it was amended.
  • Guidelines on Conflicts of Interest
    The Act now requires a nominated arbitrator to disclose in writing (1) potential conflicts of interest; and (2) "any circumstances . . . which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months."4 This has largely been inspired by the IBA Guidelines on Conflict of Interest in International Arbitration, which have been adopted widely by international arbitral tribunals.
  • Time Limit To Render an Award
    The Act now requires that an award be made within a period of 12 months.5 This provision is buttressed by monetary incentives to move things along. The parties may agree to higher compensation for arbitrators if the award is rendered within six months. If the award is not rendered within 12 months, the parties may extend the time period for an award by up to six months, giving the tribunal a total of 18 months to decide a dispute. While a court is empowered to extend this time period, we believe that this discretion is unlikely to be exercised in a majority of cases.
  • Interim Measures by Tribunal Now Executable
    An arbitral tribunal's powers have been expanded. The Amending Act provides that interim measures awarded by the Tribunal would be enforceable in the same manner as a decree of the court.6
  • No Automatic Stay on Execution
    Under the amended law, an application to set aside an award does not "by itself render that award unenforceable."7 Instead, the losing party must also apply to a court for a stay of the award.8
  • Restrictions on Application of the "Public Policy" Exception
    The Amending Act clarifies that courts must not be eager to adopt an expansive definition of public policy when enforcing a foreign award in India, and it expressly provides that an application to enforce an award will not entail a review of the award on its merits.9 This amendment is intended to give primacy to the parties' agreement to resort to arbitration as a mode of settling their disputes.

What To Expect Going Forward

The amendments are a welcome step in the reform of Indian arbitration law and reflect the intention of the legislature to promote India as a favorable choice of seat in arbitration agreements. Even though the amendments did not incorporate the entire gamut of suggestions from the Law Commission, the Amending Act goes a long way to address the issues faced by parties when arbitrating in India. The optimism portrayed by the judiciary and the Indian government at the global conference, "The National Initiative on Strengthening Arbitration and Enforcement in India," reflects their commitment to ensure that Indian arbitration law is aligned with international benchmarks and practices. The law is expected to go a long way toward improving the efficiency of India's arbitration procedures, making arbitration a much more attractive option for dispute resolution for U.S. companies doing business in India.

Given the fact that the amendments are not retrospective and the law has now been in effect for little more than a year, the first round of cases subject to the law's new 12-month time limit may just have concluded. Over the next few months, parties contemplating arbitration in India should have a clearer sense of the effectiveness of the new law in making the process more efficient.

Footnotes

1. The Law Commission of India, Report No. 245 'Arrears and Backlog Creating Additional Judicial (wo)manpower', July 2014, available at http://lawcommissionofindia.nic.in/reports/Report_No.245.pdf

2. Narendra Modi, "Speech at National Initiative towards Strengthening Arbitration and Enforcement in India," Oct. 23, 2016.

3. Id.

4. See The Arbitration and Conciliation Act 1996 as amended by the Arbitration and Conciliation (Amendment) Act, 2015, §12.

5. Id., §§ 29A and 29B.

6. Id., §17.

7. Id., §36.

8. Id.
9. Id., §§34 and 48.

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
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
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