International arbitration in India: One step forward with new rules

The Bar Council's latest rules go a long way but there are some major hurdles to India's evolution as a global arbitral centre

International arbitration in India got a leg-up recently, with the Bar Council of India (BCI) issuing the rules for registration and regulation of foreign lawyers and foreign law firms in India. This followed the BCI’s announcement earlier this month allowing foreign lawyers to practise in India, advising clients on foreign law with the restriction that they cannot appear in court. The move is expected to alter the legal landscape, although experts have sought clarity on a range of issues that could become hurdles going forward.

The broad expectation, however, is that the new dispensation for foreign lawyers would mark a step forward for India’s development as an international arbitration centre. This is a move that has major implications for foreign corporations that want to set up base in India, especially those that partner with India firms to do so.

So far, most foreign corporations signing contracts for tie-ups and services in India seek a foreign jurisdiction for arbitration, such as Hong Kong, London or Singapore, a situation that potentially raises costs for Indian partners and service providers. This is partly because of the famed slow pace of justice delivery in India as much as the approach. “Indian courts historically were interventionist in their approach towards arbitration; Singapore was seen as a neutral arbitration-friendly seat where local courts would support arbitration,” said Krishnayan Sen, partner, Luthra and Luthra Law Offices India.

This attitude changed a couple of years ago, and was reflected in the launch of India’s first International Arbitration and Mediation Centre in Hyderabad in December 2021. The new BCI rules are expected to complement this development by bringing in global expertise in handling complex cross-border disputes, resources and reputation to India’s legal sector, which can help expand international arbitration in the country. “There would be more investment in training and development. All this can make international arbitration more accessible and cost-effective for clients,” said Sonam Chandwani, managing partner at KS Legal & Associates.

Besides, Chandwani added, the presence of international law firms can raise India’s profile as a venue for international arbitration, leading to increased competition and innovation in the legal market

Ahead of that, though, there are several problem areas that the BCI rules have not addressed. “The BCI Entry Rules will certainly make India an attractive arbitration destination, but some clarifications are necessary,” Sen added.

For one, legal experts have pointed to the definition of “International Commercial Arbitration”, which stipulates that the disputes must arise from “commercial transactions that are conducted in India”. “This qualification of the underlying transaction to be located in India seems restrictive if we were to make India an arbitration hub,” Sen pointed out. This is especially important given the fact that there is no dearth of legal talent in India specialising in dispute resolution arbitration.

The second concerns clarity on the status of Indian companies. The BCI had initially opposed the entry of foreign lawyers and foreign law firms in India in any form. The new BCI rules enable foreign lawyers and law firms to practise foreign law, international law, international arbitration, joint ventures, mergers and acquisitions, intellectual property matters on a reciprocal basis. Registration of these firms or lawyers would be valid for five years only. These rules were notified and published in the official gazette on March 14.

Arbitration practitioners point out that although the rules expressly state that a foreign lawyer can be engaged in an India-seated arbitration by a foreign client, it is silent on whether Indian parties could also do so. This clarification is important as it could determine whether Indian companies can also engage foreign law firms directly for international arbitrations. “This enabling clause was unnecessary and may cause confusion,” Sen said, but suggested that it could be a drafting oversight. Indeed, an analysis by PwC India said that the objective of the BCI rules is to mutually benefit lawyers from both India and abroad.

Most lawyers agree that the BCI rules will aid India’s efforts to expand itself as an arbitration-friendly nation, as foreign players are likely to get more comfort from their local lawyers practising in India. “These rules may also help address concerns expressed about the flow of foreign direct investment in the country and make India a hub of international commercial arbitration,” the PwC analysis said.

But this also requires deeper reform within the Indian legal system. “The unnervingly slow and inefficient disposal of cases by the Indian courts is a problem. The key arbitration-related court proceedings such as appointment of arbitrator, challenge and enforcement of awards continue to take several years,” Sohil Shah, principal associate, Pioneer Legal, said. Experts said that while there are rules in place to deal with these challenges, they are rarely implemented, making India fall short of its foreign counterparts.

The BCI rules place restrictions on foreign lawyers. They cannot appear or represent before an Indian court of law, tribunal or any other statutory or regulatory authority. They also cannot be involved in or permitted to do any work pertaining to the conveyance of property, title investigation or other similar works. They can, however, conduct transactional business to give advice and opinions concerning the laws of the country of the primary qualification. The BCI has also clarified that foreign lawyers and law firms are allowed to function in non-litigation areas only — meaning, they can work on resolving legal matters out of court, a practice also known as Alternative Dispute Resolution.

On the whole, top lawyers think the BCI’s move is a good one. “While there is a long journey ahead, laws governing international arbitration are likely to evolve in the right direction. It is definitely a welcome move that is bound to infuse more talent, give Indian law firms a competitive edge, fuel innovation and make India a hub for international arbitration,” said Yogen Vaidya, partner, claims and disputes, EY India.

Obstacle race

• The definition of “International Commercial Arbitration” stipulates that the disputes must arise from “commercial transactions that are conducted in India”; it could restrict India’s potential to become a global arbitration hub
• Rules state that foreign lawyers can be engaged in an India-seated arbitration by a foreign client: they do not clarify whether Indian companies can also engage foreign law firms directly for international arbitrations
• Slow and inefficient disposal of cases by the Indian courts is a problem. Key arbitration-related court proceedings such as appointment of arbitrator, challenge and enforcement of awards continue to take several years. Though there are rules in place to deal with these challenges, they are rarely implemented