The Government of India Amends the [Indian] Arbitration & Conciliation Act, 1996

November 10, 2015

The Arbitration & Conciliation (Amendment) Ordinance, 2015 ("Ordinance") was promulgated on October 23, 2015 to introduce substantial changes to the [Indian] Arbitration & Conciliation Act, 1996 ("Act"). The primary objective of the Ordinance is to encourage expeditious resolution of disputes and transparency in arbitration proceedings.

The Ordinance is likely to be presented in the forthcoming winter session of Parliament and will require Parliament’s approval to continue in effect thereafter. Key provisions of the Ordinance are discussed below.

A.      Foreign Seated International Commercial Arbitrations

The legal framework prior to the Ordinance had been interpreted by Indian courts to allow for Indian court intervention in certain instances even if the parties had agreed to seat their international commercial arbitrations ("ICA") outside of India. The Ordinance seeks to streamline and expedite procedures for ICAs seated outside India through the following key changes:

(a)        Jurisdiction of Indian Courts: Currently, based on judicial precedent, all arbitration agreements entered into after September 6, 2012, providing for a foreign seated ICA, are per se excluded from the jurisdiction of Indian courts. In other words, a foreign seated ICA is outside the purview of an Indian court’s jurisdiction. Consequently, parties cannot seek interim relief and assistance in taking evidence from Indian courts in support of the arbitration. The Ordinance now expressly provides that unless the parties have excluded the jurisdiction of Indian courts by a specific agreement, Indian courts (through the High Courts in each Indian state) are empowered to grant interim relief and render assistance in taking evidence in a foreign seated ICA. They now have no other role to play in a foreign seated ICA.

(b)        Enforcement: The Ordinance requires that foreign arbitral awards be enforced by High Courts and not by any lower court in India.

The Ordinance also provides that the only ground to resist the enforcement of a foreign arbitral award is when such an award is in conflict with the public policy of India.  Public policy is narrowly defined under the Ordinance, and enforcement of an award can only be refused if the award (i) is procured by fraud or corruption, (ii) violates the fundamental policy of Indian law, or (iii) violates basic notions of morality and justice. Pursuant to the Ordinance, enforcement of an award declared in a foreign seated ICA can no longer be refused merely on the ground that there has been a misapplication of law. Accordingly, Indian courts are now precluded from reviewing the merits of the dispute during enforcement proceedings on this ground.

B.      International Commercial Arbitrations Seated in India

Currently, arbitration in India is seen to be protracted, expensive and suffering from excessive court intervention. The Ordinance seeks to remedy these issues and set forth below are certain key changes brought by the Ordinance that impact ICAs seated in India.

(a)        Expeditious Resolution: The primary objective of the Ordinance is to reduce delays. The Ordinance amends the Act to incorporate a time limit of twelve months (from the date of reference) for the conclusion of an ICA seated in India. This period may only be extended by six months by mutual consent of the parties, and further extension can only be granted by the relevant state High Courts if ‘sufficient cause’ can be demonstrated by the party seeking the extension. The amendment also provides for incentives (through additional remuneration) for the arbitrator, if the award is delivered within six months from the date of reference. In the event the award is not delivered within the twelve month period or such extended time period as may have been agreed, the mandate of the arbitrator terminates unless specifically extended by the High Court. Courts are now also empowered to order the reduction of fees of the arbitrator if the delay is attributable to the arbitrators.

(b)        Fast-Track Procedure: The Ordinance provides parties with a choice of opting for an alternative ‘fast-track’ procedure for settling their disputes through a single arbitrator. Under this procedure, an award can be delivered on the basis of written pleadings and documents submitted to the arbitrator. The arbitrator may entertain a request for oral hearings only if it is considered necessary. The arbitrator must deliver an award within six months from the date of reference and failure to do so could result in the consequences discussed in paragraph B(a) above, including reduction of fees of the arbitrator or termination of the arbitrator’s mandate. Parties may agree to use the fast-track procedure at any time before the appointment of the arbitrator.

(c)        Limited Judicial Intervention: Currently, arbitration proceedings suffer delays due to repeated judicial intervention for interim measures during the pendency of the arbitration and prior to its commencement. The Ordinance now requires an ICA seated in India to commence proceedings within ninety days from the grant of interim measures or within the time period specified by the court while granting such relief, prior to the commencement of arbitration. This will ensure the timely commencement of the arbitration.

The Ordinance further stipulates that once arbitration commences, the court is precluded from entertaining applications for interim relief. The Ordinance has empowered the arbitral tribunal with powers similar to that of the court to provide interim reliefs. This amendment also applies to ICAs where parties have not specifically excluded jurisdiction of Indian courts (see paragraph A(a) above).

