India’s long march out of the woods to return to the fairways of international arbitration continues this year. The Law Commission of India issued its Report No 246 on 5 August 2014 (the Report), recommending a number of amendments to the Arbitration and Conciliation Act 1996 (the 1996 Act).

The overall tone of the Report is one of refreshing candour, albeit concise – the Report together with the draft amendments only runs to about 70 pages. The Report notes the Law Commission’s previous Report No 176, the failure of the Arbitration and Concilation (Amendment) Bill 2003, and the efforts of the Indian courts to provide solutions to problems created by the 1996 Act (whilst also criticising the judiciary for being too eager to intervene in the arbitral process).

The Report deals with three categories of issues:

  • Those affecting domestic arbitration.
  • Those affecting international commercial arbitration.
  • Those affecting international commercial arbitration with a seat outside India.

The recommendations concerning domestic arbitration are of interest to an international audience, as they exemplify the Commission’s approach to international arbitration.

“Unsatisfactory” domestic arbitration experience

The Report sums up its approach to domestic arbitration in blunt terms: “... the Commission found that the experience of arbitrating in India has largely been unsatisfactory for all stakeholders”.

The Report recommends amendments to deal with the high cost and delays associated with ad hoc arbitration in India, and the “serious threat of arbitration related litigation”, noting that the objective of “quick alternative dispute resolution frequently stands frustrated” as a result. The Commission suggests that encouraging institutional arbitration will go a long way to fix the “institutional and systemic malaise” that has affected arbitration in India.

The Report contains specific recommendations in respect of fees charged by arbitrators, and the conduct of arbitration proceedings. If adopted, these recommendations should help curtail the unsatisfactory practices that have emerged in Indian arbitration over the years, such as frequent adjournments, “per sitting” fees, and the high fees and procedural limitations imposed by retired judges acting as arbitrators.

The Report also deals with the scope of judicial intervention in domestic arbitration, and does not shy away from highlighting that the bar for judicial intervention has been “consistently set a low threshold by the Indian judiciary”. It also addresses the messy “public policy” aspect of judicial intervention, by proposing amendments to ensure that patent illegality is dealt with directly without reference to an expansive definition of public policy.

International arbitration – finally out of the woods?

The Report recognises the investment treaty risk arising from the delays caused by arbitration related litigation in India. As a solution, the Commission recommends that all proceedings related to international commercial arbitration be dealt with by “commercially oriented judges at the High Court level”. Whether this will work remains to be seen, as even the High Courts in India have tended to look to the Supreme Court for guidance on international arbitration.

In a nod (mainly) to the special relationship Indian parties have with Singapore arbitration, the Report proposes an amendment to recognise “emergency arbitrators” by widening the definition of an arbitral tribunal.

The Report also recommends the restriction of “public policy” in the context of enforcement of foreign awards to (i) the “fundamental policy of Indian law” and (ii) India’s “most basic notions of morality or justice”. As with any concept that leans on adjectives for its meaning, this formulation might give rise to its own set of problems. However, the Commission has consciously sought to exclude any reference to “the interests of India”, on the ground that the term is “vague and capable of interpretational misuse”.

The Report also seeks to enable Indian courts, in the post BALCO environment, to enforce interim relief obtained by parties from a foreign arbitral tribunal (or a foreign court in support of foreign arbitration) in an effective manner. This is commendable.

What the Report does not recommend, however, is anything similar to the lines of section 45 of the English Arbitration Act 1996, which allows the parties to make an application to the Court for a preliminary determination of a point of law. Parties would continue to need to wait until they obtain an award and then seek to set it aside, rather than get a preliminary determination from the courts whilst the arbitration is underway. This might be motivated by the desire to limit judicial intervention, but will remain a factor weighing against selecting a seat in India for international arbitration.