Proposed amendments in Arbitration Act for faster resolution of commercial disputes

14H02606_RF_130-x130India has emerged as one of the most preferred destinations for investments and trade. Sectors such as infrastructure, real estate, e-commerce, and information technology have witnessed increased collaboration and entry of foreign investors. However, as per the World Bank report on Ease of doing business rankings, India is still ranked at just 142.

In August, 2014 the Law Commission of India (Law Commission) submitted its 246th Report to the Government of India. The Law Commission envisaged the country to emerge as a global arbitration hub, and hence seeks to bring more objectivity to arbitration law in India.

The Union Cabinet (Cabinet) on August 26, 2015 gave its approval for amendments to the Arbitration and Conciliation Bill, 2015 (Arbitration Amendment Bill) taking into consideration the Law Commission’s recommendations, and suggestions received from stake holders. The Government of India has decided to amend the Arbitration and Conciliation Act, 1996 by introducing the Arbitration and Conciliation (Amendment) Bill, 2015 in the Parliament.

Challenges

To overcome challenges around resolution of business disputes, Alternate Dispute Resolution (ADR) mechanisms such as ad-hoc arbitrations, institutional arbitrations, mediation and conciliation centers have come up. Though ADR have helped improved the situation to a large extent, some of the lacunae in the judicial process have crept into these institutes.

Talking of ad-hoc arbitrations in India, these are presided by former high court or Supreme Court judges of repute and credibility. Identifying an arbitrator agreeable to both the disputing parties is the first challenge. This is followed by co-ordination of the dates and matching schedules of Arbitrators, senior counsels of both parties and place of arbitration. In many cases, it is in the interest of one of the disputing parties to delay the proceedings and multiple tactics are deployed to derail the arbitration process. The current rules are also ambiguous on the qualifications, independence and remuneration of the arbitrators which are critical issues in instilling confidence in the litigating parties.

Taking measures

Seeking to ensure faster settlement of commercial disputes, as per media reports, Indian Cabinet has cleared a proposal to amend the Arbitration and Conciliation Act, 1996 (Arbitration Act) which sets a fixed timeline for arbitrators to resolve cases. Under the amendments to the Arbitration Act cleared by the Cabinet, an arbitrator will have to settle the case within 12 months (to be extended to further 6 months on the instance of the parties).  Another amendment puts a cap on the fees of an arbitrator. Further, the arbitrator will also have to spell out if there is a conflict of interest in the case that the proposed arbitrator is taking up. However, the fine prints of the Arbitration Amendment Bill are still awaited.

The Arbitration Amendment Bill was drafted with the purpose to address problems such as inordinate delays in settlement of awards and make it more in line with international best practices and arbitration rules.  The proposed amendments are also in line with International standards and guidelines such as Singapore International Arbitration Centre, London Council of International Arbitration, American Institute of Certified Public Accountants rules etc. These factors are important to ensure that the litigation process is faster, efficient, economical and transparent.

The proposed amendments include,

  • Fast track procedure – It was approved by the Cabinet to insert a provision for fast track procedure for conducting arbitration. Parties to the dispute may agree that their dispute be resolved through fast track procedure. Award in such cases shall be given in six months period.
  • Neutrality of arbitrators – To ensure neutrality of arbitrators, the Cabinet has approved that when a person is approached in connection with possible appointment of arbitrator, he shall disclose (in writing) about existence of any relationship or interest of any kind, which is likely to give rise to justifiable doubts. Further, if a person is having specified relationship, he shall be ineligible to be appointed as an arbitrator.
  • Public policy – While approving the grounds for challenge of an arbitral award, the Cabinet has restrict the term ‘Public Policy of India” (as a ground for challenging the award) by explaining that only where making of award was induced or affected by fraud or corruption, or it is in contravention with the fundamental policy of Indian Law or is in conflict with the most basic notions of morality or justice, the award shall be treated as against the Public Policy of India.

Conclusion

These are welcome measures to ensure the litigation process is managed well and the parties are able to settle the disputes and would overall improve the business and investment sentiments in the country. In addition to this, the Cabinet has also approved measures in relation to speedy disposal of arbitration proceedings by the arbitral tribunal and the High Courts and the Supreme Court. Provisions to curb meritless and frivolous litigation and arbitrations have also been approved by the Cabinet. The business community expects that the Arbitration Amendment Bill will be passed soon i.e., in the special session of the Parliament. If the bill is not passed, then in the interest of the business and improving the ease of doing business in India, it will be expedient for the Government to bring the changes through the ordinance route.

Prasad Shetty, Director, Fraud Investigation & Dispute Services contributed to the above post.

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