Friday, November 27, 2015

The Arbitration Ordinance - Leaving India Vulnerable to Another White Industries

(The following guest post is contributed by Kartikey Mahajan, a disputes resolution lawyer based in Singapore and Visiting Fellow, CARTAL (NLU Jodhpur). The views expressed here are personal and do not represent the views of any institution with which Kartikey is associated)

The Indian Arbitration and Conciliation Act, 1996 (“Act”) has been recently amended by way of an Ordinance dated 23 October 2015 (“Ordinance”). Much has been written about the Ordinance (including this Blog - here, here  and here) as almost every law firm has come out with client alerts.

Needless to say that under the Indian parliamentary system, the Ordinance requires parliamentary approval in due course to make Modi Government’s attempt of reforming the dispute resolution process a true reality. I see this period until the formal parliamentary approval can be given as a window of opportunity to correct an omission, which cost India dearly in the past. I refer to the award of White Industries v Republic of India (“White Industries”) and how the Ordinance failed to remedy the lacunae that cost India millions.

In the background leading to White Industries, an ICC award was delivered in favor of White Industries. White Industries sought to enforce this award under section 48 of the Act before the Delhi High Court. On the other hand, Coal India (the other party under the ICC award) applied to the Calcutta High Court to set aside the ICC award. There was inordinate delay by the Indian courts in the disposal of both the Set Aside and Enforcement Applications, which was ultimately considered by the investment tribunal to be a breach of India’s investment treaty obligations.

The Ordinance has made a number of changes to the setting aside proceedings of domestic awards (see section 18 of the Ordinance which amends section 34 of the Act). First, it proposes that an application to set aside an arbitral award is required to be decided within twelve months of the notice of such application being served on the opposite party. Second, the statutory provision for automatic stay on enforcement of an award during the pendency of a challenge has been deleted. Therefore, now an award can be enforced during the pendency of a challenge, unless stay on enforcement is specifically sought and granted by the court with jurisdiction over the arbitration. Lastly, the Ordinance has narrowed the meaning of public policy to exclude ‘patent illegality’ as a ground for challenging international commercial arbitration awards seated outside India.

With respect to reforms in enforcement of foreign awards, the Ordinance proposes that (1) foreign arbitral awards be enforced by High Courts and not by any lower court in India; (2) removal of the “patent illegality” ground in the definition of “public policy” to resist the enforcement of a foreign arbitral award (see section 22 of the Ordinance which amends section 48 of the Act). Accordingly, Indian courts are now precluded from reviewing the merits of the dispute during enforcement proceedings on this ground.

In light of the above, the Ordinance in its current form tries to prevent another White Industries by fixing a specific time limit for setting aside proceedings. However, it fails to address the situation in cases of enforcement proceedings. It is highly desirable, that the Indian Government fixes a time limit for dealing with enforcement applications, like it has done for the setting aside applications under the Ordinance. This will not only ensure that the Government will adopt a consistent stand with respect to different Parts of the Act but at the same time prevent India from remaining vulnerable to another White Industries like situation.

 - Kartikey Mahajan

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