Why law easing Arbitration is good news for Centre

Raj Kamal Rao
FILE: File photo of Union Law minister Sadananda Gowda.

FILE: File photo of Union Law minister Sadananda Gowda.

In a significant move that may further the roadmap for India to call itself ‘a hub of arbitration’, the Central government passed the Arbitration and Conciliation (Amendment) Bill 2015 bill in parliament on the last day of the winter session this week. The bill was passed in the Upper House this week with the voice vote without any discussion. Soon after the bill was passed, Union Law Minister Sadananda Gowda took to the micro-blogging site Twitter hailing his government’s move.

“Bill reflects commitment of the Government to improve investment climate and spur economic growth and it will usher India in the direction of becoming hub of International Arbitration,” Gowda wrote.

Arbitration is a process by which industrial dispute are settled out of court by an impartial referee selected consensually by both parties.

The BJP-led NDA government amended the Arbitration and Conciliation Act, 1996 with an aim to reduce the pendency of cases in courts. The bill was initially introduced in Lok Sabha, where the government claimed that after the legislation is through, it will instill confidence among the foreign companies to invest more. The foreign players have often expressed their skepticism about the lengthy legal procedure in Indian courts.

In a recent event at FICCI, Chief Justice of India TS Thakur had said that “Lack of professionalism on the part of arbitrators and lawyers is bringing a bad name to the country,” adding, “I think that the legal format (of arbitration process) has to undergo a change”.

The bill, which is now passed by both the houses, makes provisions to bring in professionalism in arbitration to speed-up the arbitration process.

According to the provisions listed in the legislation, practicing Arbitrators in India will now have to settle cases within 18 months. In case the prescribed time is violated the fees of the arbitrator will be reduced, up to 5%, for every month of delay. Government has also introduced an additional schedule in the bill to fix the payments of arbitrators. According to the bill an arbitrator is entitled to Rs 45,000 model fee for disputes up to Rs 5 Lakh. A Model fee of over Rs 19 lacs in addition to 0.5 % of the claim amount for disputes up to Rs 20 crores and a ceiling of Rs 30 lacs for disputes above Rs 20 crores.

Reacting to the bill Senior Advocate in Supreme Court and a practicing arbitrator Shamala Pappu told RSTV that “Arbitration has become very costly and people were opting to go out, as the original act did not provide a cap”.

Law commission in its 246th report had said that commercial arbitration in India is losing revenue to United Kingdom, Malaysia, Singapore and Sri Lanka.

The report pointed that UK alone had earned 2.9 Lakh Crores in 2011 and double the amount in 2013. The Commission argued that India could generate more income and become a hub of arbitration if the proposed amendments are approved by parliament.