The imminence of meaningful changes to India’s Arbitration and Conciliation Act 1996 is giving Canadian and other foreign companies a measure of hope that the labyrinth known as Indian justice may finally becoming manageable.
“We’ve had a huge volume of inquiries from clients about these changes,” says Sherina Petit in Norton Rose Fulbright’s London, UK, office. “Also, international arbitral institutions like the London Court of International Arbitration and the Singapore International Arbitration Centre have opened offices in India recently.”
At press time, passage of the amendments, first approved by Cabinet in December 2014, had been delayed, but observers believe that approval is on the cusp.
“The amendments are virtually certain to pass soon and they’re definitely a step in the right direction,” says Brandon Barnes of DLA Piper (Canada) LLP in Toronto.
For a variety of reasons, resorting to the courts is not generally a viable option for foreign companies. “Indian courts tend to focus more on upholding the general principles of domestic commercial law, which are detailed and complex and to some extent intrusive, than they do on enforcing the terms of a contract,” Barnes says.
While companies are accustomed to avoiding the difficulties in litigation by incorporating arbitration clauses in their contracts, it has been difficult to do so in India.
“The current law governing arbitration has long been considered ineffective because it contains various ambiguities which have led to problems with the timing and cost of arbitrations and the enforcement of arbitral awards,” Petit says.
Exacerbating the situation are the absence of a strong arbitration culture or dedicated arbitration bar, and the marginal influence of foreign lawyers, whose activities are severely restricted by Indian law.
As the Law Commission of India noted in a 2014 report, the upshot is that arbitration is barely more expedient than resorting to India’s endemically backlogged courts.
“So much so that you come across cases where the arbitration panel hears a witness’ testimony and then one year passes before the next witness is heard,” Petit says.
Interestingly, the precise amendments to the Act have not yet been revealed to the public through the tabling of legislation, but Sadananda Gowda, the Minister of Law & Justice, has revealed that the “most of the recommendations of the Law Commission have been accepted.”
“The report reads … like a bill, leaving little to be done by the government, and therefore we expect an amended Act that is nearly identical to the report,” Petit says.
One of the Law Commission’s key recommendations actively encourages institutional arbitration as opposed to ad hoc arbitration, which dominates the India arbitral landscape at this time.
“The advantage of institutional arbitration is that the parties will have the benefit of recognized rules to ensure the proceedings don’t run forever,” Petit says.
Significantly, the recommendations contain provisions for emergency arbitrators, bringing the legislation in line with recently-adopted institutional rules.
The Law Commission has also recommended that courts’ powers to find that an arbitration agreement does not exist or is not valid be limited. Under the new regime, courts will have to refer matters to arbitration where a prima facie case is made for the existence of a valid agreement; it will then be up to the arbitrator to determine the agreement’s validity.
Arbitrators will have to disclose circumstances affecting independence or impartiality as well as any issues that might affect their ability to complete the arbitration within 24 months and deliver the award three months thereafter. Supplementing these provisions are changes designed to discourage adjournments and making interim orders more effective.
Other changes expected include the creation of a “loser pays” costs regime, with costs to be determined on an established formula; and the introduction of a model schedule of fees for domestic ad hoc arbitration to keep arbitrators’ fees in line.
From an enforcement perspective, the report suggests a better balance between the scope of judicial intervention and parties’ rights to protect domestic assets. To this end, the Law Commission recommends that definition of public policy be narrowed when resisting foreign awards.
Another highly-anticipated change comes from the Law Commission report’s recommendation that courts set up specialized arbitration benches to deal with delay and other problems in the justice system. The report also suggests that courts be allowed to delegate arbitration appointments to third parties to hasten the appointment process and that challenges to arbitration awards be subject to a one-year limitation.
“Overall, the proposed changes fit with the government’s general policy of attracting more foreign investment by improving the ease of doing business in India,” Petit says.