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This article is written by Himanshu Mahamuni, a student of Government Law College, Mumbai. This article briefly analyses the trends in India towards becoming an international arbitration hub and the steps taken by the government for the initiative in comparison with global arbitration hubs.

Introduction

Arbitration is one of mode of Alternate Dispute Resolution. The Arbitration and Conciliation Act, 1996 was codified and passed as a law in 1996 based on United Nations Commission on International Trade Law (UNCITRAL), model law on International Commercial Arbitration. Due to overburdening of judiciary and costly and time consuming process arbitration is seen as a form of quick and affordable dispute resolution alternative.

India is seen as one of the most attractive manufacturing hub over the world. As more and more international businesses attempt entering vast potential of Indian market, to avoid cumbersome legal proceedings, inclusion of arbitration clause are adopted in the contracts. This growth in arbitration should’ve resulted in increased arbitration practice in India. However seat for arbitration is likely to be preferred outside India over Indian seat due to inferior standards compared to arbitration seats at international institutes such as Singapore, Hong Kong, Geneva, etc. According to the SIAC’s 2020 annual report, SIAC hit all time high record of 1080 new cases filing, not so surprisingly among top foreign users at SIAC the first is India with whopping 690 cases. This shows shyness of Indian businesses and preference of choosing foreign institutes over Indian Institutes. 

Various steps are being taken towards making India an International hub of arbitration. However, these steps are slow and insufficient. Some of the issues which act as a speed breaker in the process are addressed below.

Issues

Difficulty in Enforcement of Foreign Arbitral Award

Foreign Arbitral Awards are dealt under second part of the 1996 Act. Section 44 of the Arbitration and Conciliation Act, 1996 defines a Foreign Award as an arbitral award on the differences relating to the matters considered as commercial under the law in force in India. For the awards to be of binding nature and enforceable they should in force in relation to the under New York Convention or Geneva Convention. 

Even after getting the award in the favour of one party from international centres it may have to face a appeal trail in Indian courts to get it enforced. Recently in the case of Amzon vs Future Retail, Amazon had to wait to enforce the Singapore Emergency arbitrator’s order restraining the Rs 24,731 crore deal due to verdict from the Supreme court of India. 

According to section 48 pf the 1996 Act there are seven conditions enlisted on which the courts can refuse to enforce foreign awards in India on submission of proof by the other party for the same, namely-

  1. Any party was under some incapacity.
  2. Either party was not given proper notice.
  3. The decision given is beyond the scope of the Arbitration.
  4. The composition of tribunal was not in accordance of the parties.
  5. The award is not yet binding or set aside or suspended.
  6. The subject- matter is incapable of settlement by arbitration.
  7. The award is contrary to the public policy of India.

Terms like public policy are not explicitly explained in the act making it arbitrary. Although judgements by courts have attempted on clarifying it but it is still not enough. In India, courts have a lot of control upon whether foreign awards are to be implemented or not. Ultimately rigorous and sluggish process of enforcement of awards discourages the foreign investors.

International Centre for Settlement of Investment Disputes (ICSID) and India

ICSID was established in 1966 by the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention). ICSID is one of the few international arbitration institution which facilitates settlement of disputes between the Investor and the state through arbitration.

India, along with other developing nations have abstained from enlisting in the ICSID convention. India is reluctant to be signatory of the ICSID because of mainly two reasons, first the Convention’s rules for arbitration are inclined in favour of the developed countries and, second even in case of infringement India’s public policy, there is no chance to the Indian Court for the review of an award. As India is not a party there is no obligation upon India to enforce BIT awards under ICSID. As a result India has terminated 58 of existing Bilateral Investment Treaties (BIT), only 6 are succeeded and 13 are ongoing on joining of model BIT

Investors search for assurance while drafting arbitration agreement as enforcement of foreign award is a tough job in India. ICSID convention provides the support for enforcement of award.  Article 26 of the ICSID exhausts any local administrative or judicial remedies as a condition of its consent to arbitration under this Convention to the parties. It will reduce the judicial intervention which is seen problematic in the arbitration scenario in India. 

Crippled state of Arbitral Council of India

The Arbitration Council of India (ACI) was a reforming structure added through 2019 Amendment Act by the Central Government. ACI functions to promote and encourage the ADR mechanism by framing policies, grading the institutions, holding training regarding arbitration and various other functions for promotion of arbitration. The amendment seems welcoming but the issue lies inside the details.

