India Amends Its Arbitration Regime

PRELIMINARY OBSERVATIONS

India, the second most populous country in the world is undergoing a transition, both in terms of investor perceptions of its market potential and in reality.[1] Results are apparent from the fact that India is registering a substantive growth in its economy during uncertain global economic conditions.[2] With the current demonetisation scheme adopted by the current government, India’s national income is expected to grow considerably while the move is expected to significantly impact its disposable income as well.

A country whose economic liberalization began way back in the early 1990s and has accelerated at an encouraging rate ever since, has only recently opened its market further as more and more sectors have opened up to foreign direct investment (FDI).[3] These amongst other measures so adopted by the current Government have made the Indian market a more attractive and lucrative destination for foreign companies who are now looking to expand their business in India.

Of the many important factors for an economy to become more attractive to global investors, it is important that its laws and judiciary are in tune with the changing market trends. Similar were the expectations placed on the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”), adopted on the UNCITRAL Model Law on International Commercial Arbitration, 1985 and superseding the Arbitration (Protocol and Convention) Act, 1937, Indian Arbitration Act, 1940 and the Foreign Awards (Recognition and Enforcement) Act, 1961 upon its enactment was passed with inflated optimism and was expected to bring winds of change.[4] But the Act, accompanied by a number of rigid decisions by the Judiciary ensured that the winds of change fell into their gorge.[5] What was considered as a quick and cost effective form of dispute resolution with minimal to negligible intervention by the Courts gradually amalgamated into the Courts’ jurisdiction itself thereby hampering the pro-arbitration jurisdiction approach India pursued. This was followed by several heavily globally denounced decisions passed by the Supreme Court including but not limited to: ‘Bhatia International v. Bulk Trading S.A. & Anr.’ [6], (2002) 4 SCC 105 and ‘Venture Global Engineering v. Satyam Computer Services Ltd. & Anr.’[7] AIR 2010 SC 3371.

However, Indian Judiciary has evolved tremendously over the span of last couple of years and have developed a pro-arbitration outlook. This Seismic shift started with the Supreme Court of India’s judgment in ‘Bharat Aluminum & Company & Ors. v. Kaiser Aluminum Technical Service Inc. & Ors.’[8] (2012) 9 SCC 552, wherein the Supreme Court inter alia stated that Indian Courts do not have the power to intervene in foreign arbitration by either providing interim relief or by entertaining a challenge to foreign arbitral awards in India.[9] This proclaimed a new dawn for Indian Arbitration.[10] Furthermore, the Bombay High Courts Judgments in ‘Baker Hughes Singapore Pte v. Shiv-Vani Oil and Gas Exploration Services Ltd.’[11], 2014 SCC Online Bom 1663 (upholding arbitrator’s right to grant security as an interim award), ‘HSBC PI Holdings (Mauritius) Ltd. v. Avitel Post Studioz Limited & Ors.’[12] delivered on 22nd January 2014 in Arbitration petition No.1062 of 2012 (issues of arbitration should be properly dealt with by arbitral tribunals and not by the Courts, similar stand taken by the Supreme Court in ‘World Sport Group (Mauritius) Ltd v. MSM Satellite (Singapore) Ltd’[13], AIR 2014 SC 968) have further solidified the stand of the Courts being less prone to intervention in the arbitral process.

In addition to these pro-arbitration measures taken by the Indian Judiciary, the Indian government has incorporated amendments to the age-old Act, with introduction of the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter referred to as “the Amendment Act”),[14] which is in consonance with the recommendations put forth in the 246th Law Commission Report of India[15] and aims largely at encouraging ease of doing business in India in a bid to promote foreign investments in the Country.

Let us take a look at some of the key amendments to the Act, which are likely to further the aforementioned cause.

KEY HIGHLIGHTS OF THE NEW ACT

1. Distinction drawn between territorial jurisdiction of International Commercial Arbitrations and Others[16]

The Amendment Act amends the definition of a Court by drawing a distinction between the jurisdictions for International Commercial and Domestic Arbitrations. In terms of the said amendment, the High Court shall be the Court of appropriate jurisdiction in International Commercial Arbitrations and the Principle Civil Court of original jurisdiction (including the High Court in exercise of original civil jurisdiction) shall be the Court of appropriate jurisdiction for all other arbitrations.

