17 January, 2016
As part of the Indian Government's drive to improve the ease of doing business in India, it introduced long awaited amendments to the Arbitration Act through the Arbitration and Conciliation (Amendment) Ordinance, 2015 (the "Arbitration Ordinance"). The Government also promulgated the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Ordinance, 2015 (the "Commercial Courts Ordinance"), which is aimed at improving the resolution of commercial disputes in the Indian courts by creating specialist commercial benches in High Courts, including to deal with arbitration matters.
Both these ordinances have now been approved by the Parliament and been replaced by the Arbitration and Conciliation (Amendment) Act, 2015 (the "Arbitration Amendment Act") and Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015. These legislative developments are a clear indication of the Government's intention to reform the landscape of commercial dispute resolution in India.
As reported previously in the context of the Arbitration Ordinance (see here), some of the key changes introduced to the Arbitration Act are as follows:
- Provisions for the granting of interim relief and collection of evidence by Indian courts have now been made applicable to international commercial arbitrations (i.e. commercial arbitrations where at least one party is not Indian) seated outside India.
- Jurisdiction is conferred solely on High Courts for applications relating to international commercial arbitrations, thus, parties to an international commercial arbitration will no longer have to approach lower courts to seek relief.
- The Arbitration Amendment Act clarifies that the "public policy" ground for setting aside and refusing to enforce awards will only be applicable where (i) an award has been obtained by fraud or corruption; (ii) an award is in contravention with the fundamental policy of Indian law; or (iii) an award is in conflict with the most basic notions of morality or justice, thereby limiting the scope for judicial interference.
- The Arbitration Amendment Act seeks to impose strict time limits on the arbitral process. An arbitral tribunal is required to render an award within 12 months from the date of appointment of arbitrators, which can be extended for a further period of 6 months by agreement of the parties. If an award is not made within such time period, the mandate of the arbitrators automatically terminates and any extension can only be granted by the courts.
- A comprehensive regime for costs has been introduced to codify the "costs follow the event” or “loser pays” principle in order to disincentivise frivolous actions.
One widely reported concern about the Arbitration Ordinance was the absence of any transitory provision setting out the applicability of the amendments to ongoing arbitrations. It has now been clarified by the Arbitration Amendment Act that the amendments will apply prospectively, i.e., to arbitration proceedings commenced on or after 23 October 2015 (being the date on which the Arbitration Ordinance was brought into force).
For further information, please contact:
Nicholas Peacock, Partner, Herbert Smith Freehills