The recently proposed changes to India’s arbitration law will help improve ease of business

Recent developments in Indian arbitration law aimed at improving ease of business in India for foreign investors have two primary objectives: (1) to shorten the timeframe for adjudication of disputes; and (2) to promote institutional arbitration as an alternative to ad hoc arbitration.

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Both these measures will be welcomed by companies from China, when there is a fixed timeline for settlement of commercial disputes and institutional arbitration is being promoted by the government.

Although the history of arbitration in India can be traced back to successive British-era legislation, it was only in 1996 that statutory recognition was conferred upon institutional arbitration under the Arbitration and Conciliation Act, 1996. Despite this change, Indian parties continued to prefer ad hoc arbitration due to: (1) the perception that the cost of institutional arbitration is higher; (2) the relative rigidity of institutional arbitration rules; and (3) the lack of reliable arbitration institutions.

As the Indian economy liberalized, foreign companies found ad hoc arbitration in India less appealing for the following reasons: (1) judicial interference; (2) delays caused due to involvement of a relatively small number of retired judges acting as arbitrators and representing lawyers; and (3) uncertainty on costs.

As a result, foreign companies doing business in India preferred arbitration in overseas jurisdictions, and making their contracts with Indian counterparties subject to foreign law.

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In 2014, when the Indian government launched its “Make in India” initiatives, arbitration law was identified as a key area for reform to increase attractiveness of India as a foreign direct investment (FDI) destination. Amendments to the act, which came into effect on 23 October 2015, made the following key changes:

1. The award is now to be made within 12 months from the date that the arbitral tribunal enters upon reference, extendable by six months by the consent of the parties. Further extension can be granted by the court on an application by the parties;

2. An arbitration proceeding can be conducted exclusively on the basis of written pleadings, documents and submissions with optional oral hearing;

3. Arbitral tribunals have now been empowered to grant interim measures of protection and preservation of the property/subject matter in dispute. Orders of the arbitral tribunal have the same effect as orders of a civil court and shall be enforceable in the same manner as if it were an order of Court;

4. An award will no longer be stayed automatically by merely filing a petition in a court challenging the award. An application for stay is required, which may be allowed on deposit of the awarded amount, or a part of it, as per orders of the court; and

5. Enforcement of an award through its execution can be initiated anywhere in the country where the judgment can be executed, and there is no requirement of obtaining a transfer of the judgment from the court, which would have jurisdiction over the arbitral proceedings.

More than three years have elapsed since the above amendments took effect and there is consensus that they have had the desired effect of shortening the timeline of arbitration proceedings in India. These reforms, however, did not have the desired effect of making India an arbitration hub, which necessitated the government to promote institutional arbitration in India by bringing in a new law.

The New Delhi International Arbitration Centre (NDIAC) Act, 2019, which was approved by the parliament on 18 July 2019, and is awaiting assent from the president of India, provides for:

1. Establishment of the NDIAC to promote institutional arbitration in India;

2. Appointment of a seven-member body to supervise its functions, which will include retired judges, legal practitioners, government officials and representatives of chambers of commerce;

3. Setting up of a chamber of arbitration to enrol and maintain a panel of arbitrators; and

4. Establishment of an arbitration academy for training arbitrators and conducting research in areas of alternative dispute resolution.

Having noted the reformative measures in Indian arbitration law, Chinese companies should bear in mind the following practical aspects while drafting dispute resolution clauses in contracts involving Indian parties:

1. A seat of arbitration outside India is no longer a guarantee of speedy dispute resolution, as the statutory timeline for dispute resolution is applicable only if the seat of arbitration is within India;

2. Foreign awards will take longer to enforce in India than domestic awards, as the party seeking enforcement of a foreign award is required to obtain an order of enforcement from the concerned High Court. However, an award passed in India becomes enforceable after expiry of the period of challenge, i.e., three months, or on rejection of the challenge, if made by the losing party. The court’s jurisdiction to quash a reasoned award is very limited. The court cannot act as an appellate court to examine the legality of award, nor can it examine the merits of claim by entering a factual arena like an appellate court. Apart from this, a foreign award also requires procedural compliance such as translation, notarization etc.; and

3. Interim measures granted by an arbitral tribunal outside India are difficult to enforce in India. The assistance of Indian courts is required to enforce an interim order granted by an arbitral tribunal outside India. However, an order for interim measures granted by an arbitral tribunal inside India has the same force as an Indian court order.

In conclusion, Chinese companies that choose a seat of arbitration outside India due to lack of familiarity with Indian law will pay a high price in terms of time delays and cost overruns in dispute resolution. Now is the time for Chinese companies to develop a clear understanding of Indian arbitration law and practice. “Make in India” also means “Arbitrate in India”.

Santosh Pai and Ravi Varma are partners at Link Legal India Law Services

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