2. Communications through electronic means, which provide a record of the arbitration agreement, shall be considered as an Arbitration Agreement in writing.[17]

3. Availing Original/Certified Copies of the Arbitration Agreement Through Courts [18]

Any party applying for reference to arbitration may file an application along with a copy of the arbitration agreement and a petition praying to the Court to call upon the other party having the said Arbitration Agreement and its certified copy in its possession, to produce the original arbitration agreement or its duly certified copy.

4. Once the Arbitral Tribunal has been constituted, the Court shall not entertain any application for interim measures[19], unless circumstances exist, which may not render interim measures ordered by the Arbitral Tribunal[20] efficacious.[21]

5. Arbitral Tribunal’s Fees and Manner of Payment to be determined by the High Court[22]

The High Court shall determine and frame necessary rules, after taking into consideration the rates [23] under the Act for the fees and the manner of its payment to the Arbitral Tribunal.[24] However, such rules shall NOT apply to International Commercial Arbitration and in arbitrations where parties have agreed for determination of fees as per the rules of an Arbitral Institution.[25]

6. Mandatory Conditions to be fulfilled for Appointment as an Arbitrator[26]

A person approached in connection with a prospective appointment, as an Arbitrator shall disclose in writing any circumstance, including:

Existence either direct or indirect, of any past or present relationship with or interest in any of the parties, or
In relation to the subject matter in dispute, whether financial, business, professional, or other kind, which is likely to give justifiable doubts as to his independence or impartiality, or
Which are likely to affect his ability to devolve sufficient time to the Arbitration and in particular his ability to complete the entire arbitration within a period of Twelve (12) months.

7. Interim Measures Ordered by Arbitral Tribunal[27]

A party to arbitration during the course of arbitral proceedings or at any time after the making of the Arbitral Award but before its enforcement, apply to the Arbitral Tribunal for:

Appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings,
Interim measures of protection for:
The preservation, interim custody or sale of any goods which are the subject matter of the Arbitration Agreement,
Securing the amount in dispute,
Detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise, or any form of authorizations[28], which may be necessary or expedient for the purpose of obtaining full information or evidence,
Interim injunction or the appointment of a receiver, or
Such other interim measure of protection as may appear to the arbitral tribunal to be just and convenient.

8. Effectiveness and Enforceability of the Order of Arbitral Tribunal[29]

Any order[30] issued by the Arbitral Tribunal under this Section shall be considered as an order of the Court and shall be enforceable under the Code of Civil Procedure, 1908, in the same manner.

9. The respondent is now allowed to submit a counter-claim or plead a set-off, which shall be adjudicated upon by the Arbitral Tribunal, if such counter-claim or set-off falls within the scope of the Arbitration Agreement.[31]

10. Extension of Time by Courts

The Mandate of an Arbitrator shall terminate if an Award is not made within Twelve (12) months or such extended period (not more than Six (06) months) as agreed between the parties, unless the Court has extended the period.[32] If the Court while extending the period may find that the proceedings have been delayed for the reasons attributable to the Arbitral Tribunal, then, it may order reduction of fees by not exceeding 5% for each month of such delay.[33]
While extending time, the Courts may substitute one or all of the Arbitrators, the arbitration proceedings however shall continue from the stage already reached and on the evidence and material already on record.[34]
It shall be open to the Court to impose actual or exemplary costs upon any of the parties.[35]