(d)        Challenging an Arbitral Award:  The Ordinance states that an application to set aside an arbitral award is required to be decided within twelve months of the notice of such application being served on the opposite party. The statutory provision for automatic stay on enforcement of an award during the pendency of a challenge has been deleted. Therefore, now an award can be enforced during the pendency of a challenge, unless stay on enforcement is specifically sought and granted by the court with jurisdiction over the arbitration.

(e)        ‘Public Policy’ Ground for Challenge: Many awards rendered in ICAs seated in India have been set aside by Indian courts on the ground of being ‘patently illegal’ based on a finding of misapplication of law.  The Ordinance clarifies that ‘patent illegality’ can no longer be a ground to challenge an international award. The only ground for challenging an international award is conflict with the public policy of India within its narrow confines as discussed in paragraph A(b) above.

(f)        Appointment of Arbitrator: The Ordinance states that the appointment of an arbitrator by a court must be accomplished within sixty days of the application being served on the other party. Further, the appointment of an arbitrator under the amended Act is not considered to be a judicial decision and now courts are permitted to delegate the power of appointment to third persons and institutions or the administrative wing of the court itself. This significantly reduces the delay in relation to appointing the arbitrator. 

(g)        Neutrality of the Arbitrator: The Ordinance bolsters the credibility of arbitrations in India by incorporating in the Act, disclosure requirements and conflict of interest regulations applicable to arbitrators. The Ordinance specifies grounds which give rise to justifiable doubts about the independence of an arbitrator which includes, inter alia, the arbitrator’s prior relationship with a party or counsel, interest in the dispute and previous services rendered to one of the parties. The arbitrator is also required to furnish a certificate in the prescribed form, to confirm that there is no conflict of interest in his acting in the matter. The Ordinance also incorporates best practices from conflict principles adopted by leading international arbitration institutions.

(h)        Costs Regime: The Ordinance has introduced a specific definition of legal costs and a requirement that the arbitral tribunal give reasons for its award. Costs are generally liable to be paid by the unsuccessful party subject to countervailing considerations such as conduct of parties, partial success of a party and efforts made by the party to settle the dispute amicably. This robust cost regime is likely to deter frivolous and unnecessary litigation.

C.      Domestic Arbitrations

 In addition to the amendments specified in paragraph B which apply to domestic (Indian) arbitrations, the Ordinance limits the remuneration charged by arbitrators in a domestic arbitration. This amendment will be made effective after the state High Courts frame rules in this regard. Also, the ground of ‘patent illegality’ continues to be used by courts to set aside domestic arbitral awards, i.e., a domestic arbitration award can be challenged on the ground of ‘patent illegality’ (please see discussion under paragraph A(b) above).  

D.      Conclusion

The Ordinance will radically overhaul the arbitration landscape in India, instil investor confidence in ICAs (whether seated within or outside India) and make domestic arbitrations efficient and transparent. The Ordinance also reflects the government’s commitment to reduce timelines for resolving commercial disputes in India, making India a more attractive place to do business. 

Gibson, Dunn & Crutcher LLP 

Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues. For further details, please contact the Gibson Dunn lawyer with whom you usually work or the following authors in the firm’s Singapore office:

India Team:
Jai S. Pathak (+65 6507 3683, jpathak@gibsondunn.com)
Priya Mehra (+65 6507 3671, pmehra@gibsondunn.com)
Bharat Bahadur (+65 6507 3634, bbahadur@gibsondunn.com)
Karthik Ashwin Thiagarajan (+65 6507 3636, kthiagarajan@gibsondunn.com)
Sidhant Kumar (+65 6507 3661, skumar@gibsondunn.com) 

Please also feel free to contact the following leaders and members of the firm’s International Arbitration or Transnational Litigation practice groups:

International Arbitration Group:
Cy Benson – London (+44 (0) 20 7071 4239, cbenson@gibsondunn.com)
Penny Madden – London (+44 (0) 20 7071 4226, pmadden@gibsondunn.com)
Kelly Austin – Hong Kong (+852 2214 3788, kaustin@gibsondunn.com)
Robert S. Pé – Hong Kong (+852 2214 3768, rpe@gibsondunn.com)

Transnational Litigation Group:
Randy M. Mastro – New York (+1 212-351-3825, rmastro@gibsondunn.com)
Theodore J. Boutrous, Jr. – Los Angeles (+1 213-229-7000, tboutrous@gibsondunn.com)
Scott A. Edelman – Los Angeles (+1 310-557-8061, sedelman@gibsondunn.com)
Andrea E. Neuman – New York (+1 212-351-3883, aneuman@gibsondunn.com)
William E. Thomson – Los Angeles (+1 213-229-7891, wthomson@gibsondunn.com)
Perlette Michèle Jura – Los Angeles (+1 213-229-7121, pjura@gibsondunn.com)

© 2015 Gibson, Dunn & Crutcher LLP

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.