The Law Commission of India’s report of August 2014 on the Indian Arbitration Act mentions that amendments are being suggested to the Arbitration Act to provide a “stable business environment and strong commitment to the rule of law, based on predictable and efficient systems of resolution of disputes.”
Amendments to the Indian Arbitration Act, 1996 were passed by both Houses of Parliament and assented to by the President on December 31, 2015. These amendments apply to all arbitral proceedings commenced on or after October 23, 2015 but parties can agree to even apply these amendments to proceedings commenced before the Amendment Act.
The commercial courts and commercial divisions have been set up in India to ensure speedy disposal of commercial matters which include arbitration. If these courts function in the manner provided for in the Commercial Courts, Commercial Divisions and Commercial Appellate Divisions Act, 2015 then the challenges and enforcement process would be faster. These courts deal with claims above an amount of USD 1.5 million.
For international commercial arbitrations above the value specified, obtaining injunctions, making challenges and enforcement will now go before the commercial division court. An appeal against any judgment passed by the commercial division would go before the commercial appellate court and ultimately before the Supreme Court of India.
Some of the important changes these amendments have brought about are reflected below:
- There is pressure on the arbitrator to pass an award within 18 months otherwise their mandate gets terminated. Of course this can be extended if a prior application is made to the court and sufficient cause is shown (Section 29A). It may be that the institutional arbitration rules do not limit the time for completing an arbitration. There is also a fast track procedure provided in the amendments for disposal of the arbitration (Section 29B). It may be noted that the arbitral tribunals are adhering to these timelines strictly.
- There are timelines provided for disposal of applications / petitions before courts regarding interim reliefs (Section 9), for appointment of arbitrators (Section 11) and challenges to the award (Section 34).
- Challenges to awards on the ground of public policy have been narrowed and now a challenge on grounds of contravention of the fundamental policy of India will not entail a review on merits (Section 48).
- To reduce the role of courts, the interim reliefs available before the arbitrator are more elaborate and an order passed by the arbitrator has been given the status of a court order and is enforceable under the code of civil procedure (Section 17).
- In a foreign seated arbitration, interim reliefs are available to parties in India. However, parties can opt out of this provision by way of an agreement (Section 2(2)).
- There are strict grounds for disclosure of independence and impartiality by the arbitrator. This will affect the ability of public sector undertakings to appoint their own employees as arbitrators, but this was a necessary step given that an arbitrator should be independent and impartial (read Section 12 with Fifth and Seventh Schedule).
Interim Injunctions and Enforcement in Foreign Seated Arbitrations
For all foreign seated arbitrations commencing on or after October 23, 2015, Sections 9 (interim relief), 27 (court assistance in taking evidence) and 37 (appeals before court refusing or granting injunctions) apply unless parties by agreement opt out.
Therefore, if foreign investors feel the need to protect their assets and intellectual property rights in India then they may choose to retain Section 9 in the arbitration clause. In a foreign seated arbitration, the question of whether or not to retain the applicability of Section 9 needs to be considered on a case-to-case basis as a party should not be left without a remedy if it chooses to opt out of these provisions.
Two important aspects on enforcement: first, enforcement will be before the commercial division of the high court if it is an international commercial arbitration and if the value is above USD 1.5 million. Steps taken by the government in setting up the commercial courts are a welcome move. However, it seems that practically not much has changed as the single judge comprising the commercial courts will continue to be burdened by other commercial disputes including arbitration and will not be exclusively designated, thereby defeating the objective of appointing a specialist judge only for arbitration.
Second, it is important to note that if an enforcement is allowed by the courts in India then the defendant does not have any other remedy other than making a direct appeal before the Supreme Court of India, where the grounds of appeal would be limited. This provision already existed before the recent amendments were made, but went unnoticed. This would be helpful in speeding up the process where the enforcement has been allowed by the court.
These initiatives are definitely a positive step by the government as they ensure speed, provide for timelines and narrow the challenges on the ground of public policy. But more needs to be done in terms of speeding up the court process in India to ensure that foreign investor confidence is maintained through a predictable and efficient system of resolution of disputes.