The Indian Arbitration And Conciliation (Amendment) Act.

17 January, 2016

 

The changes to the arbitration law in India, first issued in an ordinance in October 2015, have now become permanent. Ben Giaretta and Akshay Kishore explain what this means for foreign investors.

 

From ordinance to Act

 

The arbitration law in India was changed by an ordinance that was issued in October 2015. This was the culmination of a number of years of discussion about appropriate changes, and followed a report by the Law Commission of India in 2014. We reported on the ordinance in an earlier briefing.

 

The ordinance was only temporary: it had effect only until the next session of the Indian Parliament. At the end of 2015, therefore, Parliament approved a Bill which made the changes permanent, and on 31 December 2015 the Arbitration and Conciliation (Amendment) Act, 2015 (the Act) became law. The Act replaces the ordinance entirely and is deemed to have come into force on the date of the ordinance (23 October 2015).

 

What has changed between ordinance and Act?

 

Virtually nothing. The Act is word-for-word identical with the ordinance, with two exceptions:

 

• a provision has been added to clarify that the Act only applies to Indian arbitrations commenced on or after 23 October 2015 (unless specifically agreed by parties); and
• a typographical error in one of the Schedules has been corrected.

What does the Act mean for foreign investors?

 

The Act makes arbitration a more effective option for India-related dispute resolution. In our previous briefing, we highlighted the following key changes:

 

1. Interim relief is available

 

The Act reforms the powers of the Indian courts to grant interim measures, such as injunctions, so that:

 

• the Indian courts may now grant interim measures in support of arbitrations outside India;
• 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. It 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 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 five 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.

 

What happens next?

 

The ordinance had attracted a great deal of comment and, while in general there was a favourable reaction, a number of issues were identified with it.

 

The Act answers two significant questions that had been raised about the ordinance, namely whether or not the changes would apply to arbitrations started before 23 October 2015 and whether the changes would become permanent. But other questions remain unanswered. 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?
• Will such applications descend into arguments between parties and arbitrators as to whom should be penalised for the delay?

 

These will only be answered over time, as new arbitrations are started and as applications are made to the courts in relation to those arbitrations.

 

Such uncertainties mainly concern Indian-seated arbitration. 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. While the Act overall must be welcomed, some caution is needed until there is experience of how it operates in practice.