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    DIPP plans to ease arbitration laws for companies

    Synopsis

    According to a senior official, DIPP has written to the ministry of justice to amend the alternate dispute mechanism under the Arbitration Act to do away with court-led procedures of resolving commercial disputes.

    ET Bureau
    NEW DELHI: The industry department has proposed allowing companies to go in for voluntary Arbitration without having to seek court permission, a move aimed at making it easier for firms to resolve disputes.

    According to a senior official, the department of industrial policy and promotion (DIPP) has written to the ministry of justice to amend the alternate dispute mechanism under the Arbitration Act to do away with court-led procedures of resolving commercial disputes.

    “Arbitration in India is court driven and has to be initiated by a judge… We want to encourage mediation that is voluntary,” the official, who did not wish to be named, told ET. In the World Bank’s Doing Business report, India ranks 172 among 190 countries on the parameter of enforcing contracts.

    The World Bank has pointed out to the DIPP that arbitration laws in India suffer from various anomalies, such as it being mandatory for companies that do not have arbitration procedures drawn in their agreement having to go to court first. This is one of the reasons cited why India has performed poorly on the World Bank’s assessment of quality of judicial process.

    According to Section 89 of Alternate Dispute Resolution under the Code of Civil Procedure, “court shall formulate the terms of settlement and give them to the parties for their observations, and after receiving the observations of the parties, the court may re-formulate the terms of a possible settlement”. The government has taken steps to amend the Arbitration and Conciliation Act to reduce the time taken in proceedings and grounds on which an award may be challenged. Dedicated commercial benches have also been set up for faster disposal of commercial cases in Delhi and Mumbai.

    “Government increasingly wants to reduce the involvement of courts in these matters to bring down their burden,” said Tejas Karia, partner, Shardul Amarchand Mangaldas & Co. The DIPP is engaging with all government departments and ministries to take up various areas of improvement for ease of doing business. India’s rank improved to 130 from 131 last year. All ministries have been asked to set up a task force to monitor steps being taken to promote ease of doing business and also appoint a third party regulator to study effectiveness of reforms and suggest further action.

    ET View: Enforce laws effectively
    The move will reduce the pendency of cases, hence welcome. Companies as well as government departments must desist from resorting to litigation for its own sake. That said, arbitration as an alternate dispute resolution mechanism makes sense if it does not drag on for years, and is conducted with uprightness. While streamlining arbitration laws and procedures, it is also equally important to ensure their effective enforcement.


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