In keeping with my goal of presenting important topics concerning jurisdictions outside the United States, I am pleased to present this guest post by Sakate Khaitan of Khaitan Legal Associates about recent legislative changes in Indian that will impact the availability of arbitration procedures in that country. I would like to thank Sakate for his willingness to publish his article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is Sakate’s guest post.
With “ease of doing business in India” as its mantra, the current Government has taken several measures to enhance the attractiveness of India as a business destination.
The much anticipated amendments to the Indian arbitration law is one among many such initiatives. Indian Parliament passed the Arbitration and Conciliation (Amendment) Act, 2015 (“Amendment Act”), which was notified on 1 January 2016. It is expected that the Amendment Act will address the concerns of international business community that is often apprehensive of arbitrating in India. It also bolsters Government’s attempts at increasing the “ease of doing business in India”.
The Amendment Act brings about much needed changes to the Arbitration and Conciliation Act, 1996 (“Act”), by offering clarity with respect to interim relief for foreign seated arbitrations, judicial intervention and independence of the arbitral tribunal; and introduction of measures to make arbitration in India time and cost efficient.
We examine some of the key changes brought about by the Amendment Act that is intended to make Indian arbitration more effective and efficient dispute resolution mechanism and position India as an arbitration friendly jurisdiction.
Interim Measures and appeals from certain orders permitted in Foreign Seated Arbitration
After years of debate and conflicting judgements, the question of applicability of Part I of the Act to foreign seated arbitrations was finally put to rest by the Supreme Court, in Bharat Aluminium Company v. Kaiser Aluminium Technical Services[i], by holding that Part I of the Act is not applicable to foreign seated arbitrations arising from arbitration agreements entered into after 6 September 2012. Although this verdict reduced interference of the Indian judiciary in foreign seated arbitral proceedings, it also restricted the ability of parties to seek interim reliefs in India.
Inapplicability of Part I of the Act, put foreign seated arbitrations at a significant disadvantage as a party’s only chance of interim relief was reduced to an order from the arbitral tribunal or an order from a court outside India and in both cases the enforceability remained uncertain. Therefore, if an arbitral tribunal was not yet formed, a party in a foreign seated arbitration would be left without any urgent remedy in India. This lacuna has been recognised and remedied by the law makers in the Amendment Act, by making the provisions with respect to interim relief, court assistance in taking evidence and appeal from an order of interim relief passed by a court, under Part I of the Act, applicable to foreign seated arbitrations as well.
Supremacy of Arbitral Tribunal in granting interim reliefs
Before the Amendment Act came into effect, the Act conferred jurisdiction to both, Courts as well as the arbitral tribunal, to pass orders for interim measures, during the pendency of arbitration proceedings.
Recognising the problems of delay that such parallel jurisdiction created, the Amendment Act prevents the courts from accepting any application for interim measures once the arbitral tribunal is already constituted; with a caveat that the Courts could exercise this power if circumstances exist which may not render the remedy provided by the arbitral tribunal efficacious.
The Amendment Act also addresses the issue of enforceability of interim orders passed by the arbitral tribunal by clarifying that such orders shall be deemed to be an order of the Court and would be enforceable accordingly. This change brings the Indian regime in line with the international best practices, ensuring that once an arbitral tribunal is constituted, it has almost exclusive jurisdiction to grant effective interim reliefs.
The Act allowed both domestic awards and foreign awards to be set aside for being in conflict with the ‘public policy’ of India and the interpretation of this term has been the subject of much judicial debate over these years. In Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd[ii], the Supreme Court held that an arbitral award could also be set aside if it was ‘patently illegal’, on the ground that it was against the ‘public policy’ of India which includes patent illegality. However, in the case, Shri Lal Mahal Ltd. v. Progetto Grano Spa[iii] (“Shri Lal Mahal Case”), the Supreme Court restricted the scope of the defence of ‘public policy’ in case of foreign awards and clarified that ‘patent illegality’ would not be recognised within the scope of ‘public policy’ as a ground to refuse enforcement of a foreign award.
The Amendment Act gives legislative force to the decision of the Apex Court in Shri Lal Mahal Case, by restricting the scope of ‘public policy’, and recognising ‘patent illegality’ as a defence against enforcement of only domestic arbitral awards, and not in foreign awards.
