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Monday, 31 August 2015 00:00
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Welcome change in arbitration laws in India

 

With the Union Cabinet approving amendments to the Arbitration and Conciliation Bill, 2015—which will replace the Arbitration and Conciliation Act, 1996—while taking into account the recommendations of the Law Commission, the stage is finally set for quick redressal of commercial disputes in the country. Arbitration, after all, was devised as an alternative means to resolve disputes against the lengthy litigation process. An effort has been made to iron out issues that have irked investors, and not just from abroad. The major amendments include a clause that says every arbitration case has to be completed within 12 months and a more restrictive definition of ‘public policy’ has been put in place to prevent its abuse—this was widely used in the past to petition courts to set aside arbitral awards.

Section 9 of the Arbitration Act that allowed ‘interim protection’ which was also widely abused to avoid arbitration has been amended. Once passed in the next session of Parliament, this could emerge as a key element in improving the ease of doing business in India and also help the country emerge as a better investment destination. Fixing the arbitral process will bring India’s law in sync with global standards. Commercial disputes account for 16,884 (51.7%) of the 32,656 civil suits pending at the high courts. Therefore, it is not surprising that India is ranked 186 among 189 nations on ‘enforcing contracts’, according to the World Bank’s Ease of Doing Business 2014 report.

The biggest challenge in arbitration, of course, has been in getting the arbitration panel together. The Bill has introduced a new sub-section in Section 11, which says that an application for appointment of an arbitrator shall be disposed of by the High Court or Supreme Court as expeditiously as possible, and an endeavour should be made to dispose of the matter within 60 days. Ironically, the biggest defaulter here is the central government, so it would be interesting to see how the courts deal with this. Reliance Industries Ltd, for instance, has had arbitration proceedings going on for 4-5 years in some cases with the central government refusing to, first, appoint an arbitrator and, when this was done by the court, to agree on the chief arbitrator. In one high profile case involving Reliance recently, the petroleum minister asked the country’s premier foreign intelligence agency, RAW, to investigate links between the company’s lawyers and the umpire arbitrator.

While this will be widely welcomed, what remains a problem for investors, especially from abroad, is that the government wants to keep tax issues out of the purview of the arbitration process—in the Cairn case, for instance, the government has not agreed to arbitration saying tax issues do not fall under the bilateral investment treaty. Even in non-tax cases, such as the one involving fixing of gas prices where Reliance is pressing for arbitration, the government’s argument is that the case cannot be arbitrated since fixing prices is a policy prerogative. In other words, while the Cabinet decision to amend the arbitration law is to be welcomed, the government itself is one of the biggest violators of the principles of arbitration—that too needs to be fixed.

 

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