The Effect of Arbitration and Conciliation (Amendment) Act, 2015 on International Commercial Arbitration

International Arbitration has emerged as most preferred choice for determining the cross border commercial disputes. With a steady increase in international trade and investment involving India, there has been a corresponding rise in cross border commercial disputes too. The Indian judiciary has given certain controversial decisions in last decade and has drawn criticism for interfering in international arbitrations and extra territorial application of domestic laws to foreign seated arbitrations and particularly in cases involving a foreign party, which has drawn tremendous focus from the international community on India’s international arbitration regime and the international community has kept a close watch on the development of arbitration laws in India.  During the period of  2012 to 2015, various landmark rulings were delivered by the Supreme Court while taking a much needed pro-arbitration approach such as removing the Indian judiciary’s power to interfere with arbitrations seated outside India and declaring the Indian arbitration law to be seat-centric; referring non-signatories to an arbitration agreement to settle disputes through arbitration; defining the scope of public policy in foreign-seated arbitration; and determining that even fraud is arbitrable. These decisions clearly reflect the support of the judiciary towards arbitration proceedings which has enabled India to adopt international best practices.  

In order to inspire the confidence of Foreign Investors to invest in India, to support the government’s ambitious initiative of ‘ease of doing business in India’ and to bolster international investors in the trustworthiness of the Indian legal system to provide an expeditious, cheaper and flexible dispute resolution mechanism, the President of India promulgated the Arbitration and Conciliation (Amendment) Ordinance, 2015 (“Ordinance”) on October 23, 2015. The Ordinance has been largely based on the recommendations made by the 246th Law Commission Report and the major rulings passed in the last two decades while clarifying the major controversies which arose due to certain disputed decisions by Indian judiciary. The Arbitration and Conciliation (Amendment) Bill, 2015 (“Bill”) was passed with minor additions to the amendments introduced by the Ordinance on December 17, 2015 by the Lok Sabha and on December 23, 2015 by Rajya Sabha respectively. On December 31, 2015, the President of India signed the Bill and the same was notified vide gazette notification dated January 1, 2016. The Arbitration and Conciliation (Amendment) Act, 2015 (“Amendment Act”) which amends the Arbitration and Conciliation Act, 1996, came into effect retrospectively i.e. from October 23, 2015 meaning thereby that the said Amendment Act is applicable to all the arbitral proceedings commenced after October 23, 2015 (Section 26 of the Amendment Act, 2015).

Before the Arbitration and Conciliation Act, 1996 (the “Act”), the law governing arbitration in India consisted mainly of three statutes:

 i. The Arbitration (Protocol and Convention) Act, 1937 (“1937 Act”)

 ii. The Indian Arbitration Act, 1940 (“1940 Act”) and 

iii. The Foreign Awards (Recognition and Enforcement) Act, 1961 (“1961 Act”)

The 1940 Act was the general law governing arbitration in India which had become outdated. For the purpose of reforming and amending the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards and also to define the law relating to conciliation and for matters connected therewith or incidental thereto the Indian Arbitration Act, 1940 –was amended and to address these concerns with a primary purpose to encourage arbitration as a cost-effective and time-efficient mechanism for the settlement of commercial disputes in the national and international sphere, the Arbitration and Conciliation Act of 1996 (hereinafter referred to as the "Act') came into place. The Act was also brought in to provide a speedy and efficacious dispute resolution mechanism. This Act is based on the UNCITRAL (United Nations Commission on International Trade Law) Model Law on International Commercial Arbitration, as adopted in 1985 by the United Nations and applies to both international as well as to domestic arbitration. 

The objective of the Act is to provide a speedy and cost-effective dispute resolution mechanism which would give parties finality in their disputes. The Act is dived into three parts. Part I of the Act deals with Arbitration that is conducted in India and its enforcement. Part II provides for arbitration conducted in a Foreign Country and enforcement of such foreign awards. Part III of the Act is a statutory embodiment of conciliation provisions and Part IV of the 1996 Act deals with supplementary provisions. 

1.Part I deals with domestic arbitration and ICA, when seated in India. An arbitration seated in India between one foreign party and an Indian party, though defined as ICA is treated akin to a domestic arbitration. 

