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The Arbitration Ordinance- Carrot and the Stick

Published on Mon, Nov 23,2015 | 23:32, Updated at Mon, Nov 23 at 23:32Source : 

By: Anirudh Krishnan, Advocate, Madras High Court

A new regime which combines the right blend of the carrot and the stick was the catalyst that Indian commercial dispute resolution was waiting for. The reforms to the arbitration regime were expected to provide this fillip that was the need of the hour. These much awaited amendments were brought into force on 23.10.15 by way of the Arbitration and Conciliation (Amendment) Ordinance, 2015.

The 2015 Ordinance: Highlights
Broadly speaking, the 2015 Ordinance aims at creating an ambience which offers certainty, neutrality, reduces judicial interventions and incentivizes compliance.

Time frames and fee slabs:
The Ordinance provides certainty in a regime which was hitherto a nightmare from the point of view of corporate budgeting. Not only is a time period fixed both for the arbitration (12 months with a 6 month extension by consent) and for judicial decisions in arbitration related court proceedings at every stage, but also a model cost table is provided as a Schedule which sets a slabwise model fee structure which makes the arbitrators fees dependant on the stakes involved in the dispute. While such a fee structure has not been made binding, High Courts have been empowered to frame Rules to determine the arbitrator’s  fees.

“Caesar judging Caesar’s wife” model done away with:
One of the major problems with the pre-Ordinance legislation was the fact that Public Sector Undertakings were permitted to appoint their own employees as arbitrators. Considering the scenario in India where contracts with PSUs are based on standard terms of the PSU which mostly provide for their employees as the  arbitrator(s) and the fact that most disputes with PSUs do not get resolved amicably, the issue of bias played a larger role than it ought to have and necessitated a sufficiently wide system of review by Courts. The 2015 Ordinance does away with the “Caeser judging Caeser’s wife” model by incorporating the International Bar Association guidelines on conflict of interest as a schedule to the Act.

Attempts to limit judicial intervention:
Consequently, the Ordinance has also made attempts to narrow down the scope of challenge to an arbitral award and has most importantly done away with the automatic suspension of the arbitral award till such time the review by Courts was  complete. Even on other counts, judicial intervention has been reduced by restricting the scope of pre-arbitration review by courts to a “prima facie” review of the existence of an arbitration agreement.

Introduction of compound interest and “costs follow event” system:
Perhaps the most significant measure is the introduction of a realistic interest regime permitting compound interest to be awarded and a “costs follow the event” system which, as a rule of thumb, makes the losing party bear the entire cost of the litigation. Such measures are of paramount importance to encourage.

Areas Of Concern
While the Ordinance has the potential to bring in winds of change into the system, there are two aspects of the Ordinance which cause concern.

Firstly, the Ordinance does not specify whether it will apply to pending arbitrations/ arbitral awards rendered before the Ordinance. While the presumption is that substantive rights cannot be taken away by a Statute which is not expressly made retrospective, there is likely to be a substantial amount of litigation on the classification of provisions under the Act as being provisions which create substantive rights and provisions which are merely procedural in nature.

Secondly, the Ordinance includes Section 29A which sets a 12 month time period for completion of the arbitration proceedings failing which parties can agree to a 6 month extension. Should the arbitration not conclude within 12 months or 18 months accordingly, the arbitration proceedings stand terminated unless the Court extends the period for “sufficient cause” upon the filing of an application by one of the parties. When the Court grants such an extension it has the powers to substitute arbitrators and to order a fee cut of upto 5 per cent of the total fees for each month’s delay. Further, should the arbitrators complete the arbitration within 6 months, the arbitral tribunal would be entitled to additional fees subject to agreement between the parties.

This novel provision has been introduced for the first time in this Ordinance and was not part of the Law Commissions’s recommendations which form the sheet anchor for the Ordinance. While the provision has been introduced with the laudable objective of furthering speedy justice, the words of the Supreme Court in R.N. Jadi v. SubashChandra must be kept in mind- “The object is to expedite the hearing and not to scuttle the same. While justice delayed may amount to justice denied, justice hurried may in some cases amount to justice buried.”

The time frame of 12 months for conclusion of an arbitration proceeding is unrealistic. It is common knowledge that even most international arbitrations take around 18 months for completion. For instance, statistics of the London Court of International Arbitration (LCIA) suggests that three quarters of arbitrations conducted in London took 18 months or less for completion. The LCIA’s website further goes on to state that “There is no such thing as an “average” arbitration. Sums in issue, and technical and legal complexity, may vary greatly between one case and another, as may the volume of evidence, oral and written, that may be required to determine the dispute.” To, therefore, fix a stringent timeframe of 12 months and impose sanctions upon arbitrators for not adhering to the same may be rather harsh.

Practicality aside, the provision may also face constitutional hurdles. The time period of 12 months has not been fixed based on any rationale criteria. Also to state that the same time period should apply to all arbitrations notwithstanding factors such as the need for oral evidence, existence of counter-claims, appointment of experts etc would result in a uniform treatment of situations which are inherently different and involve different time frames. Again, the consequences of the arbitration extending beyond 12 months is drastic- a party (which in all cases will be the Claimant) will have to approach Court for an extension and grant of such extension will by itself involve a decision on whether there exists a “sufficient cause” for grant of extension.  Though an indicative time limit of 2 months is specified for such a decision to be taken, it is likely that determination of issues as to whether the arbitrators must be substituted or whether a penalty has to be imposed on arbitrators is likely to be time consuming. The consequences of the provision are therefore directly contrary to the whole concept of Alternate Dispute Resolution (ADR) and the object of the legislation which is to reduce judicial intervention.

Change In Culture
Notwithstanding the above hurdles, the Ordinance and especially Section 29A, if implemented in letter and spirit, could revolutionize the Indian arbitration system.  Such stringent timelines can only be met if Indian arbitrations are aided sufficiently by technology. For instance, most Singapore International Arbitration Centre (SIAC) and LCIA arbitrations use video conference/ tele-conference facilities at the preliminary stages of the arbitration to expedite proceedings. Moreover, the trial itself can be concluded in 3-5 days because of the instant transcribing software used which allows recording of evidence in real time in contrast to the manual recording in India which often causes delays of several years.

Furthermore, such timelines can possibly only be met by having specialized arbitration practitioners and a wider pool of arbitrators. Moreover, the system of time- bound justice dispensation with heavy costs implications would also create incentives for the wrong doer to amicably resolve disputes and this being so, the ultimate beneficiary will be the person/ party for whom the system evolved in the first place- the commercial litigant.  After all, as Mahatma Gandhi said- “We win justice quickest by rendering justice to the other party.”

(Anirudh Krishnan, an advocate of the Madras High Court, has been a consultant to the Law Commission for drafting the report suggesting the Amendments to the Arbitration and Conciliation Act. E-mail:

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