India as a hub for International Commercial Arbitration

INTRODUCTION

India was one of the first few countries that adopted the New York Convention in 1960 in comparison to Singapore adopting it in 1986. Despite that Singapore leads international commercial arbitration as the supreme court of Singapore upheld arbitration agreements, public policy, and enforcement of foreign awards due to which parties prefer Singapore as a neutral venue for arbitration. Countries always prefer to be a hub for arbitration because of the advantages that follow it. It also helps increase foreign investors. In India, most of our arbitrations are ad hoc in nature. The government has taken measures to make India a hub for arbitration. It comprises The Arbitration and Conciliation (Amendment) Act, 2019 which is inclusive of the recommendations of the B.N. Srikrishna Committee Report aiming for institutional arbitration as well as sections to form arbitration councils. But these steps are not sufficient and this article will discuss the issues that need to be addressed.

FULL-TIME ARBITRATION LAWYERS

A major problem that we face is not having full-time arbitration lawyers. Usually practicing lawyers take up arbitrations part-time or are not able to provide sufficient time for arbitration. This results in them giving arbitration matters less preference and conducting short proceedings. Thus, a need for full-time arbitration practicing lawyers is very necessary.

Arbitrators usually take up rigid approaches to dealing with matters. They may strictly follow the Civil Procedure Code, 1908 (CPC) and evidence when section 19 clearly mentions that such rules will not apply to arbitration as the whole purpose of this dispute-resolving method will be defeated. It will become like any other civil suit. Arbitrators must also not sit like spectators but must rather control the cross-examinations taking place or there might be excessive questioning from the respective counsels leading to delayed and long procedures. Arbitration proceedings in India face challenges like a lack of professionalism and decorum, with arbitrators often experiencing long delays between scheduled proceedings. There is a pressing need to underscore the importance of ethics and responsibilities for both arbitrators and counsels in order to address these issues.

It’s surprising that top arbitrators are overloaded due to limited options, mainly because young arbitration lawyers are not appointed, and retired Judges dominate. This practice should change, allowing young lawyers as arbitrators to enhance the overall robustness of arbitration. This move aligns with disclosure requirements, ensuring transparency about ongoing cases and the ability to complete arbitration within a year. Additionally, specialized fields like maritime arbitration demand skilled arbitrators in specific technical matters.

SLOPPY DRAFTING OF THE LAW

Before the 2015 amendment, Section 34 of the Arbitration and Conciliation Act, of 1996, created a situation where filing objections automatically paused the enforcement of the arbitral award. This made it challenging to enforce such awards. In 2015, changes were made to address this issue. However, the wording of the amendment created confusion, and it took three years to determine if it applied to ongoing Section 34 petitions. Even after the BCCI[1] judgment, another amendment, Section 87, was introduced and later cancelled in the Hindustan Construction Co. Ltd. v. Union of India[2] case. The legal community spent a lot of time clarifying these amendments.

LACK OF PROPER LAW

Bar Association leaders are often occupied with court-related matters and seldom discuss arbitration issues. This significant reason leads to a lack of attention and resolution for problems within the arbitration mechanism. Therefore, there is an urgent requirement for a dedicated Bar that can specifically address the current issues and concerns of arbitration practitioners.

The 2021 Amendment to the Arbitration and Conciliation Act aims to change Section 36 of the 1996 Act. However, it raises concerns because it allows an automatic suspension of the award if fraud or corruption is claimed. This might make it easier for those who owe money from arbitration to avoid paying. The problem is, that the law doesn’t clearly define what counts as fraud or corruption. This means that in every case, the person who owes money could say there was fraud or corruption to stop the award. This would make it harder to enforce awards and could negatively impact the ease of doing business.

The government has made many changes to the law recently, indicating that they didn’t address issues properly, and the changes weren’t well-written. Despite these changes, there’s still confusion about the difference between the seat and venue, and this hasn’t been fixed in any of the amendment laws. Another problem is with Section 29-A, which goes against the idea of limiting interference from the courts, as stated in Section 5 of the law. Applying for an extension under Section 29-A might take over a year to decide if a six-month extension should be allowed.

