Arbitration in India
One step forward, one step back
Indian arbitration law has been amended, once again. On August 9, 2019, the President of India gave his assent to the Arbitration & Conciliation (Amendment) Act, 2019 that amends the Arbitration Act of 1996. This amendment follows closely on the heels of a previous amendment act that came into force in 2015.
These frequent amendments are in line with the public declarations of the recently re-elected Modi-led BJP government that have promised to turn India into an international arbitration hub. Regrettably, the 2019 Amendment moves in the wrong direction to achieve this aim.
Scope of the Indian Arbitration Act
The 1996 Act is divided into two parts. Part I applies to arbitration proceedings where the seat is in India, irrespective of whether such arbitration is domestic or international. Part II applies to the recognition of foreign arbitral awards under the New York Convention and the Geneva Convention.
The 2015 Amendment
The 2015 Amendment extensively overhauled the 1996 Act by introducing sweeping changes. Noteworthy provisions included clear demarcations on the powers of the Indian courts to intervene in foreign-seated arbitrations, a stinging point until then. In particular,
- the 2015 Amendment limited the intervention of Indian courts in foreign arbitrations to specific listed matters, including interim relief and the taking of evidence;
- Indian courts were further barred from intervening in the appointment of arbitrators or from setting aside foreign arbitral awards;
- the 2015 Amendment put an end to the practice through which Indian courts used the public policy exception to review the merits of a dispute at the setting aside or enforcement phase; and
- the 2015 Amendment finally stated that an application to set aside the award did not suspend enforcement, thus correcting an anomaly of the 1996 Act that had often been used by the losing party to delay enforcement.
The 2015 Amendment was lauded as arbitration-friendly and was considered by overseas observers as a step in the right direction for India’s future as a center for international arbitration. The more recent 2019 Amendment has left pundits more skeptical.
The 2019 Amendment
The most important changes introduced by the 2019 Amendment include 1) the establishment of the Arbitration Council of India, 2) new powers of appointment for arbitral institutions, 3) revised time limits, 4) new provisions on confidentiality, 5) clarification on the temporal application of the 2015 Amendment, and 6) imposition of restrictions on who can serve as an arbitrator in Indian-seated arbitrations. The Amendment has also introduced a few provisions that touch upon foreign-seated arbitrations.
1. Arbitration Council of India
The 2019 Amendment empowers the Indian central government to establish the Arbitration Council of India, a government body to overlook arbitration in India. Functions of the Council include
- framing policies for grading arbitral institutions and accrediting arbitrators;
- developing institutional arbitration;
- advising the central government on matters related to arbitration; and
- promoting arbitration in general in India through training programs and certifications.
The Council is to be composed entirely of members of the central government or persons nominated by the same.
While it is laudable that the government has set up a body to promote institutional arbitration in India, the means used are debatable. Over-arching governmental control in the newly formed Arbitration Council forebodes more red tape and delay. Most importantly, in a country where the government is still one of the biggest litigators, the creation of a government-controlled council that has the power to grade arbitrators and advise on policy matters related to arbitration raises legitimate questions of independence.
2. Appointment of Arbitrators
In order to expedite the appointment of arbitrators where the parties had failed to do so, the 2015 Amendment conferred such powers directly on the Supreme Court in the case of international commercial arbitrations.
The 2019 Amendment has further amended this process: henceforth, parties may directly approach arbitral institutions designated by the Supreme Court. But there is a catch—the Supreme Court can only designate institutions graded by the Council.
It remains unclear whether international arbitration institutions such as the ICC or SIAC that have a presence in India would now be required to undergo the yet-to-be-established approval process to operate in the Indian arbitration market.
3. Time-limits for the Conduct of Proceedings
The 2015 Amendment had introduced an overall time limit of eighteen months from the date of appointment of the tribunal for the making of the award, following which an extension could only be obtained before the courts.
Faced with the criticism that a fixed time limit was unfeasible in complex arbitrations and unnecessarily put into peril any award that failed to respect these limitations, the 2019 Amendment relaxed these provisions in international commercial arbitrations. Now a best-efforts obligation has been introduced under which the tribunal must endeavor to dispose of the matter within twelve months from the date of completion of the pleadings.
The elimination of a fixed time limit for international arbitrations is a positive development. However, as per the revised Act, the pleadings must nonetheless be completed within six months of the tribunal’s appointment. In sum, the new provisions therefore amount to nothing other than giving with one hand and taking back with the other. The feasibility of a strict time limit of six months for pleadings in complex arbitrations is also somewhat dubious.
