In this blog post, Kinjalkini Rai Choudhury, a student at South Calcutta Law College and pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, describes how India can become a hub for International Arbitration.

The term arbitration in itself means a technique to settle off disputes outside the court, it is a form of alternative dispute resolution. In the case of arbitration, a third party looks into the evidence and give the decision which is legally binding on both sides and is also enforceable in the courts.

In which cases can arbitration be used?

Arbitration is often used for solving the commercial disputes, particularly in the context of an international commercial transaction. In countries like the United States, arbitration can be used in terms of employment or commercial contracts. Usually, an arbitration process can be either mandatory or voluntary.

The main analysis of my article will be on what is international arbitration and how can India be a hub for international arbitration.

 

Coming to the question of what is international arbitration?

As defined by Michael McIlwrath in (International arbitration and mediation) “Arbitration is a process by which parties agree to the binding resolution of their disputes by adjudicators known as arbitrators, who are selected by the parties, either directly or indirectly via mechanism chosen by parties.”[1]

International commercial arbitration is defined under Sec 2 (1)(f). International commercial arbitration is a tool for dispute resolution and is gaining popularity not only in India but also globally, and it also offers some advantages like not going to the court and saves time and is cost effective. A foreign company who usually enters into business contracts with Indian companies prefers international arbitration for dispute settlements.

 

India trying to be a hub for international arbitration

India is seeking to become the world’s newest international arbitration hub, by establishing a new arbitral centre in Mumbai. The Mumbai centre for international arbitration (MCIA), which launched in Oct 2016, Will be India’s very fast arbitration tribunal. Its supporters hope it will help bring the industries best practices to the country. The unveiling of the MCIA underscores the significant growth of India – related arbitration cases in recent years. It also highlights the Governments desire to make India and attractive destination for international arbitration and make it more compelling destination for business by bringing more reliable adjudication to India’s corporate sector.”[2]

According to Madhukeshwar Desai, the CEO of the MCIA, the new tribunal “Aims to bring international best practices to arbitration in India…By building a world-class tribunal institution that nurtures an ecosystem that…will nudge India towards being a destination for international arbitration.[3]

In 1996, India’s legislation enacted the Arbitration and Conciliation Act 1996. The Act of 1996’s main purpose was to encourage an arbitration which will be cost effective, quick and will be time-saving as well. This Act is also broken into two parts. Part I mainly deal with foreign arbitration and Part II deals with foreign arbitration conducted outside India.

India as an International Arbitration Destination:

Usually, it is seen that India is not preferred as an International Arbitration destination mainly due to reasons like time, extreme judicial intervention, costliness, difficulty in enforcing both domestic and international awards, and the subjective grounds for appeal based on public policy. These are major issues that deter foreign investors and parties from choosing India. Research and preparation are needed to be done before arbitration.

In most of the cases, Indian courts have repeatedly interfered into the arbitration matter which has led to deter the parties from choosing India as an arbitration destination.

 

Main challenges to international arbitration for India

  • Time and judicial intervention: Arbitration is known to be a timely and lengthy alternative to litigation. The backlog of cases in the Indian court is mainly due to judicial intervention that prolongs the arbitration proceedings. “50% believe that Indian arbitration doesn’t provide timely resolution.[4]
  • Cost: Cost effectiveness depends on the type of arbitration (ad hoc or instituted) which is applied. In ad hoc arbitration, the parties will have to pay for expensive venues, often for an expensive hotel. In intuitional arbitration, parties have to pay administrative fees for administrating the arbitration. In India, it seems that due to lengthy arbitration the procedure for arbitration is costly.” Ernst and young’s survey that 46% of respondents believe that Indian arbitration is not cost effective.”[5]
  • Enforcement: “Enforcement of foreign arbitral award in India are largely guided by the New York Convention of 1958, which is incorporated in parts I and II of the 1996 act. In Indian and enforcement of and award that would usually take six months in an international institution, may take eight years”.[6] Enforcement delay leads to a huge roadblock in the process of Indian arbitration as this delay will stop foreign investors from engaging in Indian companies.
  • Appeals “Under section 34 (2)(b)(II) of the 1996” Act, a party to an arbitration may appeal an award when:
    • When parties are under incapacity
    • Arbitration agreement is invalid
    • When the party cannot present case and do not give any proper notice
    • When award becomes beyond the term of reference
    • The award has a conflict with public policy. (Though the term public policy is not yet defined by Indian courts.)
  • Corruption: Corruption is one of the major factors in not selecting a particular arbitral seat. India has huge problems of corruption and needs to get out of the corruption in the judiciary and in other aspects also. Corruption leads to a bad impression of the legal system to the outside world. It can be argued that corruption will be a major problem for India for becoming a hub for international arbitration.

