Arbitration in India – Shaking off the Indian Inertia

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I     INTRODUCTION

The Republic of India has undergone a significant amount of change over the past few years in a bid to enhance greater foreign investment in the country. Among other developments, the arbitration landscape of India has been under a great amount of scrutiny to ensure that India’s arbitration regime is on par with that of global leaders in the field of arbitration. The Arbitration and Conciliation (Amendment) Act 2015 (India) (‘the 2015 amendments’) is the latest reform initiated by India’s new Prime Minister, Narendra Modi, and his government to amend India’s arbitration law which has been subject to a fair amount of local and global criticism since it came into force in 1996. The recent changes in India are not merely to suit the demands of international trade and investment. The Indian government aspires to go a step further and make India an international commercial arbitration hub among the likes of Singapore, Hong Kong, Paris, London, New York and Geneva.

It has been said that the changes introduced by the 2015 amendments are uncertain in terms practicability. This article will pay particular attention to the provisions of the 2015 amendments which seek to reduce delays and minimise the excessive judicial intervention currently faced by arbitration in India. The recent changes to the law governing arbitration in India are timely considering the growing preference of arbitration as the method for resolution of business disputes however there is a need for the 2015 amendments to be fine-tuned and accompanied by other more extensive changes before India is able to realise its ambitions of becoming a successful international arbitration hub.

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II     FAST TRACK FOLLY

The delays inherent within India’s arbitration system have received a great deal of attention in recent years. Changes introduced by the 2015 amendments aim to expedite the arbitration process; however, it also appears to threaten the overall effectiveness of arbitration. The changes ‘may remain cosmetic’[1] at best as they merely mask India’s over-burdened judiciary and the constant judicial interference faced by arbitration in India.

A     Meeting the Deadline

In 2014, the Law Commission of India published a report to recommend changes to India’s Arbitration and Conciliation Act 1996. Amongst the faults which were highlighted in the report was that of high costs and delays which make arbitration ‘no better than either the earlier regime which it was intended to replace; or to litigation to which it intends to provide an alternative’.[2] In response, the 2015 amendments introduced Section 29A and 29B. Section 29A(1) requires arbitrations within India to be completed within 12 months from the date the arbitral tribunal enters upon the reference. Extensions of up to a period of 6 months may be granted if parties consent to such an extension as provided in section 29A(3). Further extensions can only be granted by the Court upon application by any of the parties. Section 29B offers a more radical approach to expediting the arbitration process in India. Pursuant to section 29B(1), parties may agree to have their dispute resolved by fast track procedure which according to section 29B(4) requires the award to be made within 6 months from the date the arbitral tribunal enters upon the reference.

B     A step ahead or regressing into decline?  

The deadlines imposed by sections 29A and 29B raise several critical questions. It would be of concern to parties agreeing to arbitration under these new laws whether arbitrators would sacrifice quality for expedition so as to meet the deadline.[3] Furthermore, imposing a mandatory deadline across the board shows a blatant disregard for differences in the complexity of arbitrations.[4] This would be especially detrimental to arbitrations which require a greater amount of discovery and expert advice due to the peculiarity of its subject matter.  Although time is of the essence since longer arbitrations equate to more costs in most cases, it is unlikely that parties will agree to a compromise on the quality of the arbitration in exchange for an award to be granted within 12 months or less. Instead of making arbitration more appealing, sections 29A and 29B may lead to parties being more wary of choosing arbitration as their preferred method of dispute resolution.

Another important question that must be asked is under what circumstances are Indian courts justified in refusing to grant a time extension[5] in addition to the extra 6 months option provided in section 29A(3). The only guidelines provided for the Court ordered extension is that which is found in section 29A(5) – an extension ‘may be granted only for sufficient cause and on such terms and conditions as may be imposed by the Court’. Besides the mention of ‘sufficient cause’, the amendments have failed to include any other principles which Courts are mandated to follow. The lack of any clear guidelines suggests that the Courts have a great amount of discretion in deciding whether an arbitration tribunal needs more time to reach an award.

Bestowing Indian Courts with the abovementioned decision-making duty also goes against the recommendations of the 2014 Law Commission of India report. The delays in arbitration proceedings were attributed to India’s judicial system being ‘over-burdened with work’[6] and its inability to ‘dispose cases…with the speed and dispatch that is required’[7] as well as the high number of arbitration related cases heard in Court due to the ‘bar for judicial intervention (being) consistently set at a low threshold by the Indian judiciary’.[8] As one critic has pointed out, ‘arbitration disputes end up with significant delays once they enter (India’s) clogged up judicial system – be it at the pre-arbitral stage or at the stage of challenge to the arbitral award’.[9]  Sections 29A and 29B which are meant to expedite the arbitration process may ironically lead to further delays in the arbitration process. Unless better clarity is afforded to the guidelines which Courts must follow in deciding whether a further extension should be granted, it is difficult to see how these amendments are a step ahead in India’s ambition of being an international arbitration hub.

