Reform of the Indian Arbitration Law

The Arbitration and Conciliation Ordinance 2015, amending the 1996 Arbitration and Conciliation Act, entered into force on 31 December 2015, with the aim to make Indian law more arbitration friendly and to attract foreign investment.

Several changes are brought with this amendment:

  • Fast track procedure:

The Ordinance expressly instates a new procedure: parties may now agree that their dispute will be resolved by way of a fast track procedure, in which case the arbitral tribunal is composed of one arbitrator, who should render the award within six months.

  • Arbitrator bias and conflicts of interest:

Restricted rules, many of which are based on the IBA Guidelines on Conflicts of Interest, have been adopted.

  • Interim relief:

Indian courts now have the power to grant interim relief and assist arbitral tribunals in the taking of evidence, even when the seat of the tribunal is abroad, provided that the arbitral award is enforceable in India.

Moreover, wider powers are given to arbitral tribunals for granting interim relief. For instance, it can order interim measures aiming to preserve goods related to the subject matter of the arbitration, to secure the amount in dispute between the parties, or more generally any “interim measure of protection as may appear to the arbitral tribunal to be just and convenient” (article 17.(1)(e) of the Ordinance).

Arbitration users thus now have the option to bring their request for interim relief before either the arbitral tribunal or the local courts, depending notably on the celerity and the conditions required by the arbitral tribunal or the courts.

It is noteworthy that, even though such interim relief is granted in the form of procedural orders, the ordinance expressly states that such orders have the same enforceable strength as orders granted by courts.

  • Legal costs:

As regards the allocation of costs of the arbitration, the Ordinance expressly adopts the “Costs follow the event”, similarly to the 1996 UK Arbitration Act (see our posts on allocation of costs here and here).

In addition, the Ordinance provides that behaviours such as for example delay tactics, may be taken into account in awarding costs. Nevertheless, agreements related to the allocation of such costs are valid if signed after the beginning of the dispute (see our posts on the subject here and here).

  • New time limit to render the arbitral award

The Ordinance requires the award be rendered within a year. Parties can agree on a six month extension at the expiration of the year. Otherwise, the mandate of the tribunal is terminated, unless parties request before the local courts an extension of the time limit to render the award of 60 days. Such an extension, if granted, is however not without consequences: courts may then impose the replacement of one or all the arbitrators or reduce their fees.

  • Challenge of the award

The available grounds to challenge the award remain those of the 1996 Arbitration and Conciliation Act, the new Ordinance only clarifies one of these grounds’ characterization.  Under the new Indian arbitration law regime, an award may thus be challenged when:

  • A party was under some incapacity
  • The arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force
  • The party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case
  • The arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration
  • The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part
  • The subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force
  • The arbitral award is in conflict with the public policy of India”: the Ordinance clarifies this last ground, providing that conflict with public policy may only be characterized in three cases, when: (i) “the making of the award was induced or affected by fraud or corruption or was in violation”, (ii) “it is in contravention with the fundamental policy of Indian law”, or (iii) “it is in conflict with the most basic notions of morality or justice”. The Ordinance also expressly states that the test as to whether there is a breach with the fundamental policy of Indian law must not generate a revision of the award on the merits, novelty which brings Indian arbitration law in line with the general trend of limiting grounds for challenge to procedural matters.

The Ordinance also provides that the challenge of an award does not stay its enforcement anymore, similarly to, for example, Article 1526 of the French Code of Civil Procedure applicable to international arbitration.

***

In conclusion, by enacting the Ordinance, Indian Arbitration Law has been brought, in theory, to the level of other arbitration-friendly jurisdictions.

In this respect, it worth noting that alongside the Ordinance, a bill entitled “The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Bill, 2015″ has been passed, creating divisions dedicated to commercial matters in the already existing Indian high courts, as has Singapore recently.

The bill expressly provides that international arbitration related matters are automatically allocated to commercial appellate divisions, whereas domestic arbitration matters are to be dealt with by commercial first instance divisions. The underlying idea is to allocate these different matters to the most suitable commercial division.

The 2015 Arbitration and Conciliation Ordinance is available here; the 2015 Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Bill, here.

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