Union Cabinet approves ordinance on arbitration

NEW DELHI: The cabinet on Monday cleared an ordinance ushering in major changes in the almost two decades old arbitration and conciliation law, which would make settlement of contractual disputes between foreign companies and their Indian partners easier.

The government hopes this would send a strong signal about India’s intent to improve ‘ease of doing business’ and create favourable environment to attract foreign investment.

A government official told ET adding that the ordinance has been cleared. It will now go to the president for approval.

The ordinance incorporates changes suggested by the law commission and includes measures to make arbitration cost effective and faster. It would also make it difficult for arbitrators to not disclose conflict of interest at the outset.

The ordinance, the details of which were not available, is likely to contain suggestion for arbitrators to charge composite fees and not bill as per hours and days worked, which will reduce the fee component and discourage delays. It is also likely to place a cap, for the first time, on the time within which Indian courts can decide on any challenge to an international award. The changes are far-reaching as they are not based on pending bill awaiting house clearance. In insurance for example, the ordinance was based on a pending bill which was approved by a House select committee by a majority.

The changes come after a failed attempt in 2003 to bring in a law to amend the act by the then NDA government. The bill was introduced in the Rajya Sabha on December 22, 2003 only to be withdrawn later under the advice of the law ministry standing committee which said that it left a huge scope for Indian courts to interfere with international awards.

Under the UPA government, the law commission during Veerappa Moily’s tenure suggested many changes to bring the Indian law on line with the rest of the world, and shore up the credibility of Indian arbitration and also protect excessive court interference in foreign awards. The ordinance will be a major legislative change done without parliamentary deliberations and is likely to face stiff opposition in the House. The government, however, can safely claim that the same changes were being deliberated by the erstwhile UPA government.

Foreign investors, wary of excessive court intervention to protect the interests of local business and trade, are likely to be enthused by the change they will perceive as sending a strong signal that this government is serious about attracting overseas investment. The government put out a release announcing the ordinance but later withdrew it. Law ministry officials refused to explain the reasons behind the move which drew immediate reaction at home.