Arbitration and Conciliation (Amendment) Act, 2015

The Arbitration and Conciliation (Amendment) Act, 2015 has come into force on January 1, 2016. The act has amended the Arbitration and Conciliation Act, 1996 based on the recommendation of Law Commission of India (LCI) to make India a hub of international commercial arbitration.

Amendments introduced

For early settlement of disputes under the arbitration mechanism, several changes are introduced in the act.

• Arbitrators have to settle the dispute within 12 months of time period. After 12 months, the case can be extended for another six months but certain restriction will be imposed to settle the case within 18 months.
• If any challenge to an arbitral award is made before a court, the court has to settle the issue within one year.
• The amendments also included a provision for fast track settlement of disputes within six months.

The ‘public policy’ definition has been narrowed to prevent its abuse. The arbitral award can be challenged on the ground that it is against public policy. But over the years, the scope of the public policy was widened by the apex court and the chances of setting aside the arbitral award were increased. Now an arbitral award can be challenged if it is induced or affected by fraud or corruption, in contravention with the fundamental policy of Indian Law, conflict with the notions of morality or justice and those in violation of confidentiality and admissibility of evidence provisions in the Act.

• A new sub-section is introduced for disposal of an application for appointment of the arbitrator by the High Court or Supreme Court within 60 days.
• Section 9 of the Arbitration Act, which allows ‘interim protection’ was widely abused. This has been amended. Nowif the Court passes such an interim order before the commencement of arbitral proceedings, the proceedings must commence within the90 days from the making of the order, or within a time specified by the Court.
• It also amended that in case of international arbitration, the relevant court would be the relevant high court.
• A new section is added for providing comprehensive provisions for costs regime applicable both to arbitrators as well as courts.

While the amendments are welcomed, there is one problem for investors, especially from abroad, is that the tax issues are kept out of the purview of the arbitration process. For example in the Cairn case, the government is not ready for arbitration by saying that the tax issues does not fall under the bilateral investment treaty. Even in non-tax issues like the gas price fixing, the government is not ready for arbitration by citing the argument that price fixing is a policy prerogative.

Summary: Changes brought in the Arbitration and Conciliation Act, 1996

Various changes brought by the amendment include:

• Now the arbitration agreement contained in form of communication through electronic means shall also be treated as an arbitration agreement in writing.
• Appointment of arbitrators shall be made by the Supreme Court or High Courts, as the case may be instead of the Chief Justice of India or Chief Justice of High Court.
• In case of international arbitration, the relevant court would only be the High Court having original ordinary jurisdiction
• To ensure neutrality of arbitrators, when a person is approached in connection with possible appointment as arbitrator, he is required to disclose in writing, the existence of any relationship or interest of any kind.
• Now the arbitration tribunal shall have power to grant all kinds of interim measures which the court is empowered to grant.
• The amendment introduces a provision that requires an arbitration tribunal to make its award within 12 months. This may be extended by a 6 months period.
• The amendment further permits parties to choose to conduct arbitration proceedings in a fast track manner. The award would be granted within 6 months.

In recent times, arbitration has emerged as a preferred option to settle commercial disputes in India. The amendment act has brought clarity on many aspects, which were previously part of judicial interpretation. With judiciary already overloaded with high pendency of cases, the amendment shall help emerge arbitration as an effective alternative mechanism. Changes will also make arbitration user friendly and cost effective. It will also be helpful for private companies and will help improve ease of doing business in India. Overall it will help conclude the arbitration process expediently and in transparent manner.

Each amendment made to the act will make arbitration more “user friendly” in addition to reduction of cost. By providing speedy resolution of the disputes, the act will improve the “ease of doing business” in India and promote ‘Make in India’ campaign.