AMENDMENT TO INDIAN ARBITRATION ACT
Very recently the president of India has promulgated the Arbitration and Conciliation (Amendment) Ordinance, 2015 (“Ordinance”). The Ordinance seeks to achieve major changes in the (Indian) Arbitration and Conciliation Act 1996 ("Arbitration Act") that may be helpful in conducting the arbitral proceedings more effectively and may also help attract more foreign investment.
The Ordinance makes following key amendments to the Arbitration Act:
- Expeditious Appointment: The arbitrator is to be appointed expeditiously and most preferably within a period of 60 days. The Ordinance further imposes a restriction on the Courts under Section 11 from exercising its powers other than examination of the validity of the arbitration clause alone.
- Relationship: Section 12 imposes an obligation on the arbitrator to make a clear disclosure in writing of any relationship whether past or present or any vested interest thereof. In the event of any established relationship, the person shall not be eligible to be appointed as an arbitrator.
- Time Bound Arbitration: In order to have a time bound arbitration proceeding, the Ordinance provides for a time period of 12 months for passing of the award from the initiation of the proceeding. The period may further be extended by a further period of 6 months only with the consent of the parties. The Ordinance imposes a further restriction on extension of time beyond the period of six months. If at all the parties want further extension they will have to approach the court. If they are able to show sufficient cause the court may extend the period further. While so extending the period, the courts are empowered to reduce the fees of the arbitrator up to 5% for each month of such delay and can also substitute one or all the arbitrators. If the arbitration is not completed within the prescribed time limits the mandate of the arbitrator shall terminate.
- Fast Track Procedure: The Ordinance also provides for a fast track procedure for settlement of the disputes with mutual consent of the parties. Under this method, the parties will choose a sole arbitrator. Further, the parties agree to have the arbitration based on written pleadings, documents and submissions without any oral hearing. Oral hearing shall be held only if the parties make a request to the arbitral tribunal. Under this method, the award has to be made within 6 months from the date of reference.
- Challenges in the name of Public Policy: The Ordinance provides for an amendment in Section 34 of the Act giving a restricted meaning to the use of the term “Public Policy of India”. This is important because the courts had given a very wide interpretation to the term ‘public policy’. Therefore, mostly all awards could be challenged on the ground of ‘violation of public policy’ under Section 34 of the Act. The restriction of the definition will give the courts a limited chance to use this ground to set aside an arbitration award and the same is permitted only in the case wherein the award was passed fraudulently or in contravention of any fundamental policy of Indian Law or which is against the most basic principles of morality or justice.
- Stay of an Award: The Ordinance provides for amendment of Section 36 such that filing of an application for challenge of an award would not automatically stay execution of an award. The award shall be stayed only in the event the court passes an order to such effect.
- Interim Orders: Under Section 9 of the Act, any interim measure for protection pronounced by the Court, the arbitration proceedings must commence within a period of 90 (ninety) days from the court passing the order. It is also provided that no application for any interim measure shall be entertained after the constitution of the arbitral tribunal unless the court is of the opinion that the circumstances may not render the remedy provided under Section 17 is effective. Section 17 also provides that after the arbitral award is passed but before the award is enforced in accordance with Section 36, the party may apply to the arbitral tribunal for the following reasons:
- * Appointment of a guardian for minor or person of unsound mind;
- * Securing the amount in dispute in the arbitration;
- * Measuring protecting goods, or amount of money, or property which is subject matter of the dispute;
- * Interim injunction or appointment of receiver.
- Time and cost effective: In addition to the aforesaid, further amendments have been proposed to be made in Section 2(1)(e),(f)(iii), 7(4)(b), 8(1) and (2), 14(1), 23, 24,25, 28(3), 37, 48, 56 and 57 for making the process of arbitration more time and cost effective.
The Ordinance has indeed set out very important amendments that were required to overhaul the old school laws that were very biased and time consuming which acted as a deterrent in attracting foreign investment in the country. This positive change in the legal system shall be only a huge relief for litigants subject to the effective implementation of the Ordinance by the Indian courts.
This update was released on 06 Nov 2015.
Legal Update Team
MANSUKHLAL HIRALAL & COMPANY
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