With Improved Arbitration Laws Corporates Can Cut Legal Delays

With Improved Arbitration Laws Corporates Can Cut Legal Delays

For corporate litigants in India going to courts for resolving disputes typically means innumerable delays with the life of a dispute getting stretched into years or decades

However despite this, corporate executives continue to prefer litigation in courts rather than an arbitration even if it is present as clause in the contract.

The reasons for this are many – ranging from lawyers not advising arbitration to awards getting disputed in courts, delaying the case further. As a result, pending cases in courts are continuing to grow.

Significant Amendments To Arbitration Law

A report from the Law Commission headed by Justice AP Shah, paved the way to bring in crucial changes to the Arbitration and Conciliation Act, 1996. These changes were approved by the Parliament in late 2015.

Under the new rules, time frames have been set for delivering the arbitral award along with regulation of costs involved. Most importantly, the law has now made it very difficult to challenge the award in courts.

High Court Judges often specifically recommend arbitration for commercial cases today, and there are currently several international arbitration cases being conducted in Singapore and London involving Indian parties.

But nonetheless, the changes to the law have not resulted in a surge of arbitration proceedings in India. According to experts, it is primarily due to the nature of arbitration in India being ad-hoc.

There are no pre-set rules for arbitration proceedings and there is no institutional backing to enforce time schedules, cost and quality considerations. Additionally, the corporate community is yet to become familiar with the recent legal changes made to the arbitration process.

Changes Introduced To Both Award Classes

There are two classes of awards under arbitration Act:

  • Domestic Awards (Part I of the Act) and
  • Foreign Awards (Part II of the Act).

Domestic Awards

A domestic award can be reviewed by courts having jurisdiction over the venue of arbitration. A review differs from an appeal in that a review is limited to certain grounds like

  • non-adherence to principles of natural justice
  • the arbitration agreement is void in the first place
  • where the dispute adjudicated upon is beyond the scope of reference;
  • where the arbitrators were not appointed as per the procedure agreed upon by the parties;
  • where the arbitral award is seen to be against public policy of India, etc.

The provision related to public policy of India has remaining the most controversial with the Supreme Court interpreting it widely in ONGC v. Saw Pipes to include violation of any law. This interpretation was supported on the basis that most Indian awards are ad-hoc in nature and delivered typically by arbitrators who are not specialised.

The SC opinion was that a review, at the court level, was necessary in the case of domestic awards. However a contrary view was taken by another bench of the SC which believed that when parties choose arbitration, they want the courts to take a “hands-off” approach and therefore converting the “review” into an “appeal” is not justified.

Foreign Awards

In case of foreign awards, the enforceability was initially clouded by the judgement in Bhatia International Vs. Bulk Trading S.A.

The SC concluded in that case that Indian courts were sufficiently competent for providing interim relief pending arbitration, for appointing arbitrators and setting aside arbitral awards even if the arbitration was conducted outside India.

The Constitution Bench in Balco v Kaiser Aluminium however overruled this position and ruled that for arbitration awards that are a result of arbitration agreements created post-Balco, such a review is not possible. This 2012 judgement has improved the enforceability of foreign awards.

Under the amended Act provisions have been introduce to decrease judicial intervention/misuse of the court process. Some of the notable changes are:

  • The scope of challenge to an arbitral award has been narrowed
  • Automatic suspension of the arbitral award till the completion of a review by Courts has been eliminated.
  • Judicial intervention is now restricted from pre-arbitration review by courts to a ‘prima facie’ review of an arbitration agreement.
  • Arbitration has to be completed within 12 months.
  • A model cost table has been given which makes the arbitrator’s fees dependent on the stakes involved in the dispute.
  • New effective provisions to support international arbitration.

Arbitration Growth  Will Come With Active Support

Every significant commercial centre within India must have “quality institutions” that support institutional arbitration. The Nani Palkhivala Arbitration Centre (NPAC) in Chennai is one such set up.

Arbitration clause in corporate agreement must commit to abide by the rules of institutions such as the NPAC, where the processes for conducting arbitration are defined and there are systems developed for facilitate scheduling, submissions, on line transcriptions, work flow management etc.

Additionally, such institutions have the capability to train and certify arbitrators and, through this process, create and maintain a panel of arbitrators who can be accessed by the parties. Despite all these facilities, unless the idea of arbitration is actively promoted among leadership teams of organisations, it may be hard to  make it happen.

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