11. Measures for Expediting Arbitration Proceedings

If the Court of appropriate jurisdiction passes any interim measure under the Act, the arbitral proceedings must commence within Ninety (90) days of the Court doing so.[36]
The Supreme Court, or the High Court, or the person or institution designated by such Court shall dispose of an application for Appointment of Arbitrator expeditiously. An endeavour shall be made to dispose of the Application within Sixty (60) days.[37]
An Arbitral Award shall be made within Twelve (12) months from the date the Arbitral Tribunal enters upon the reference i.e. the date on which a single arbitrator or all arbitrators, have received notice, in writing, of their appointment.[38]
Arbitral Tribunal shall to the extent possible hold oral hearings for the presentation of evidence or for oral argument on day-to-day basis.[39]
Adjournments to be granted only if a sufficient cause is made out, costs to be imposed if sufficient cause is not made out.[40]
The Arbitral Tribunal shall be entitled to additional fees (as agreed by the parties to the arbitration) if the Arbitration is concluded within a period of Six (06) months from the date of reference.[41]
The parties to Arbitration may extend the period for making award for a time frame (not exceeding) Six (06) months.[42]
The Court shall make an endeavour to dispose of the Application seeking extension of time for conclusion of arbitration proceedings within Sixty (60) days, from the date of service of notice on the opposite party.[43]
Fast Track Procedure[44]
The Parties to an arbitration agreement may, before or at the time of appointment of the tribunal, agree in writing to have the dispute resolved in fast track procedure.[45]
The following procedure shall be followed by the tribunal while conducting Fast Track arbitration proceedings:[46]
Dispute shall be decided on the basis of written pleadings, documents and submissions filed by the parties without any oral hearing,
Tribunal shall have the power to call any further documents, information, clarification from the parties in addition to the pleadings and documents filed by them,
Oral hearing only on the request of all the parties, or if the tribunal considers it necessary for clarifying certain issues,
Technical formalities may be dispensed with and procedures shall be adopted as deemed appropriate for expeditious disposal of the case.
The Award under the Fast track procedure shall be made within a period of Six (06) months, from the date of reference to the Arbitral Tribunal.[47]

12. Awards in Conflict with the Public Policy[48]

An award shall be considered to be in violation of 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 Confidentiality or Admissibility of evidence; or
Is in contravention with the fundamental policy[49] of Indian law; or
It is in conflict with the most basic notions of morality or justice.

13. Power of Court

An arbitral award arising out of arbitrations other than International Commercial Arbitrations may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award.[50]

However, an award shall not be set-aside merely on the ground of an erroneous application of the law or by re-appreciation of evidence.[51]

A party shall file an application under this section only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement.[52]

An application under this section shall be disposed of expeditiously, and in any event, within one (01) year from the date on which the notice is served upon the other party.[53]

Upon an application for stay of the Arbitral Award filed before the Court of appropriate jurisdiction, the Court may subject to such conditions based on its discretion grant stay of operation of such award for reasons to be recorded in writing.[54]

14. Appeal to Courts[55]

Appeal shall lie from the following orders (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order:

(a) Refusing to refer the parties to arbitration;

(b) Granting or refusing to grant any measure; and

15. Act NOT to apply to pending arbitration proceedings.[56]

16. Fee of the Arbitral Tribunal

To determine the manner of payment of fees to the Arbitral Tribunal, please click here

17. Grounds for Doubts as to the Independence or Impartiality of An Arbitrator

To see the grounds please click here.

ANALYSIS

Dispute resolution is a major factor, which determines the ease of doing business in a Country. It is perhaps one of the major reasons why India is and has always been a challenging jurisdiction to establish a successful business presence. With the aforementioned amendments to the Act and other concurrent amendments and reforms brought by the Indian Legislature in other enactments, it is clear that India seeks to ensure speedy and efficient disposal of cases, thereby becoming more lucrative and attractive for investors by boosting investor confidence.

The Amendments to the Act bring India another step closer towards being in-tune with Arbitration-friendly jurisdictions. The amendment Act has provided strict time-lines, stricter than the average time taken for arbitration in any other jurisdiction, while providing an effective and efficient mechanism for resolving disputes with minimal court interference. The broad thrust of India’s decision to get consistent with underlying philosophy of international conventions, exhort Indian courts to become more arbitration friendly.

With the reformed Act, it is also expected that there shall be a downward trend in the number of frivolous claims and applications filed while unnecessary delays and latches shall also be disincentivized. As an aid to International Commercial Arbitrations, the amendment Act has also introduced significant changes by giving them the flexibility to seek indulgence of the Indian courts for interim relief. Measures such as these are aimed at increasing the momentum towards resolving international disputes through arbitration.

Further, guidelines and detailed schedules on ineligibility of arbitrators have been introduced by the amendment Act with an eye on maintaining independence and impartiality of the Arbitrators. It is beyond any cavil that the regulatory framework around arbitration in India is getting increasingly articulate and catching up with the international trends.

India is no longer merely an emerging market for foreign investments, but has become an economy of utmost significance in the world itself.[57] The year 2015 itself saw extensive rise in cross-border transactions in the country:

“The Competition Commission of India saw a record filing of 115 merger and acquisition cases—the highest registered in a calendar year—and even foreign direct investment went up by 40%.”[58]

India still can’t be truly considered as arbitration friendly jurisdiction, as there is no doubt a long way to go, filled with challenging roadblocks. However, with legislative amendments, efficient operationalization mechanism being adopted and India opening fully functional Mumbai Centre for International Arbitration, it is expected that a new and promising era has begun for arbitration in India.