Independence and Impartiality of Arbitrator
With the introduction of the Fifth Schedule, which lists the grounds giving rise to justifiable doubts as to the independence or impartiality of arbitrators; and the Seventh Schedule, which lists the relationships between an arbitrator and the parties or counsel, that would make the arbitrator ineligible to be appointed as an arbitrator, except when expressly waived by the parties after the dispute has arisen; the Amendment Act seeks to assist arbitrators and parties to ascertain the independence of arbitrators, and limit the scope of challenging their appointment.
This change is in line with international best practices, and Schedules have been modelled on the basis of the Guidelines on Conflicts of Interest in International Arbitration, issued by the International Bar Association.
One of the main concerns parties usually have, while deciding whether to subject their disputes to Indian arbitration, is that arbitration in India is sometimes long-drawn, and there is no time guarantee for resolution of disputes. To address this concern, the Amendment Act has introduced the following amendments:
Once a court passes an order for interim measures before the commencement of the arbitral proceedings, the arbitral proceedings ought to commence within ninety days from the date of the order. However, the court would have the discretion to determine a longer time for commencement of the arbitration.
Further, the Amendment Act also requires an arbitral proceedings under Part I of the Act to complete and award to be passed within a period of twelve months from the date of receipt of notice of appointment by the arbitrators. This period can only be extended for a maximum period of up to six months, with the consent of the parties. Upon failure to pass an award within the time prescribed, the mandate of an arbitrator automatically terminates. A further extension can only be permitted by Court for sufficient cause.
The Amendment Act encourages an arbitral tribunal to hold oral hearings for evidence and arguments on a day to day basis and to limit adjournments only to cases of sufficient cause. It also empowers a tribunal to order costs, including exemplary costs, on a party that seeks unnecessary adjournments.
The Amendment Act links the arbitrator’s fee to the time taken to pass the final award and entitles the arbitrators to additional fees if the award is made within a period of six months. Further, the courts have also been empowered to order a reduction of fees if there is a delay beyond eighteen months, in passing the final award, for reasons attributable to the arbitrators.
The Amendment Act also introduces a fast-track arbitration procedure to resolve disputes provided such option is exercised prior to or at the time of appointment of the arbitral tribunal. Under the fast-track process, the arbitral tribunal would decide disputes based on written pleadings, documents and submissions filed by the parties. An oral hearing would be held only if all parties request it or if the arbitral tribunal considers it necessary in order to clarify certain issues. The award ought to be passed within 6 months from the date of reference.
Although expedited arbitration is recognised by the rules of several arbitral institutions, including the International Chamber of Commerce, which have seen successful implementation thereof in many cases, it was not recognised under the Act earlier. This amendment is expected to provide some relief to parties who face tremendous commercial impact due to time lag and delay in dispute resolution.
Judicial Support in Foreign Seated Arbitration
In addition to interim relief, the Amendment Act also authorises parties in an international commercial arbitration seated outside India to seek judicial assistance in taking evidence. Further, the definition of the word ‘court’ has been revised to ensure that in case of an international commercial arbitrations, the court approached is only a High Court. This would hopefully expedite the court process since High Courts have more experience in dealing with international issues.
The Amendment Act has empowered the High Court to frame rules for determination of the fees of the arbitral tribunal and the manner of its payment to the arbitral tribunal. Further, the ‘model’ fees structure for arbitrators has also been included in the Fourth Schedule to the Act, for the consideration of the High Court. The Amendment Act prevents the applicability of this fee structure to institutional arbitration and international commercial arbitration.
Unless specifically made applicable by parties through agreement, the Amendment Act applies only to arbitrations that commence after 23 October 2015.
The Amendment Act is certainly a welcome step and will go a long way in positively impacting the arbitration landscape in India. Not only has it made the Indian legal regime more pro-arbitration, it has also brought clarity in provisions which were subject to frequent judicial review and has attempted to align the statute with international best practices.
The proactive stance taken by the law makers with respect to the maintenance of strict time limits and reduced judicial intervention would in our view ensure that arbitration proceedings are not unnecessary derailed by dilatory tactics. Further, by clarifying the role of the arbitral tribunal in granting interim relief, the Act ensures that arbitration would be a one-stop solution for resolution of commercial disputes. We believe that the greater power given to the arbitral tribunal coupled with strong judicial backing, will further the cause of arbitration in India!
[i] 2012 (3) ARBLR 515 (SC).
[ii] AIR 2003 SC 2629.
[iii] (2014) 2 SCC 433.