Composition of council mentioned in Section 43C provides the members who shall be included in the council. The appointment mainly consists of secretaries of various department of government and ex-officio members in the central government. The Council sought to be independent from government interference acting as an independent body governing arbitration issues. But this formation might give rise to the influence of certain parties and nepotism in further appointments. It is to be noted that this is same council is to be given authority to grade of grading various arbitral institution in India. The Supreme Court and the High Court are given power to designate arbitral institution. The respective court may have to refer to the recommendations graded by the ACI. This may give rise to biased grading system due to lack of transparency.

Unavoidable Judicial Intervention in Arbitration

The Arbitration & Conciliation (Amendment) Act, 2019 (“the 2019 Amendment”) bought one of the major change i.e. the introduction of Section 87 and deleted section 26 in the Arbitration Act. The newly inserted Section 87 of the Arbitration Act provided that the 2015 Amendment would be applicable retrospectively, the arbitral proceedings which commenced on or before the Cutoff Date of Oct. 23, 2015 and to such court proceedings which emanate from such arbitral proceedings. Section 26 of the 2015 Amendment expressly provided that the section would apply to arbitral proceedings which commence on or after the date of commencement of the 2015 Amendment i.e., October 23, 2015.

Hon’ble Supreme Court came as a saviour against the section 87 bought by 2019 amendment in the case of Hindustan Construction Company Ltd. Vs Union of India. SC struck down the insertion of Section 87 of the 1996 act ruling that the provision was manifestly arbitrary and abolished the central government’s argument of the section is retrospective in nature under article 14 of the Constitution of India. The Court noticed that the introduction of Section 87 would increase judicial intervention of court in the arbitration proceedings and result in a delay of disposal of arbitration proceedings, which defeats the very object of the Arbitration Act, 1996, going against the 2015 Amendment Act. Further court clarified section 26 of the 2015 amendment that the Supreme Court had decided in the case of BCCI vs. Kochi Cricket Board section 26, unless otherwise decided, will have prospective effect. Thus, the court held that there would be no automatic stay even in cases where challenge was filed prior to the commencement date as a result the position in BCCI superseded for applicability over amended section 87.

Such unnecessary amendment to certain sections forces unavoidable Judiciary intervention. These amendments act as one step forward and two step backward. It brings us back to the start with no progress.

Lack of Proper Law Making

The Arbitration and Conciliation (Amendment) Act, 2021 bought about changes in the Section 36 of the 1996 Act. According to section 36 the award debtor was allowed to file an application to set the award aside under The 1996 Act. In clarification to the 2015 amendment it was decided that there would be no automatic stay on an application to set aside the arbitral award. But the amendment bought about changes which alters it. The amendment introduced that, where the Court is satisfied that a prima facie case is made out that, — the arbitration agreement or contract which is the basis of the award; or the making of the award, was induced or effected by fraud or corruption, it shall stay the award unconditionally pending disposal of the challenge under section 34 to the award. Further the explanation added that, the amendment to Section 36(3), will have retrospective effect and apply to all cases arising out of or in relation to arbitral proceedings, irrespective of whether the arbitral or court proceedings were commenced prior to or after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015.

Now scope of “fraud” and “corruption” are not explicitly determined under CPC, 1908 and in the 1996 Act for a staying order. This would violate the very purpose of opting for arbitration as a method of dispute resolution, i.e., minimal judicial intervention as enshrined under Section 5 of the Act to avoid the ordeals of a traditional litigation process. It would require critical observation and interpretation by the Court, especially due to addition of retrospective element to the act. The amendment might get misused to delay the award making it unenforceable and affect the rights of award holder. This may discourage the parties to go for arbitration, as the parties will eventually have to face the proceedings of the court to seek relief.

arbitration

Comparison with leading International Arbitration Councils

With increase in adoption and understanding of ADR all over the world, there are few international arbitration institutions which have grown as a prominent choice. They are namely London Court of International Arbitration (LCIA), International Court of Arbitration (ICC), Singapore International Arbitration Centre (SIAC), Hong Kong International Arbitration Centre (HKIAC) and many other. In this part we will be analyzing how these institutes developed themselves as primary preference for dispute resolution via arbitration. There are stark differences in the practices of these international institutions as compared to that of India’s, some of them are listed below-

  • For rapid resolution parties who cannot wait for formation of arbitration tribunal usually opt for emergency arbitration and appoint an emergency arbitrator. The 1996 Act have made provisions for Fast Track Procedure which directs arbitration tribunal to make the decision within six months but from the date arbitral tribunal enter upon reference. This means that there are not any provisions undertaken by Central Government to govern Emergency Arbitrator and Emergency Arbitration.

