The year 2016 appears to have begun on a positive note for non-banking finance companies (NBFCs) with the Centre notifying the Arbitration and Conciliation (Amendment) Act, 2015 on the first day of the New Year.
The Act is deemed to have come into effect from October 23, 2015. It has brought in certain changes to the Arbitration and Conciliation Act, 1996.
NBFCs give secured loans. In case of defaults, borrowers use the court process to prevent these firms from taking possession of mortgaged assets. This will change now with the modifications to the Act.
Empowering the arbitral tribunal to pass interim orders, fixing time-limit for passing an award and fast-tracking arbitral procedure, among others, are the salient features of the amended Act.
Sec. 17 of the original Act has been strengthened. The amended Act now allows, rather empowers, an arbitral tribunal to pass interim orders. And, it has made it clear that the arbitral tribunal will have “the same power for making orders, as the court has for the purpose of, and in relations to, any proceedings before it.’’ Such orders should, however, reflect the orders of the court. “This new provision will avoid costs, namely court fee and other expenses. Besides, it will also save undue delay,’’ said T. K. Seshadri, a corporate lawyer with over five decades of professional experience. Nevertheless, he said, courts “are still empowered to grant interim relief either before the commencement of an arbitration or even after the commencement if it is shown that an order from the arbitral tribunal was efficacious.’’ The amended Act also provides for a time-frame to pass an award. A new section has been added to ensure that an award is passed within a year. “This means that the arbitrators will not be able to grant much time to the parties, and are under an obligation to pass awards within a year,’’ he said. Nevertheless, the Act allows for a six-month extension. “This will act as a deterrent against borrowers/guarantors who drag on the proceedings,’’ he pointed out. The arbitral tribunal is empowered to fast-track the procedure in certain cases and decide the dispute based on documents and submission sans oral hearings within six months.
“Before the amendments, filing of an application for setting aside of the award itself operated as an automatic stay, preventing NBFCs from filing execution proceedings for recovery of the awarded amount,’’ he said. In the amended Act, there is no such automatic stay of the enforcement of the award upon filing of application by the borrower for setting aside an award. Stay can happen only if courts grant it, and on terms, including that of depositing part-sum of the award, set by them. This, he felt, “will provide scope for recovery as the courts may pass an order for stay subject to certain conditions, which may include a substantial payment, and may even discourage parties from challenging the awards,’’ he said.
