Making India An Arbitration Hub: A Far-Fetched Reality?

Author: Hitesh Vachhani

Gujarat Law Society, Ahmedabad

Editor: Diksha Bhasin

New Law College, BVDU, Pune

With the increase in international commercial trade and agreements, International Arbitration is increasing manifold. In case of disputes, foreign based companies often chose Singapore, London, Hong Kong, etc., to be their seat of arbitration. Thus, India is considered a less arbitration-friendly country. The reluctance of not submitting themselves to the jurisdiction of India has affected its ranking in the Ease of Doing Business by the World Bank. The World Bank rating for Ease of Doing Business (2016) which is based on how easy it is for the private companies to follow regulations had ranked India on the 131st spot out of 189 countries. The study notes that India takes 1,420 days and 39.6% of the claim value for dispute resolution. There is no doubt about the existence of lacunae in our present arbitration system which has stalled the foreign countries from choosing India as an Arbitration Centre but India can improve by incorporating some required changes to make this dream a reality.

INDIA’S POTENTIAL TO BE AN ARBITRATION HUB.

In cases of disputes regarding international commercial arbitration, countries look at various things before submitting themselves to the jurisdiction of the other country. There are various points in favour of India:

• Party to a New York Convention: A country must be a party to the New York Convention to recognize and enforce foreign awards. Unless a country is a party to the New York Convention, it becomes very difficult to recognize and enforce the award in that country. India was amongst the first ten countries that signed the New York Convention and the Central Government has also notified more than 40 countries as affording reciprocity treatment in line with the reciprocity reservation it took in the New York Convention.

• Common-Law System: Indian legal system is based on the common law system which is widely followed in other countries as well. This commonality of legal traditions makes it a better place for Arbitration.

• Availability of quality lawyers and experts: India has produced good quality lawyers, jurists, and legal luminaries. But, availability of quality lawyers is not the only requirement; there must be various domain experts or professionals available. And India has no dearth of producing such professionals.

• Well Structured Legal Institutions: India has a very well-structured legal institution with District Courts hearing all the arbitration matters followed by the High Court and then the Supreme Court. The establishment of the Commercial Courts has also made it more favorable to choose India as a seat of international arbitration.

• Supportive Judiciary: 2012 was the watershed moment for India. The decision of the Hon’ble Supreme Court in Bhatia International vs. Bulk Trading S.A [1] in 2002 received worldwide criticism as it increased the scope of judicial matters in the cases of international arbitration. But the same was rectified in 2012 in the BALCO [2] judgment and since then, there has always been a pro-arbitration attitude of the judiciary.

• Dynamic Legislation: India has one of the most dynamic legislation concerning arbitration. The principle act namely, The Arbitration and Conciliation Act, 1996, has been amended from time to time to make it more arbitration-friendly for international arbitration.

CHALLENGES SPECIFIC TO INDIA IN INTERNATIONAL ARBITRATION

• Cost: The reality with the present arbitration system is that the cost involved in resolving a dispute is insufficient. Sometimes the cost goes higher than the amount claimed in a dispute and this problem of high fees levied by the arbitrators has a spill-over effect over the dispute resolution. Thus, the problems of costs have to be considered to make India an Arbitration Hub.

• Lack of Efficient Arbitrators: Many lawyers consider arbitration to be part-time work where they attend the arbitration only after court hours. This trend has withheld the ability to push arbitration as a speedy and effective dispute resolution model in India.

• Absence of Domain-Experts: Arbitration as a speedy dispute resolution model is different from the traditional methods of litigation, where it requires an expert to resolve a dispute between the parties. Unfortunately, in India, the arbitration proceeding(s) is presided over by the retired judges. The absence of domain experts puts India into a disadvantageous position because the time taken for explaining them the technicalities is far more as compared to the time taken for redressal of the issue. For instance, if an arbitral dispute involves technical questions concerning a patent of a product, it is easier for a patent expert or an intellectual property expert to understand the issue in its entirety and on time. Thus, the time required in an arbitration proceeding, with the presence of the domain-expert, reduces comparatively.

• Lack of Arbitral Institutions: All over the world, Institutional Arbitration has gained more popularity as compared to the ad-hoc arbitration that prevails in India. The advantages of institutional arbitration are manifold, which include:

• Pre-existing set of rules and procedure.

• Existing pool of arbitrators amongst whom the parties can choose.

• External administration of the arbitration proceedings through Institutions.

The Arbitration and Conciliation (Amendment) Act, 2019 has inserted various provisions that focus on institutional arbitration over ad-hoc arbitration.

DEVELOPMENT OF THE ARBITRATION LAW IN INDIA

The Arbitration and Conciliation Act, 1996 was a consolidating act which suffered several drawbacks such as enforcement of the domestic award under section 36 of the Act, unfriendly arbitration regime world over, applicability Part I to the foreign seated arbitration, the power of the courts to interfere in a section 34 proceeding, etc. Moreover, the judgment of the Hon’ble Supreme Court in Bhatia Case (supra), in 2002, received criticism from many foreign countries because it widened the scope of judicial intervention in foreign seated arbitration.

Thereafter, Hon’ble SC in BALCO Case (Supra) took into consideration its earlier findings in the Bhatia judgment and held that Part I of the Act did not apply to the foreign arbitration thereby, interpreting the law in an arbitration-friendly manner. The Arbitration and Conciliation (Amendment) Act, 2015 resolved the existing issues under the principle act to make it more international arbitration-friendly. It incorporated a statutory time-limit for completion of the arbitration proceedings, amended the definitions of the court to limit the interference of the lower courts in the international arbitration, focused on reducing the costs involved in the arbitration proceedings and amended other provisions which minimized the interference of the courts in the international arbitration.

The Arbitration and Conciliation (Amendment) Act, 2019 was enacted to clarify several amendments made in the Arbitration and Conciliation (Amendment) 2015 Act and to transfer the entire system from ad hoc arbitration to institutional arbitration.

The Arbitration Act has been amended in a phased manner to bring about various amendments that are required to make the present Arbitration Law more international friendly, thereby making India, a preferable destination for international arbitration for various foreign countries. It is important to note that a well-designed law, in the absence of several unresolved problems of costs, domain experts, institutional arbitration, etc., would prove to be fruitful. Thus, looking at all the favorable conditions that prevail in India, one would not be too wrong in arguing that India has a great prospect of becoming an important player in the field of international commercial arbitration.

[1] (2002) 4 SCC 105

[2] Bharat Aluminium Co. vs. Kaiser Aluminium Technical Services Inc. (2012) 9 SCC 552

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