Arbitration & Conciliation Act, 1996

In furtherance of the new economic policy, the Arbitration & Conciliation Act, 1996 (the “Act”) was first promulgated about 20 years back by way of an ordinance as part of urgent economic reforms. It is no surprise then that another ordinance [the Arbitration & Conciliation (Amendment) Ordinance, 2015; hereinafter the “Ordinance”] late last year amended that same law to bring it in sync with the times, as part of the current government’s push towards ease of doing business in India. Before the end of the year, Parliament passed the Arbitration & Conciliation (Amendment) Act, 2015 made it effective from 23 October 2015 [hereinafter the “Amendment”].

Over the years, arbitration has become the default choice for adjudication of commercial disputes. In India, this is true even with respect to purely domestic disputes, as trials in courts take significantly longer due to huge pendency. However, over the last two decades, the process of arbitration – in particular in ad hoc domestic disputes – had come to look more like the traditional court proceedings in India. Combined with high costs due to a small pool of qualified and trusted arbitrators, there has been a growing sense of exasperation amongst the users of the process.

An amendment to the law to remedy some of these issues, and others such as misinterpretation of certain provisions that invariably crop up in the life of any legislation had been on the cards for quite some time. After two aborted attempts – one in 2001 and the other in 2010 – the law has finally been amended. The Amendment carries forward most proposals of the 246th Law Commission Report released in 2014, but also introduces some unique provisions not hitherto seen in any leading arbitration statute. Some of these provisions provide some extraordinary measures to remedy certain peculiar issues with ad hoc domestic arbitration including the time limit for completing arbitration and arbitrators fees.

The Amendment mandates that every arbitration seated in India must result in an award within 12 months of the arbitral tribunal being constituted, with parties having the right to extend this by another 6 months through mutual consent. If this does not happen, the mandate of the tribunal terminates – unless the Court extends it imposing such conditions as it deems fit. The Court can also penalize arbitrators by ordering reduction of their fees at the time of granting such extension. It can, if it considers fit, substitute one or all the arbitrators at the time of granting extension.

The Amendment also suggests many other changes of far reaching consequence – some affecting a significant departure from the existing law, some clarifying certain controversies, and others simply confirming the law as declared through interpretations received from courts over time.

Three changes in particular are of great consequence to international businesses – first, foreign parties are no longer required to litigate in lower courts in remote corners of this vast country with High Courts now becoming the court of first instance for all purposes relating to international arbitration; second, provisions relating to interim measures from courts and seeking court assistance in taking evidence have been extended to foreign seated arbitrations; and third, the removal of ‘patent illegality’ as a ground to challenge awards arising out of international arbitration seated in India.

We have done a detailed analysis of the amendments outlining the effect, comparison with the 246th Law Commission Report and our views on the impact of these changes in both legal and practical terms. One of the most important questions in any litigant’s mind would be the effect these amendments would have on their existing proceedings. Though that was an aspect that the Ordinance provided no guidance on, the Amendment provides that it will not affect any proceedings in arbitration initiated prior to 23 October 2015.

We hope you find this study of the amendments helpful and, as always, we are open to comments, suggestions, and questions.