Amendments to the Indian Arbitration Act - now imminent?

Following some uncertainty at the start of the new year about a possible new arbitration ordinance, the Indian government has now announced that it will table proposals for amendments to the Arbitration and Conciliation Act 1996 (the "Act") to be considered in the next legislative session.  The need for change in the arbitration landscape and legislation in India has been widely acknowledged, and the proposed amendments have been long awaited.

There have been several (unsuccessful) attempts by previous governments to amend the Act – as discussed in our webinar on India Insights last July. The new Indian government has recognised the need for change and proposed several amendments to the Act, which it is hoped will be passed as a bill in the next legislative session.

Recent background to the proposed amendments

Prime Minister Narendra Modi's cabinet has been busy trying to expedite economic, political and legal change by promulgating seven ordinances (which do not require a parliamentary vote) over the last few months of 2014; in particular, it was reported that the Cabinet was considering an arbitration ordinance which would seek to effect key reforms to Indian arbitration law.

According to varying news reports, the arbitration ordinance was cleared by the Union Cabinet on 29 December 2014 but it was not placed before the President for his approval. President Pranab Mukherjee has been openly critical of the use of ordinances (meant for urgent situations) to bring about legislative change rather than following the usual route of amending legislation in Parliament. It has been reported that the Cabinet will now put forward its proposed arbitration reforms in the form of an amendment bill before the Parliament in the session commencing on 23 February 2014.

Proposed amendments to the Indian Arbitration Act

Although the content of the proposed bill is not yet known, it is expected to follow at least some of the proposals in the recent report of the Law Commission of India previously reported here.

It is also likely that the proposed amendments will mirror the arbitration ordinance that was approved by the Union Cabinet.  Whilst that ordinance is not publicly available, news reports suggest that the most significant of the proposed amendments in the ordinance are as follows:

• Amending Section 34 of the Act which allows, among other grounds, for an award to be set aside if it is in conflict with the public policy of India. The amendment would make clear that this exception applies only where (i) an award has been obtained by fraud or corruption, (ii) an award is in conflict with a fundamental policy of Indian law or (iii) an award is against the basic notions of morality and justice.
• Section 36 of the Act as it stands today allows for an automatic stay of the enforcement of an arbitral award if it has been challenged. The proposed amendment provides that no automatic stay would apply, and a party seeking such a stay must obtain a specific order to this effect.
• An amendment regarding arbitrators' fees, so that these would not be on the basis of the number of sittings or hearings, but rather on a composite basis.
• Tribunals would be required to render arbitral awards within a period of nine months of the case being filed, unless the Court grants an extension. An arbitrator who delays the matter for their personal benefit can be barred from sitting in any new arbitration proceedings for a period of up to three years.
• Courts would be required to dispose of any application to challenge an arbitral award within one year of the application being filed.
• Where parties are unable to decide on their arbitrator they can approach the High Court or the Supreme Court (as the case may warrant), under Section 11 of the Act, and ask the Court to appoint an arbitrator. The amendments proposed state that Courts should dispose of such applications as expeditiously as possible, with the aim of doing so within 60 days.
• The Court's powers under Section 11 of the Act would be limited to examining, prima facie, the existence of an arbitration agreement and not delving into the merits of the dispute.

Apart from the above, there were several other amendments that have been proposed on the basis of the Law Commission Report, all of which are with the aim of streamlining the arbitration process and ensuring that it is in line with international standards.

Comment

The new Modi-led government has maintained that its manifesto is to ensure that investment in India increases greatly and that the ease of doing business in India is improved. The government recognizes that a stable legal system with proper and effective avenues for investors to resolve their disputes is one of the primary pillars of an investment-friendly environment.

It is hoped that the proposed amendments will address the problems with the existing Act that have been the cause of much anguish and litigation. That said, the proposals themselves are not without difficulty. The major criticisms leveled against the amendments are that excessive court interference in arbitration has not effectively been done away with, especially given the need for court-sanctioned extensions to the nine-month period for rendering arbitral awards, which is likely to be needed in a large number of cases, and which would increase (not decrease) the need for court involvement in the arbitral process. A further criticism is that fixing arbitrators' fees by reference to a 'composite fee structure' could impact the willingness of high-calibre arbitrators to accept appointments in India.

Nevertheless, the reforms appear, overall, to be a step in the right direction, and (provided that the Parliament supports them) give cause for continued optimism.

For further information, please contact Nick Peacock, Partner, Donny Surtani, Senior Associate, Kritika Venugopal, Associate, or your usual Herbert Smith Freehills contact.