In a case of Renu Sagar Power Company vs. General Electrical Company, The court held that an arbitral award is contrary to the public policies. It is a case in which the challenge of arbitration was held”.[7]

 

Ways to make Indian arbitration a preferred choice

Usually, ad hoc arbitration is mainly used in India as compared to institutional arbitration as the latter is a very inefficient and costly method of solving International disputes. If the Indian government invests in the betterment and development of Institutional arbitration then more and different arbitration institutions will be able to setup. This will help the people to use institutional arbitration. The process has been started by the launch of the Delhi High Court Arbitration Center (DSC) in Nov 2009. More the number of arbitration institutes more

More the number of arbitration institutes more likely will be it for India to be preferred and developed as an international arbitration destination. India should also look into and consider amending the 1996 Act to accommodate foreign and domestic arbitration. An increase in specialized sectors will help in overall betterment and efficiency associated with arbitration. Currently, Indian arbitration sector

Currently, Indian arbitration sector includes construction disputes, maritime activities and goods and services trades. However, India can work more on creating other specialised sectors such as intellectual properties, corporate law and common law which helps in making the arbitration process more effective and attractive. Government efforts to work on the suggested areas will increase India’s potential to become a preferred destination for International Arbitration. It is the urgent need for India to improve on dispute resolution and also have a strong mechanism within the country so that India emerges as the most preferred arbitration destination.

India has assumed the presidency of BRICS (Brazil, Russia, India, China and South Africa) for the year of 2016 and this major event will be held in October in New Delhi. While attaining this presidency of BRICS, the Government will partner with the Indian Council of Arbitration (ICA) and the Federation of Indian Chambers of Commerce and Industries (FICCI) and who together held a conference on “International Arbitration in BRICS: Challenges, Opportunities and road ahead[8] on August 27th 2016 at Vigyan Bhawan, New Delhi. The main thought process and motive of this program was to promote a stronger arbitration regime and culture in the BRICS countries.

Mr Arun Jaitley, Honorable finance minister of India and Mr Ravi Shankar Prasad, Honorable law minister of India were invited to give a speech regarding these matters and also shared their experience regarding dispute resolution involving BRICS states. They also discussed about judicial decisions and pitfalls, and loopholes of arbitration and also on the enforcement of its awards and how it can be made better and more developed.

The Lok Sabha passed the Arbitration and Conciliation Amendment Bill, 2015 by taking voice votes for the fast Disposal of Arbitration cases[9]. The Key provisions of the bill were:

  1. Mandatory for arbitrators to settle disputes within 12 months and which could be extended to 6 months only by permission of the Court on sufficient cause.
  2. Cut down the fees of arbitrators, if the Court finds that the delay is due to them.
  3. Reward more fees to the arbitrators if they solve the case within 6 months and the parties agree to pay more.
  4. Empower arbitration tribunals and give them orders to make tribunal directive enforceable in the manner as of courts.[11] 

 

The Main Arbitration institution in India 

India’s Arbitration institutes consists of The Chambers of Commerce, organized by either a region or a trade, the Indian Council of Arbitration (ICA), The Federation of Indian Chambers of Commerce and Industry (FICCI), The International Center for Alternative Dispute Resolution (ICADR), and The Indian Institute or Arbitration and Mediation (IIAM).

A survey conducted by “Earnest and Young showed that 34% of the respondents prefer the London Court of International Arbitration (LCIA), India for their Indian Arbitration Institute.”[10]

The above institutes make way for the arbitration process at both national and corporation level. These arbitration institutes in India has made the Indian market strong because foreign investors feel safe, secure and protected when investing. Although there are several developed arbitration institutions, it’s commonly seen that the parties choose ad hoc arbitration. It is known to us that ad hoc arbitration differs vastly from institutional arbitration.

Having discussed the above, it is evident that arbitration is a common alternative for dispute resolution in India. Though Indian Arbitration has faced many challenges like judicial intervention, corruption, costliness, etc, it is high time that these challenges should be corrected and India can become a preferred destination for International arbitration. Thus, India needs to work on all these challenges so that it can develop its own stand and become a favourable and preferred hub for International Arbitration in India.

 

 


References:

  1. Rounak D Desai
  2. India and its recent developments in International commercial arbitration by King Dungerwal
  3. Indian Council of Arbitration by Vigyan Bhawan, New Delhi
  4. Business Conflict Management LLC Arbitration in India [F. Peter Phillips, Somya Kaushik]
  5. Developing India as a Hub of International Arbitration: A Misplaced Dream? by Badrinath Srinivasan
  6. India is likely to emerge as Hub for Commercial Arbitration. by Rama Subramanian

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