By Tracie Frost
The Indian Parliament passed two bills on the last day of the 2015 winter session that will make it easier for foreign companies to resolve disputes. President Pranab Mukherjee signed the bills into law last week. Both bills replace ordinances that went into effect on October 23, 2015.
The Arbitration and Conciliation Act, 2015, addresses the increased number and complexity of commercial disputes which rose over the last five years. Since 2010, India has seen a growth of approximately 200 percent in the number of disputes referred to arbitration, but until recently, most companies preferred ad hoc arbitration over the institutional variety. This is in part because of the challenges inherent in the Indian judicial system with regards to enforcing arbitral awards.
The new law addresses one of the biggest problems with the arbitration system – inordinate delays in settlement of awards. Under the old law, if one party had an interest in delaying arbitration proceedings, that party was able, through employing various tactics, to derail the entire process. Arbitration could drag on for years. By imposing a time limit of 12 months within which the proceedings will be completed, the government expects to make the process of alternate dispute resolution for businesses simpler and quicker.
The new law also seeks to ensure that the arbitration process is more transparent. The previous rules were ambiguous on the qualifications, independence and remuneration of arbitrators – all key pieces of the arbitration puzzle. The new law gives the High Court the ability to cap the arbitrator’s fees. Further, the arbitrator must disclose any conflicts of interest with the proposed case. These changes bring Indian arbitration law in line with international standards.
Finally, the law as signed includes international commercial arbitration in the definition of “courts.” This means that Indian courts can approve a place of arbitration outside India, and, by extension, that parties no longer have to choose either offshore arbitration (which eliminates the possibility of interim measures in India), or Indian arbitration (which lacks the neutrality of a foreign arbiter). Additionally, international commercial arbitration will be handled exclusively by Indian High Courts, instead of lower courts, where the judges may lack experience with arbitration or the technical elements of the case.
Establishing Commercial Courts:
The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015, extends the improvements made through the Arbitration and Conciliation Act by authorizing the creation of commercial divisions in the Indian high courts, and specialized commercial courts at the district level. The measure is meant to provide a mechanism to ensure speedy disposal of high value “commercial disputes,” and, like the arbitration law, to facilitate smooth and prompt resolution of commercial disputes.
The law defines “commercial dispute” broadly to include disputes arising out of the ordinary transactions of merchants, bankers, financiers and traders, such as those relating to mercantile documents, joint venture and partnership agreements, intellectual property rights, insurance, and other areas. The new courts will deal with commercial disputes involving an amount of 10,000,000 rupees (US $153,000) or more. All suits that meet the threshold of US $153,000 rupees and are pending in the high court will be transferred to the commercial division once it is established.
These new laws are further evidence to the fact that the government is serious about improving ease of business for foreign companies. As always, the real test will be in proper implementation.
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