Whereas LIAC, ICC, HKIAC have made provisions for appointment of emergency arbitrator to conduct arbitration proceedings along with costs incurred and special fees to be paid for the proceeding. SIAC on the other hand provides for both expedite formation of Arbitral tribunal as well as the Emergency Arbitrator including other provisions required regarding the same.

  • As we’ve discussed above, there’ve been a plethora of loopholes and lots of control of courts over challenge of arbitration award in India. Getting an award enforced is not an easy task especially a foreign award in India. On the other hand Foreign institutes such as HKIAC have strictly limited the judicial intervention allowed only in certain limited circumstances such as error of law or displays apparent bias.
  • These international institutes have different dedicated Acts framed for international arbitrations from previous Arbitration Acts. Law are been made in very precise manner leaving no scope of vagueness or arbitrariness. For instance SIAC have clarified the scope of public policy and its arbitrability in its International Arbitration Act and a whole section dedicated to arbitration over Intellectual Property Rights. LCIA is also have been proactive adopting the new digital era with inclusion of laws such as Data Protection in order to protect the physical and electronic information shared in the arbitration
  • Along with well-structured laws these institutes are also equipped with well infrastructure, updated norms and filled with arbitrators with high caliber. These international arbitration institutes conduct time to time conferences, hold training, perform research, release reports and also conduct various courses building future arbitrators. There are dedicated professional bodies such as Chartered Institute of Arbitrators (CIARB) which provide training and courses or professional knowledge to develop young arbitrators.

Way ahead

Although amendments to the 1996 Act have proved to be disastrous year after year there are certain positive steps taken by the government to improve the situation of arbitration in India. One of the initiative of the government is making India the hub of International commercial Arbitration and the setting up of an independent Arbitration Centre. A high level Committee headed by Justice BN Krishna was constituted for the study. This committee bought out the concept of an Arbitration Council of India in the 2019 Amendment to compete with the international arbitration institutions. Although ACI is at a nascent stage to become international hub but it is considered as a welcoming step from the government. There are very less Arbitration Centre in India and just handful that can be considered as tier 1 firms compared to countries having developed arbitration culture such as Singapore. The role of ACI has increased drastically to bring positive reforms in arbitration in India by grading the institutions, holding training and workshop and establishing a firm foundation of arbitration to become an international hub and gaining confidence of foreign parties.

Cabinet has approved the New Delhi International Arbitration Centre Bill (NDIAC), 2019 in quest of making India the hub of International Arbitration. The government claims its benefits will impact as- 

  • Institutionalized arbitration. 
  • Quality experts being available in India and also an advantage in terms of cost incurred.
  • It will facilitate India becoming a hub for institutional arbitration.

NDIAC is aimed to be competing with the international arbitration institutions provided the facilities as enshrined in its objective. It is surely a visionary step towards changing arbitration scenario.

Another amendment which bought positive change with it was 2021 amendment. 2021 amendment omitted eighth schedule, which was bought by the 2019 act. Eighth Schedule provided the qualification, experience and norms for accreditation of arbitrators and provided list of individual to be appointed as arbitrator. By eighth Schedule a foreign scholar or foreign-registered lawyer or a retired foreign officer was out rightly disqualified to be an arbitrator under the 2019 Amendment. Choice of candidates as their potential arbitrators was limited by nationality, and not by their qualification to act as international arbitrator. Thus by omitting the eighth schedule government has cleared their intention to the international arbitrators.

ICC, UNCITRAL rules have framed the laws in cohabitation with the ICSID conventions while still having control over the laws governing the arbitration proceedings. By signing BITs government brings FDI into the country. India must welcome these reluctant investors to invest in the country. Its time India must rethinks its position on ICSID convention and encourage safety of the foreign investors. It will be a critical step if India wants to consider its position as an International hub.

Conclusion

India is still far away from becoming an international Hub of Arbitration but the slow steps are better than nothing. SIAC was established in the year 1991, few years back of making of India’s arbitration Act in 1996. New competent amendments with the assistance of the enactment of legislation can fix the current situation. It will take time to bring India’s arbitration system at par with international Standards. Especially with the newly formed ACI and to be formed NDIAC it will be curious to see how things unfold. 

References


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