LACK OF INSTITUTIONAL ARBITRATION

Despite having notable arbitration centers like the Delhi International Arbitration Centre (DIAC), Nani Palkhivala Arbitration Centre (NPAC), Mumbai Centre for International Arbitration (MCIA), etc., India lacks an institution that can match the stature of globally renowned ones such as the Singapore International Arbitration Centre (SIAC), International Criminal Court (ICC), London Court of International Arbitration (LCIA), and others. The prevalence of ad hoc arbitrations in India is a significant factor contributing to the perceived weakness of the arbitration mechanism in the country. Establishing a world-class arbitral institution requires the involvement of distinguished arbitration experts, similar to how SIAC was led by Gary Born. However, due to the demanding schedules of litigation lawyers in India, it’s unlikely that leading lawyers would fully commit to engaging with an arbitration center. Unlike global institutions such as ICC, SIAC, and LCIA, neither the New Delhi International Arbitration Centre nor the Arbitration Council of India is independent of government influence. Both have government-appointed members. As a result, the effectiveness of the Arbitration Council of India is crucial, and government interference in arbitration matters should be minimized.

JUDICIAL INTERVENTION

Arbitration faces challenges in India due to insufficient support from the courts. The legal system’s heavy workload leads to procedural and judicial delays. Once an arbitration matter enters the court system, uncertainties arise regarding the time it will take to resolve. For example, a Section 34 petition, dealing with challenges to arbitral awards, can linger indefinitely. Despite clear Supreme Court directives that Section 34 courts should not function as appeals and should not assess the merits, some courts treat these petitions as appeals. In many cases, courts have re-evaluated evidence and allowed extensive arguments on the case’s merits. Another issue is the delivery of judgments by High Courts, which occasionally set undesirable legal precedents. Achieving consistency among all Indian courts is challenging. Even the Supreme Court has issued regressive judgments, as seen in the case of ONGC v. Saw Pipes Ltd.[3] Such judgments take years to rectify, contributing to the perception that India is not a favorable jurisdiction for arbitration and that investments may not be secure.

SUGGESTIONS AND CONCLUDING REMARKS

Arbitration in India is often unpredictable, akin to an unruly horse moving in various directions. Despite significant growth in recent years and the emergence of various arbitration centers, success goes beyond mere infrastructure. These institutions play a vital role in strengthening arbitration through their operations and knowledge-sharing conferences. Honest implementation, not just amendments, is crucial, and building an arbitration culture in other business hubs like Kanpur, Ludhiana, Kolkata, and Lucknow is equally important. The focus should extend beyond Delhi and Mumbai, recognizing that creating hubs involves more than just having impressive buildings. Top of Form Factors such as ease of doing business, contract enforcement, and execution of arbitral awards are crucial for attracting investment. Former Chief Justice of India, Ranjan Gogoi, emphasized the necessity of a robust system for handling commercial disputes during an event organized by India Today. Adopting a pro-enforcement approach is vital to boost foreign investor confidence in India Challenging well-reasoned awards from the Tribunal should be avoided by parties. As officers of the court, lawyers should not obstruct arbitration or file baseless challenges to resist enforcement. We should pay attention to Public Sector Undertakings (PSUs) since they file most cases. PSUs have a habit of not settling and fighting every case till the end. The government should instruct the relevant ministries to assess which cases are worth contesting and which ones are not. For example, if an award is well-explained, there is no need to challenge it. Strengthening arbitration in India relies on effective award enforcement, ultimately attracting more investment and benefiting the entire economy. While agriculture is a significant part of the Indian economy, encouraging investments in other sectors, including exports and infrastructure, is equally important.

A lack of public awareness exists regarding choosing arbitration over litigation due to the absence of proactive conferences by institutions in India, unlike SIAC and ICC. To address this, more awareness campaigns should be launched for widespread education. Additionally, students, practitioners, and legal fraternity members need training and encouragement to become full-time arbitration lawyers. Minimizing judicial interference is essential, and exploring the inclusion of foreign lawyers in Indian arbitrations should also be considered.

Reference(s):

[1] Board of Control for Cricket in India v. Kochi Cricket (P) Ltd., (2018) 6 SCC 287.

[2] Hindustan Construction Co. Ltd. v. Union of India, (2020) 17 SCC 324

[3] ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705