India Clears Arbitration Law to Resolve Commercial Disputes

  • To replace existing executive order and amend 1996 laws
  • Looks to impose deadlines, limit challenges to awards

Indian lawmakers approved a bill to hasten resolution of commercial disputes through arbitration, another step in Prime Minister Narendra Modi’s plan to make it easier to do business in Asia’s third-largest economy.

The law would impose deadlines to resolve cases, empower tribunals to enforce decisions, and limit the courts’ ability to challenge awards. The bill will replace an executive order announced in October and amend a 1996 law, taking India a step closer to its goal of becoming a global arbitration hub.

"The reason a lot of people shy away from international arbitration in India is the scope of interference by local courts," said Ramesh Vaidyanathan, managing partner at Mumbai-based lawfirm Advaya Legal. "That has been diluted."

The new law seeks to clear backlogs in India’s judicial system, which delay projects and deter investors. It would make arbitration "user-friendly and cost effective," according to the government, which is embroiled in tax disputes with companies including Vodafone Group Plc and Cairn Energy Plc.

Global Comparisons

International comparisons show India’s arbitration laws are stronger than global peers though the process and enforcement takes far longer. India scored 1 on the strength of alternate dispute resolution laws compared with an average 0.74 for high-income OECD countries, according to World Bank 2012 data.

However, India’s score was 0.68 on the ease of initiating and conducting arbitration proceedings versus 0.83. Length of arbitration is 569 days in India and recognition and enforcement proceedings take 1,654 days, compared That compares with the OECD average of 335 and 302. There are more than 30 million cases pending before various courts in India.

The amendments don’t do enough to minimize the role of courts in arbitration proceedings, Shashi Tharoor, a member of the main opposition Congress party, wrote on NDTV’s website on Dec. 18. It also needs steps to create a pool of experienced arbitrators and encourage the use of technology, he said.

"Instead of taking the challenge from Singapore and Hong Kong head on, the government has missed a golden opportunity," he wrote. India has the most cases at the Singapore International Arbitration Centre.

Modi’s administration on Monday also proposed a new bankruptcy code. Passage of these laws is crucial for him to regain momentum in his reform agenda, after the opposition blocked a bill that would pave the way for a national sales tax -- one of India’s biggest economic legislation in decades.

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