India Moves Towards Revamping its Arbitration Regime

January 14, 2015 Posted by India Briefing Reading Time: 4 minutes

By Shilpa Goel – Business Advisory Associate, Dezan Shira & Associates

At the recently concluded “Vibrant Gujarat Summit” in Gandhinagar, Gujarat, Prime Minister Narendra Modi assured foreign investors of the Government’s commitment to make India one of the easiest destinations in the world to do business. Indeed, since coming to power, the Government has taken several reformative measures to materialize this intent. The proposed amendment to the Arbitration and Conciliation Act, 1996, is a step in the right direction.

An overhaul of India’s arbitration regime has been long overdue. According to the Global Competitiveness Report (2014-15) published by the World Economic Forum, India ranked 57 out of 144 countries in efficiency of legal framework in settling disputes. Although India performed relatively well among the BRICS countries, it fell several places behind other Asian superpowers, namely China and Japan, both of which secured ranks within 50 in this category.

The proposed changes to India’s arbitration regime were first conceived by the Law Commission of India in its 246^th Report, which was submitted to the Government on August 5, 2014. The Commission felt an urgent need to review the Act in view of the problems that frequently arise in the arbitral process. The composite effect of these changes was to make India a hub for international commercial arbitration. In particular, the Commission identified the following areas of concern:

Delay in arbitration proceedings
Setting aside of awards and recognition/enforcement of foreign awards
Appointment and fees of arbitrators

The amendments agreed by the Cabinet center around the above key areas. First, it is proposed that the time-frame within which the arbitral tribunal must make its award be limited to nine months. Unless an extension is formally granted, the time-frame, if abused by arbitrators for personal benefits, will invite formal sanctions from courts.

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Secondly, in a bid to make arbitration cost-effective, the amendment seeks to introduce a structural fee-cap for arbitrators. Under the new regime, arbitrators will only be permitted to charge composite fees for disposal of cases and not on a “per sitting” basis, as has been the practice.

Thirdly, it is proposed that the remit of the phrase “public policy of India” be narrowed with regard to setting aside arbitral awards by courts. “Public policy of India” will only target arbitral awards that are induced by fraud or corruption, or are in conflict with the fundamental policy of law or the most basic notions of morality and justice. It is also proposed that applications for setting aside arbitral awards must be disposed by courts within one year.

Last, with a view to revamping the procedure for appointment of arbitrators, it is proposed that, while considering an application for appointment of arbitrators, the courts shall only examine the existence of an arbitration agreement between the parties. It is proposed that courts must try and dispose such applications within 60 days.

The Government has reportedly withdrawn its ordinance and will wait for the next session of Parliament to deliberate on the proposals. Should they be passed, the proposals will go a long way in making India’s arbitration regime more user-friendly, cost-effective, and expeditious.

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