India's new Arbitration Ordinance ushers in far-reaching changes

Posted: 30/11/2015

The Indian Union Cabinet approved the Arbitration and Conciliation (Amendment) Ordinance 2015 on 21 October 2015. This was endorsed two days later after receiving presidential assent.

The Ordinance is a temporary piece of legislation, with a maximum lifespan of six months, which will lapse if it is not approved within six weeks of the reassembly of Parliament.

Several significant changes to the Arbitration & Conciliation Act 1996 have been introduced. Some of the important amendments brought about by the Ordinance are as follows:

Appointment of an arbitrator - the Ordinance provides that all applications under Section 11 for the appointment of an arbitrator should be disposed of by the High Court or Supreme Court as expeditiously as possible and preferably within 60 days.
Neutrality of arbitrators - in order to ensure the neutrality of arbitrators, the Ordinance amends Section 12 so that the onus is now on the arbitrator to disclose in writing the existence of any relationship or interest of any kind, which is likely to give rise to justifiable doubts. The newly inserted fifth schedule of the Act lists 34 grounds which will serve as a guide in determining the neutrality of an arbitrator.
Completion of arbitration proceedings – the insertion of a new Section 29A mandates that the arbitral tribunal shall make its award within a period of 12 months. The parties to an arbitration may, however, by consent, extend the period for making an arbitration award for a further period not exceeding six months. After this time, it can only be extended by the court, if there is sufficient cause.
Fast track arbitration – a fast track procedure for conducting arbitration (Section 29B) has been established. Parties may mutually decide to adopt the provisions of Section 29B which means that the arbitrator should decide and pass an award within six months of the date of reference. The tribunal will decide the dispute only on the basis of written pleadings, documents and submissions and no oral hearing will be conducted unless requested by both parties.
Challenging an award - Section 34 of the Act provides that an arbitral award may be set aside if it is contrary to the 'Public Policy of India'. The Ordinance, however, clarifies that an award will only be treated as against the Public Policy of India where it has been induced or affected by fraud or corruption, or contravenes the fundamental policy of Indian law or the most basic notions of morality or justice.

Applications to challenge the award must be settled by the court within one year. Section 36 has been amended so that the mere filing of an application to challenge an award will not automatically defer the award. Awards can only be stayed where a court passes a specific order after an application. This implies that proceedings to enforce an award as well as a challenge to set it aside may run parallel to each other, unless the enforcement of the award has been stayed.

Cost - a new Section 31A provides comprehensive provisions for a costs regime. It is applicable both to arbitrators as well as related litigation in court. It will avoid frivolous and meritless litigation/arbitration.
Interim orders - the scope of Section 17 of the Act is expanded by empowering the arbitral tribunal to grant interim measures which the court can grant under Section 9 and which will be enforceable in the same manner as if they are an order of court.

The Ordinance has been welcomed by the legal community in India and is seen as a positive step for foreign investors.

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