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III     SHEDDING THE INTERVENTIONIST TAG[10]

The 2015 amendments have addressed the high level of judicial intervention in the arbitration process. Legislative reform, however, may prove to be insufficient. Instead, a change in the judiciary’s outlook is necessary to correct India’s deep-seated judicial-interventionist culture. Prior to the promulgation of the 2015 amendments, there was an urgent need to reduce the Indian judiciary’s intervention in arbitration proceedings, especially in relation to the enforcement of foreign awards. A 2008 survey on the views of counsel at leading multinational corporations showed that India was amongst the top three countries that are most hostile to the enforcement of foreign arbitral awards.[11] The credibility of arbitration in any country is very much dependent on the attitude of its national courts[12] and this has a very direct impact on whether the country gets ‘either a “hostile” or “friendly” stamp towards arbitration’.[13] In the case of India, there is a lack of judicious balance as the courts intervene above and beyond where ‘crucial and necessary’[14] to the facilitation of the arbitration process.[15]

A     Narrowing the grounds of challenge

Since the enactment of the 2015 amendments, Indian courts can no longer set aside awards rendered in foreign arbitrations. Section 34(2A), which was inserted into India’s arbitration law through the 2015 amendments, provides that Indian courts’ are permitted to set aside ‘arbitral awards arising out of arbitrations other than international commercial arbitrations’.[16] Furthermore, the 2015 amendments have clarified that an arbitral award can only be challenged on the grounds of being in conflict with India’s public policy if one of three specific conditions is satisfied – fraud or corruption, contravention with the fundamental policy of Indian law or in conflict with the basic notions of morality or justice.[17] Public policy has been cited as the ‘Achilles heel for arbitration in India’[18] as it invites frivolous challenges and allows losing parties to challenge arbitral awards ‘on much broader grounds than are permitted in other countries’.[19] In addition to these changes, a review on the merits of the dispute is also no longer permitted when deciding whether the enforcement of an award is in contravention with the fundamental policy of Indian law.[20]

B     Sufficient safeguard?

The 2015 amendments pertaining to the challenge of foreign arbitral awards in Indian courts as mentioned above seem to follow a suite of recent Indian judicial decisions which support minimising judicial intervention. Recent Indian decisions[21] reflect a shift towards reduced judicial intervention and greater recognition of arbitration independence however decisions such as ONGC Ltd v Western GECO International Ltd[22] appear to suggest the contrary. The Indian Supreme Court in ONGC Ltd v Western GECO International Ltd ‘rejected GECOs contention of non-interference of the Court with the award and went on to modify the quantum of damages awarded to ONGC’.[23] The stark contrasts present within the India’s judiciary’s attitude towards judicial intervention in the arbitration process question the judiciary’s support for the arbitral process and its awards. Jurisdictions such as Hong Kong and Singapore, which have built internationally sought after commercial arbitration practices, are renowned ‘for their pro-arbitration and pro-enforcement approach to arbitration’[24] which is supported by ‘a body of non-interventionist case law’.[25]

Considering India’s recent case law history, the judiciary will face some amount of inertia in implementing the 2015 amendments. The resistance would only be made greater if members of the judiciary are not completely in favour of practising minimal intervention in relation to arbitration. The judiciary are also left with a vital role of interpreting and applying the recent reforms to India’s arbitral law. If India’s judiciary still maintains a pro-intervention perspective and therefore construes the new laws in a manner that sets a low threshold for judicial intervention, India’s arbitration landscape will be no different from before the 2015 amendments were enacted by the Indian Parliament.

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IV     CONCLUSION

The Arbitration and Conciliation (Amendment) Act 2015 (India) which came into force on 23 October 2015 holds a great amount of promise for the future of arbitration in India. Enacting arbitration-friendly legislation however is not always sufficient by itself in ensuring that universally accepted principles of arbitration will be upheld within a particular jurisdiction.[26] As set out above, India’s 2015 amendments to its arbitration law that require an award to be reached within 12 months or 6 months so as to reduce delays and make arbitration more favourable may instead prejudice the equity of the arbitration process. The expedited procedure must be accompanied by judicial practice guidelines or clear legislative interpretation for it to contribute towards the enhancement of arbitration in India.

Besides ensuring that disputes are arbitrated as expeditiously as possible, it is also important that the arbitration process involves ‘minimum intervention of a Court of Law so that trade and commerce is not affected on account of litigation before a Court’.[27] The amendments to the India’s arbitration law have provided better clarity on the boundaries of judicial intervention in relation to the arbitration process. In light of these newly drawn boundaries, the judiciary must interpret and enforce the amended arbitration law of India in a manner which will not only develop a strong body of non-interventionist case law but also promote a pro-arbitration culture within India. The Arbitration and Conciliation (Amendment) Act 2015 (India) is a monumental step for arbitration in India however without addressing and rectifying the issues which this article has sought to highlight, the legislative amendments to India’s arbitration law will not be sufficient to put India on the world arbitration map.

This article may be cited as follows: K George Abraham, “Arbitration in India – Shaking off the Indian Inertia  “International Arbitration Asia (15 April 2016) <http://www.internationalarbitrationasia.com/arbitration_in_india_shaking_off_the_indian_inertia>.