4. New Provisions on Confidentiality
According to the new law, the arbitral tribunal, the arbitral institution and the parties must maintain confidentiality of the arbitral proceedings, except for the award, which can only be disclosed if such disclosure were necessary for its implementation and enforcement.
A provision on confidentiality is certainly a welcome step. It is however regrettable that the legislator chose to impose a blanket ban and ignore legitimate exceptions to confidentiality, such as where disclosure is required by legal duty or to enforce a legal right.
5. Temporal Application of the 2015 Amendment
The temporal application of the 2015 Amendment, namely whether it applied to pending arbitral proceedings that had started before it entered into effect, led to several conflicting decisions from various High Courts across the country. The issue was of considerable importance given that the 2015 Amendment shrunk the grounds on which an award could be set aside or refused enforcement. The matter was initially put to rest by the Supreme Court in its judgment in BCCI vs. Kochi Cricket Pvt. Ltd. of 2018, wherein the apex court held that the new rules applied to all pending annulment applications before the courts, irrespective of the date of commencement of the proceedings.
Regrettably, the BCCI doctrine has been overturned by the 2019 Amendment. As per the new rules, the 2015 Amendment will only apply to arbitral proceedings commenced on or after October 23, 2015. The legislator therefore took no heed of the Supreme Court’s admonition that this solution would effectively defeat the very purpose of the amendment as far as decreasing delays and court intervention were concerned.
6. Uncertainty on the Nationality of Potential Arbitrators in Indian-seated Arbitrations
Perhaps one of the most controversial and far-reaching provisions introduced through the 2019 Amendment pertains to the nationality of arbitrators that can be appointed under the Act. A new schedule has been introduced that provides the «qualifications, experience and norms» required for the grading and accreditation of arbitrators in Indian-seated proceedings by the newly created Arbitration Council. The new schedule ominously starts with the words «[a] person shall not be qualified to be an arbitrator unless…» and then lists nine categories of persons that qualify under the Act. These include lawyers, accountants or company secretaries—but always «within the meaning» of Indian law. This seemingly innocuous provision appears to exclude foreign qualified lawyers, who are not allowed to practice law in India, from being appointed as arbitrators. Other general norms applicable to arbitrators that also suggest the same include the necessity to «be conversant with the Constitution of India».
The contours of this schedule are not clearly defined, and the Act therefore puts a question mark on whether foreign qualified nationals can sit as arbitrators in Indian-seated arbitrations. An answer in the negative would, however, seriously affect India’s attractiveness as a seat of international arbitration.
7. Impact on Foreign-seated Arbitrations
The revised Act leaves the provisions relating to the enforcement of foreign arbitral awards in India largely untouched. One notable change is a further limitation on the scope of judicial scrutiny at the stage of referring a dispute to foreign-seated arbitration. Prior to the amendment, the court could refuse such referral if it found the arbitration agreement «null and void, inoperative or incapable of being performed». The 2019 Amendment limits the scope of the court’s review to a prima facie analysis.
Some Concluding Thoughts
India’s tryst with arbitration can be likened to a waltz where for every step forward, there is an opposite and equal step backwards. While the 2015 Amendment was certainly a step in the right direction, the 2019 Amendment has left commentators and practitioners confused and critical.
Some of the amendments such as the acknowledgement of the importance of institutional arbitration and clarifications on confidentiality are encouraging. Others appear more likely to set back rather than further the cause of international arbitration in India.
All in all, the 2019 Amendment falls short of expectations. Foreign investors that were hoping for stronger alternative dispute measures, commensurate with the recent promises of the Indian government to ease doing business in India, will have to wait. While India appears determined to mark its presence on the international scene, it stays unwilling to shake off the shackles of protectionism that have so far prevented it from becoming a truly international arbitration hub.
For now, the recommendation to foreign investors doing business in India remains the same: Indian substantive law continues to be a viable option in international commercial contracts. Likewise, foreign-seated arbitrations under international rules such as the ICC or the LCIA do not seem affected. But the benefits of choosing India as the seat of an international arbitration remain limited; in fact, they might have just become smaller as a result of the 2019 Amendment.
This Homburger Bulletin expresses general views of the authors at the date of the Bulletin, without considering the facts and circumstances of any particular person or transaction. It does not constitute legal advice. This Bulletin may not be relied upon by any person for any purpose, and any liability for the accuracy, correctness or fairness of the contents of this Homburger Bulletin is explicitly excluded.