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Under new law, reward for arbitrators who finish job on time, penalty for delay

Move meant to send positive signal to corporates, ensure retired judges don’t delay arbitration proceedings.

Written by Maneesh Chhibber | Amitabh Sinha & D K Singhnew Delhi, New Delhi |
October 24, 2015 12:18:27 am
arbitration Act, Law Commission, commercial dispute cases, Law panel, Arbitration and Conciliation Act, commercial case, bjp government, India news, nation news Under the new ordinance, cleared by Mukherjee Friday, the appropriate court can — in exceptional circumstances — grant an extension of six months beyond the fixed 12 months to arbitrators to complete the job.

In a move aimed at sending a positive signal to corporates, the government has amended the Arbitration and Conciliation Act, 1996 through an ordinance signed by President Pranab Mukherjee. The Act empowers parties to a dispute to incentivise arbitrators in case they finalise the arbitral award before the fixed time of 12 months.

At the same time, arbitrators who fail to complete proceedings and announce the award even after 18 months, without any valid reason, would be liable to get their fees deducted at the rate of five per cent for each month of delay.

It is learnt that the decision to include the clause to incentivise arbitrators was taken by the Prime Minister’s Office.

In an earlier version of the ordinance, cleared in December last year but not sent to the President for assent, it was proposed to make it mandatory for arbitrators to decide cases within nine months. But bowing to concerns expressed by many retired judges, including former Law Commission chairperson Justice A P Shah (retd), the NDA government revised the time to 12 months.


Under the new ordinance, cleared by Mukherjee Friday, the appropriate court can — in exceptional circumstances — grant an extension of six months beyond the fixed 12 months to arbitrators to complete the job.

Before he granted assent to two ordinances cleared by the Cabinet on October 21, Mukherjee met Union Finance Minister Arun Jaitley and Law Minister D V Sadananda Gowda at Rashtrapati Bhavan and sought some clarifications. The formal orders granting President’s assent to the two ordinances were issued in the evening.

As first reported by The Indian Express in May, Attorney General Mukul Rohatgi, in a written opinion, had termed the current arbitration Act a “complete failure”, asserting that the process of arbitration in the country had “become a joke”.

“Arbitration proceedings are unduly prolonged since mostly retired judges are appointed as arbitrators and they view arbitration just like a case in court… It is normal to have 50-100 sittings in arbitration,” the AG said. He also pointed out that arbitration had become “extremely expensive” and “costs in some arbitrations with three retired judges of the high court or Supreme Court often run into crores of rupees”.

Many view the amendments as a move by the government to ensure that retired judges don’t delay arbitration proceedings unnecessarily.

The second ordinance signed by the President provides for constitution of Commercial Courts, Commercial Division and Commercial Appellate Division in the High Courts for adjudicating commercial disputes of specified value.

A bill in this regard is pending with a Parliamentary panel, which has been granted three extensions to submit its report. The Committee has been given time till November 30 to submit its report on the bill.

With the ordinance on the bill coming into force, all pending suits and applications relating to commercial disputes involving a claim of Rs 1 crore and above in high courts and civil courts will be transferred to the relevant Commercial Division or Commercial Courts.

Commercial Courts, which will be equivalent to district courts, are to be set up in states and Union Territories where the high courts do not have ordinary original civil jurisdiction.

Asked if, in light of the bitterness between the government and opposition during the monsoon session of Parliament which held up legislative business, the two ordinances would be passed in the winter session, likely to commence after November 19, a senior government functionary said, “We will make an effort. But a lot will depend on the opposition.” He said the government will reach out to the opposition, especially the Congress, before the session begins to evolve some consensus to get important bills passed.

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