The Indian Arbitration Ordinance: Five Things You Need To Know.

5 November, 2015

 

The arbitration ordinance

 

On 23 October 2015, the Government of India amended the Arbitration and Conciliation Act, 1996. It had been expected that amendment would be by Act of Parliament.1 Instead, the President of India has issued an ordinance. The most relevant points for foreign investors are set out below.

 

1. Interim relief is available

 

The Indian courts may now grant interim measures, such as injunctions, in support of arbitrations outside India. This removes the dilemma created by the BALCO judgment under which parties had to choose either offshore arbitration without interim measures in India, or Indian arbitration without the neutrality of a foreign seat.2 Now, parties may choose arbitration in London, Singapore or elsewhere,3 and apply to the Indian courts for interim protection if needed.

 

The ordinance also states that:

 

• if an Indian court grants interim measures before an arbitration has commenced, the arbitration must start within 90 days (or such further time as the court orders);
• the jurisdiction of the courts to grant interim measures after the tribunal has been appointed is limited to circumstances where tribunal-ordered interim measures would not be "efficacious"; and
• an interim measure issued by an arbitral tribunal seated in India is enforceable in the same manner as a court order.

 

2. "Public policy" has been restricted

 

"Public policy" is no longer a broad ground to resist enforcement in India of an international commercial arbitration award or a foreign award. Instead, this is limited to circumstances where there has been fraud

or corruption, or contravention of "the fundamental policy of Indian law" or "the most basic notions of morality or justice". The Indian courts will not review the merits of the dispute when considering a public policy argument.

 

3. The High Courts have jurisdiction

 

Applications arising out of an international commercial arbitration and applications to enforce foreign awards must now be made to a High Court and not to a lower court, where the judges may not be familiar with arbitration.

 

The High Courts also have the power to:

 

• set aside awards made in India where arbitrators have failed to comply with new requirements for disclosure of interests;
• delegate the appointment of arbitrators in ad hoc arbitration to an arbitration institution;
• limit the fees charged by arbitrators in ad hoc domestic arbitration in India;
• award costs in any court application arising out of an arbitration; and
• allow enforcement of an award made in India to proceed, even if there is a challenge to that award (and the courts must deal with such a challenge within one year).

 

4. There are time-limits for arbitrations

 

Arbitrators sitting in India must now issue an award within 12 months of their appointment. The parties may agree to extend this period by six months; and a court may extend the period (either before or after it has expired) by such time as it considers appropriate.

When dealing with an application to extend time, the Indian courts have the power to:

 

• reduce the fees of the arbitrators if they are responsible for the delay, by up to 5 per cent for each month of delay;
• replace one or all of the arbitrators, without requiring repetition of the proceedings; and
• impose cost penalties on any of the parties. 

 

Parties to an Indian arbitration may also agree, either before or at the time of appointing arbitrators, to follow a fast-track procedure which must be completed within six months.

 

5. The ordinance has limited effect

 

The ordinance will apply to all new arbitrations. The ordinance does not state expressly that it applies to arbitrations currently taking place, but that appears to be the implication.4

However, the ordinance only has effect for up to six weeks after the start of the next session of Parliament (i.e. until around mid-December 2015). To make the changes permanent, Parliament must give its approval.

 

Comment

 

The ordinance does not go as far as was proposed by the Law Commission of India: for example, it does not address emergency arbitration. Nonetheless, it is the most significant change to the arbitration law in India in twenty years. It resolves many of the problems that have afflicted Indian arbitration and will inspire greater confidence among foreigners that their investments in India will be protected.

 

That said, there is some uncertainty about how it will be implemented in practice. In particular, a number of questions arise from the 12-month time-limit on arbitrations, such as:

 

• In what circumstances might the Indian courts refuse to extend the time-limit for an arbitration?
• Will arbitrators sacrifice quality for expedition, in order to meet the time-limit?
• How long will the Indian courts take to deal with an application to extend time?5
• Will such applications descend into arguments between parties and arbitrators as to who should be penalized for the delay?

 

There is also the issue of whether the ordinance will be approved by Parliament, or be amended or rejected.

 

Foreign investors may therefore prefer in the short term to specify an offshore seat in their arbitration clauses rather than agreeing to arbitration in India. Foreign arbitrators may also be reluctant at present to accept appointments on Indian-seated arbitrations, until there is greater clarity.

 

Notes