The full text of the Amendment Act can be accessed here.

Disclaimer: The views and opinions expressed in this article are based on extensive and thorough research. In no way does the author or the law firm claim ownership of the ideas and concepts presented in this paper. Information so provided is to be strictly considered for general reference of the subject matter, which has been adequately referenced. Specialist advice should be sought about any specific circumstances directly from the law firm.

REFERENCES

[1] Kingdom of the Netherlands, ‘Opportunities & Challenges in the Indian Market: Lessons learned from Dutch Companies in India’ (indian.nlambassade.org, article), page 4 available at <http://india.nlambassade.org/binaries/content/assets/postenweb/i/india/doing-business-in-india/opportunities--challenges-in-the-indian-market > accessed on 10 November 2016

[2] Ibid, 1

[3] Ibid, 1

[4] A Banerjee and V Desai, ‘Column: Making Indian arbitration effective’ (The Financial Express, 15 January, 2016) available at: < http://www.financialexpress.com/fe-columnist/column-making-indian-arbitration-effective/194223/ > accessed on 11 November 2016

[5] Ibid 4

[6] Available at: < https://indiankanoon.org/doc/110552/> accessed on 11 November, 2016

[7] Available at: < https://indiankanoon.org/doc/867675/ > accessed on 11 November, 2016

[8] Available at: <https://indiankanoon.org/doc/173015163/ >accessed on 11 November, 2016

[9] Ibid 8

[10] A Chugh, ‘The Bharat Aluminium Case: The Indian Supreme Court Ushers In a New Era’ available at: < http://kluwerarbitrationblog.com/2012/09/26/the-bharat-aluminium-case-the-indian-supreme-court-ushers-in-a-new-era/> accessed on 10 November, 2016

[11] Available at: < https://indiankanoon.org/doc/13837414/ > accessed on 12 November 2016

[12] Available at: <http://mja.gov.in/Site/Upload/GR/Justice%20Dhanuka%20Speech%20on%2025-7-15.pdf > accessed on 12 November 2016

[13] Available at: < https://indiankanoon.org/doc/48872488/ > accessed on 11 November 2016

[14] Available at: < https://www.scribd.com/doc/287027653/Indian-Arbitration-Act-Amendment-Ordinance > accessed on 12 November 2016

[15] Law Commission of India, ‘Report No. 246 Amendments to the Arbitration and Conciliation Act, 1996’ (Government of India, August, 2014) available at: <http://lawcommissionofindia.nic.in/reports/Report246.pdf > accessed on 12 November 2016

[16] Section 2 (1) (A) (e) of the Act

[17] Section 7 (4) (b) of the Act

[18] Section 8 (2) of the Act

[19] Under Section 9(1) of the Act

[20] Under Section 17 of the Act

[21] Section 9 (3) of the Act [as inserted by the Amendment Act]

[22] Section 11 (14) of the Act

[23] After taking into consideration the rates specified in Schedule IV of the Act

[24] Id 22

[25] Explanation to Section 11(14) of the Act

[26] Section 12 (1) of the Act [as inserted by the Amendment Act]

[27] Section 17 (1) of the Act [as inserted by the Amendment Act]

[28] for entering upon any land or building in the possession of any party, or authorizing any samples to be taken, or any observation to be made, or experiment to be tried

[29] Section 17 (2) of the Act [as inserted by the Amendment Act]

[30] Subject to orders under Appeal in terms of Section 37 of the Act [as inserted by the Amendment Act]

[31] Section 23 (2A) of the Act [as inserted by the Amendment Act]

[32] Section 29A(4) of the Act [as inserted by the Amendment Act]

[33] Proviso to Section 29A(4) of the Act [as inserted by the Amendment Act]

[34] Section 29 A (6) of the Act [as inserted by the Amendment Act]

[35] Section 29 A (8) of the Act [as inserted by the Amendment Act]

[36] Section 9 (2) of the Act [as inserted by the Amendment Act]

[37] Section 11 (13) of the Act [as inserted by the Amendment Act]

[38] Section 29A (1) of the Act [as inserted by the Amendment Act]

[39] Proviso to Section 24 (1) of the Act [as inserted by the Amendment Act]

[40] Ibid 34