Changes in the legal system are essential for India to attract foreign investment. Foreign companies are often reluctant to invest here because of the perception that the Indian legal system does not give sufficient protection to foreign investment.
Indian Arbitration and Conciliation Act, 1996 is often criticised as unhelpful to international parties. The Arbitration and Conciliation ( Amendment) Ordinance, 2015 is likely to address delays to arbitration- related proceedings in Indian courts. It includes a vast range of new statutory provisions, including the option for tribunals to award compound interest, the imposition of time limits on awards, and the opening up of arbitration to foreign law firms.
However, one has to realistically accept that the standing of India as a reputable seat for international arbitration and litigation is not very high for other reasons, too, prompting parties to turn to neighbouring centres such as Hong Kong and Singapore.
The real issue the government needs to tackle is the perception of the quality of international arbitration in India. One needs to take into account this negative perception among the international business community and take steps to change it. One way to do it is to ensure through practice and regulations that arbitrators with even the shadow of doubt on their integrity are ousted from the system.
Having worked in arbitration cases, both internationally and in India, for over 30 years, I believe that the ordinance is a positive step forward and would be welcome to foreign investors. Enforcement of commercial contracts in India by arbitration should be easier, for both here and elsewhere.
Tackle negative perception on quality
The ordinance will positively impact the existing framework of arbitration law in India as it addresses the various concerns regarding delay and excessive intervention by the courts, explains public policy, permits interim relief in foreign seated arbitration, and emphasises neutrality of arbitrators.
The courts that will deal with international commercial arbitrations are the high courts. This should be a comfort for the foreign parties choosing India as a seat of arbitration or for enforcement of foreign awards in India. Availability of interim relief in arbitrations seated outside India will protect the foreign parties by securing assets in India. Tribunal is given same powers as the court to grant interim relief and enforceable in same manner as an order of court, which will reduce the burden of courts. A party getting interim relief from court is under obligation to initiate arbitration within 90 days.
The ordinance incorporates provisions of IBA Guidelines on Conflicts of Interests in International Arbitration, which shall determine neutrality of arbitrators and ensure independence and impartiality of arbitrators introducing transparency in entire process.
As deterrent to mechanical challenges to awards, no automatic stay of proceedings once an award is challenged was much awaited and it would avoid delay in enforcement. Mandating timeline for appointment of arbitrator and challenge would expedite the process. However, overall restriction for concluding entire arbitration may be counterproductive in some cases.
The ordinance explains meaning of public policy of India in narrower way and would be helpful to courts while determining the challenge to domestic award and enforcement of foreign awards.
Ordinance omits to introduce concept of emergency arbitrator and applicability to pending proceedings as suggested by Law Commission, however it should apply to all new legal proceedings brought after its promulgation, even if these are for enforcing rights accrued earlier, except for the explanation of public policy that should apply to existing proceedings.
The reforms will not only restore investor confidence in the Indian judicial system – but it also has the potential to transform India into a preferred arbitration hub, globally. However, to achieve that potential, the government needs to urgently address two areas— first, quickly fix a legislative lacuna that seems to have crept in the ordinance; second, initiate administrative reforms providing for credible arbitral institutions.
The Law Commission Report had proposed atransitory provision ( a new provision Section 85A) specifying that the amendments will operate prospectively; and shall apply only to fresh arbitrations. However, this important provision has not been included in the Ordinance - which will lead to utter chaos and uncertainty over the fate of numerous ongoing arbitration cases. Do parties need the court’s directions to set fresh timelines or arbitrator’s fees in pending arbitrations or seek transfer of matters, involving international arbitrations, from lower courts to High Courts? Courts will get clogged with applications which could well turn out to be a judicial nightmare. Moreover, after Supreme Court’s ruling in Balco — holding that Indian courts will not have jurisdiction over foreign arbitrations —parties did not require excluding Indian court’s jurisdiction in foreign arbitration clauses. However, with the new amendment, the Indian courts, unless specifically excluded, will have jurisdiction to grant of interim reliefs in foreign arbitration. Shouldn’t there be a saving clause, excluding Indian court’s jurisdiction, for agreements executed after the Balco judgment? Therefore, the scope of operation of the amendments with respect to arbitration agreements and pending arbitration cases should be clarified soonest. The government should also introduce administrative reforms to set up credible arbitral institutions nation- wide – quite in the model of the Delhi High Court International Arbitration Centre – which will certainly facilitate the ease of doing business in India by resolving disputes in a speedy, efficacious and economic manner.
Business Standard, New Delhi, 2nd Nov. 2015
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