A Lot Still Needs to Be Done For India to Fulfil Its International Arbitration Ambitions

Moving from ad-hoc to institutional arbitration is the way forward, if India wants to undo the distrust felt by the global trading community.

Signalling the government’s relentless commitment to perk up the cross-border business environment, a three-day global arbitration conference was organised recently in Delhi with the government think tank NITI Aayog at the helm of affairs. The conference, inaugurated by the president, aimed at preparing a roadmap to make India an attractive destination for the arbitration of international commercial disputes. Exchange of views on various aspects of modern international arbitration has attracted participation from the legal and commercial luminaries including foreign chief justices.

According to the prime minister, “a robust legal system with a vibrant arbitration culture is essential” for businesses to grow and “the creation of a vibrant eco-system for institutional arbitration is one of the foremost priorities” of this government. The Chief Justice of India, while endorsing the views on the need to push Alternative Dispute Resolution (ADR), remarked that “the avalanche of cases constantly puts the judiciary under great stress” and expressed his concerns over the unwarranted judicial interventions in arbitral awards.

It is unprecedented for any major economy to show such top-level political support for an arbitration conference with the judiciary to take up the cudgels. Perhaps the call for such a global event came up in the wake of India’s abysmal performance in the ‘enforcement of contracts’, a measure of judicial performance in the latest World Bank report on ‘doing business’, where it is ranked 130 among 190 economies. This is despite the government’s efforts through a series of structural reforms, which included the abandoning of over a thousand arcane laws, reinvigorating the National Judicial Data Grid and pushing for commercial courts to make India a highly efficient economy. Besides, the government has initiated a state-level ‘Ease of Doing Business Reform Action Plan’ mandating the adoption of effective case management techniques through pre-trial conferences and pre-trial discovery of cases.

Modernising the dispute resolution system in the country has, therefore, been a top priority not only to go up in the rankings but to bail the judiciary out of the massive load of litigation faced by the courts.

Juridical face-lifts

Five years ago, subscribing to the general aspersions related to the system of arbitration in India, Supreme Court advocate Fali S. Nariman, while delivering the inaugural lecture of the London Court of International Arbitration’s (LCIA) India subsidiary, had criticised national courts’ apathetic approach to the enforcement of arbitral awards and pushed for legislative reforms. The arbitral process, which is supposed to stand on its own feet, becomes troublesome when an indispensable ‘involvement’ of a national judge starts to feel as ‘intervention’ and further turns out to be ‘interference’. The deep distrust created among the global trading community, due to this excessive judicial supervision even in the context of foreign arbitrations, has set alarm bells ringing in the government and judiciary. Following an adverse decision in the White Industries case for the non-compliance of India’s international law obligations prescribed in the 1958 New York Convention, the apex court in 2012 had countermanded its previous legal position in Bharat Aluminium Co. v Kaiser Aluminium Technical Services and put the jurisdiction on a pro-arbitration track.

A liberal interpretation of the ‘public policy of India’ either to set aside or reject the enforcement of award has been a major cause for scepticism for private investors. The government, guided by the Law Commission, has set the legal provisions in line with international best practices, including the public policy exception though a major amendment to the Arbitration and Conciliation Act last year. The judicial and legislative reforms, although much needed, alone will not ensure the success of the so-called ‘national initiative on strengthening arbitration and enforcement’. Thus, as mulled over at the conference, there is an urgent need to look beyond the brick and mortar to make India a hub of global arbitration.

Institutional arbitration is the way forward

Adhocism is the norm when it comes to the practice of arbitration in India. However, the international business community seeks to resolve their disputes in a timely manner with pre-established rules and procedures. Corporations consider case management, the presence of competent and well-trained arbitrators, and most importantly timely delivery as their first choice while arbitrating their disputes. Statistics show that 91 of the 271 cases administered by the Singapore International Arbitration Centre (SIAC) last year involved Indian parties, which amounts to twice as many as the Chinese users, who filed the second-highest number of cases.

According to the CJI, the government-run International Centre for Alternative Dispute Resolution (ICADR) based in Delhi has had only 20 cases since its establishment 20 years ago. An arbitration-friendly legal framework coupled with the ease of geographical connectivity make good reasons for cases to move to destinations like London and Singapore. Additionally, the clarity on the costing has been regarded as an important factor for this outflow. There is also a prevailing myth in India that only retired judges can make good arbitrators. However, experience over the years shows that retired judges are not unfailingly sensitive to the spirit of arbitration as a ‘truly alternative’ dispute resolution mechanism.

The legal framework in India shows no paucity in promoting a specialised dispute resolution, whether it is through the introduction of section 89 of the Code of Civil procedure, which mandates the referral of cases to ADR mechanisms, or the enactment of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015. Nonetheless, the dismal functioning of domestic institutions such as FICCI’s Indian Council of Arbitration and the ICADR is a predicament to the Indian arbitration regime. The recent closure of LCIA India demonstrates that even the globally-recognised institutions have failed to persuade users of ad-hoc arbitration to incorporate institutional arbitration clauses in their contracts.

Nonetheless, the initiatives of some high courts have made a mark. The Delhi International Arbitration Centre has successfully heard around 900 cases as of now, since its establishment in 2009, while the Bangalore Arbitration Centre has heard 175 cases (as on September 2014) with six international arbitration matters. These figures, of course, look paltry compared to the case load of other institutions in Asia which continue to grow steeply every year.

The Indian government’s ambition to tap the enormous ‘invisible exports’ associated with international commercial arbitration would bear fruit only with the establishment of world-class arbitration centres which offer five-star hearing facilities alongside top-class professional arbitrators. With the opening of the Mumbai Centre for International Arbitration and foreign institutions jostling for India-related work, it is hoped that the arbitration landscape in the country is set to change, enabling Indian cities to emulate the world’s preferred jurisdictions. SIAC’s tie up with the Gujarat International Finance Tec-City and the recent announcement of a BRICS-centric arbitration centre in Delhi shows a lot of promise.

The ease of access with multiple non-stop flights from all geographies makes cities like Mumbai and Delhi suitable to host international arbitrations. Further, the government’s proposal to open up the legal services sector to foreign participation is a step in the right direction which is in line with the 2012 judgment of the Madras high court in A.K. Balaji v. Govt. of India that allowed the entry of foreign lawyers to India on a ‘fly in, fly out’ basis to conduct international arbitrations. All in all, arbitration enthusiasts are sanguine about the prospects of seeing a makeover in the ‘arbitral litigation’ trend of Indian disputants, a cultural transformation in the ‘disputology’ of Indian judges and lawyers, and see a spur of arbitration activities in India’s legal landscape.

Harisankar K. Sathyapalan is a doctoral candidate in law at the National University of Singapore and Madhu Sivaraman is director (research and projects) at the Centre for Public Policy Research, Kochi. The views expressed are personal.