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12 Nov 2015

Arbitration and Conciliation (Amendment) Ordinance, 2015

The Arbitration and Conciliation (Amendment) Ordinance, 2015 was promulgated by the President of India on October 23rd 2015. The ordinance is effective at once and is expected to bring more clarity and speed to the arbitration process in India. This is another major step in the evolution of India’s legal framework and will likely play a major role in boosting the confidence of domestic and foreign businesses as they explore investments in India.

 As a result of this Ordinance, several important changes will occur in how disputes are resolved in India (including the process of arbitration). Here are some of them:

  1. Even for international commercial arbitrations taking place outside India, Courts in India shall have the power to issue interim orders. Parties can request the help of the Court in summoning witnesses. 
  2. An arbitration agreement can be made through e-mail communications. 
  3. It was a prevailing practice in commercial disputes that parties make a Section 9 application of the Arbitration Act and then seek interim measures from the court on the grounds that the arbitration is ensuing. However, after obtaining the interim order, petitioners would not proceed with the actual arbitration process. In order to curtail this practice, a new section 9(2) is introduced, which states that if a court passes an order of interim measure of protection before commencement of arbitral proceedings, the arbitration process should commence within 90 days of such order. 
  4. Once arbitration commences, the court shall not entertain application seeking interim measures. The intent of the amendment is to effectively ask arbitral tribunal to order interim measures (if at all required), by invoking Section 17 of the Arbitration Act. 
  5. The powers given to the Chief Justice of High Court and Chief Justice of Supreme Court to appoint arbitrators under Section 11 are now given to the High Court and Supreme Court respectively.  This is expected to speed up the process of appointing arbitrators.
  6. Request for appointment of arbitration shall be disposed of within 60 days from date of service to the appropriate party.
  7. The powers of arbitration to make interim measures are made very wide. These include appointment of a guardian for minors or persons of unsound mind; interim measures like prevention, interim custody, or sale of goods which are subject matter of arbitration; detention, preservation or inspection of any property under dispute; interim injunction or appointment of receiver; etc.  It is made expressly clear that for the proceedings before it, the Arbitration Tribunal shall have powers to pass orders as like a court. It is made clear that an interim order passed by the Arbitration Tribunal shall be an order of court and shall be enforceable under Code of Civil Procedure. 
  8. The arbitrator has the power to award exemplary costs in case parties seek adjournment.  In order to have speedy disposal of arbitration proceedings it is made mandatory that award shall be made within twelve months from the date of initiation of arbitration. Parties can mutually agree to extend the period for award by another 6 months. If award is not made within the period, the mandate of the arbitrator shall cease. 
  9. To incentivize speedy disposal, the Arbitration Tribunal shall be entitled to receive additional fees as parties may agree provided the award is made within 6 months of the initiation of arbitration proceedings. 
  10. A new fast track procedure has been introduced by adding Section 29B to the Act. Under “fast track” proceedings, the matter in dispute shall be decided without oral hearing and Arbitration Tribunal shall decide pleadings based on written documents.  An award under this section shall be made within 6 months. 
  11. With respect to cost, the Arbitration Tribunal shall have the power to decide whether costs are paid by one party or another; amount of costs and when costs are to be paid. It is expressly made clear that costs include fees and expenses, legal fees and administration fees of the arbitral institution.
  12. In order to avoid challenges against the arbitration award the word “public policy” (which is the ground under which most awards are challenged) is define with more clarity. Only fraud, corruption, contravention with fundamental policies of Indian Law, and conflict with most basic notions of morality or justice are now grounds for challenging an award under “public policy”.
  13. Merely an application for filing and setting aside application for arbitral award will not make the award unenforceable.  There must be a specific stay issued by a court. 
  14. A new fourth schedule to the Act has been added, whereby model fees applicable in respect to arbitral proceedings have been prescribed.  This will give greater predictability on the cost of such proceedings.  This is important because often, costs of arbitration can become as high (and unpredictable) as costs of litigation.
  15. A fifth schedule has been introduced into the Arbitration Act to ensure impartiality in the arbitration process by making ineligible certain categories of people from being arbitrators. Such categories include inter alia, employees, consultants, advisors, family members of one of the parties. If this criterion is violated, then the arbitrator’s impartiality can be challenged under section 12.

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