2.Part II deals with foreign award with regard to its enforcement as per the Convention on “Recognition and Enforcement of Foreign Arbitral Award”, 1958 (“New York Convention”) and Convention on the Execution of Foreign Arbitral Awards, 1927 (“Geneva Convention”). This part regulates arbitration only in respect to the commencement and recognition/ enforcement of a foreign award which is delivered in an arbitration seated out¬side India and no provisions under the same can be derogated by a contract between two parties.

3.Part III of the Act is a statutory embodiment of conciliation provisions. 

4.Part IV of the 1996 Act deals with supplementary provisions. 

Foreign investors and corporates doing business in India were just not ready to risk the Indian legal system. In 1996, the preferred seat in any cross-border contract was always a heavily negotiated point which was clearly reflected from the number of decisions from the courts and, more often than not, ended up being Singapore, New York, or London. 

While keeping in mind the objectives of the Act, significant changes have been made to the Act by way of amendments through the Amendment Act as an attempt to make India a hub of International commercial arbitration. Strict timelines have been brought about in the Amendment Act with the scope for resolving disputes by a fast track mechanism and for completion of the arbitral proceedings pending before the Courts. Certain amendments to the existing provisions with regard to the process of appointment of an arbitrator have been inserted and the grounds of challenge of an arbitrator due to lack of independence and impartiality have been clarified. 

As a welcome move, foreign-seated arbitrations can get interim relief from Indian courts before the commencement of the arbitration and the challenge petitions do not operate as an automatic stay on the execution process. The recent amendments are categorized into three (3) stages which outlines the main intention of the Amendment Act. Below are the snapshots to the major amendments introduced by the Amendment Act: 

1.In order to correspond with international standards, the extensive guidelines in relation to the independence, impartiality, and fees of arbitrators have been introduced in Section 12 of the Amendment Act and the schedules for the same. 

2. In case of international commercial arbitrations the appointment of arbitrators to be done by Supreme Court and in case of domestic arbitrations respective High Courts have to appoint the arbitrators purely in an administrative capacity respectively.

3.Expeditious disposal of the Applications for appointment of an arbitrator while making an effort to dispose off the same within a period of (60) sixty days from date of service of notice on the opposite party. 

4.Detailed schedule has been included to set out the guidelines to make an arbitrator ineligible.

1.Under Section 9 of the Amendment Act, in case of international commercial arbitrations seated in India applications can be made directly before High Court and the same is applicable in case of the foreign seated arbitrations.

2.In case of the foreign-seated arbitrations, the parties have been granted flexibility to approach Indian courts to seek interim relief.

3.Interim reliefs granted by arbitral tribunals seated in India are enforceable now and are deemed to be orders of the Court.

4.Arbitration proceedings must commence within 90 days or any further time as determined by the court after the grant of interim relief. In case the arbitral tribunal has been constituted the Court shall not entertain the interim application, unless circumstances exist which Court may consider appropriate. 

1.For completion of arbitration seated in India a time line of twelve-months has been prescribed under Section 8 of the Amendment Act. 

2.Indicative timelines for filing arbitration applications before courts have been incorporated for the expeditious disposal of applications in relation to interim reliefs, appointment of arbitrator, and challenge petitions; 

3.So as to resolve certain disputes within a period of six months expedited/fast track arbitration procedure has been put in place.

1.In relation to determination of costs including fees and expenses by arbitral tribunals seated in India, a detailed new provision Section 31A  in the “Act” has been inserted vide Section 17 of the Amendment Act 

2. ‘Costs follow the event’ regime has been inserted to bring it in line with inter¬national standards.

1.In case arbitration is seated in India, the grounds on which an arbitral award can be challenged have been narrowed.

2.Under Section 34, the petitions can be filed directly before High Court in case where the international commercial arbitrations seated in India.

3.Once the notice is served on the opposite party, the petition has to be disposed off within one (1) year.  

4.The execution of award shall not be stayed automatically in case where the award is challenged. The court has to pass a specific order to stay any such execution of the award.

Commercial players in India and abroad have developed a strong preference to resolve disputes via arbitration which has led to the need of stable dispute resolution process which also caters to the need for boosting the economy by attracting foreign investment. There has been positive change in the approach of the Indian judiciary to bring arbitration law in line with the international practice. With the Amendment Act in place and the positive approach of the courts, the applicability and interpretation of the Amendment Act in cases involving international commercial dispute is yet to be seen in the light of Indian perspective.