Business Standard

India plays catch-up game

Namrata Acharya & Sudipto Dey 

In December last year two high-profile legal battles opted for arbitration of disputes originating in India to be taken to two different foreign locations. While Haldia Petrochemicals Ltd (HPL) got a court clearance to settle dispute over ownership through International Chamber of Commerce (ICC), Paris, global fast-food giant McDonald's moved the London Court of International Arbitration (LCIA) to resolve its dispute with Vikram Bakshi, its Indian venture partner over his appointment as managing director. What relates the two high-profile case is the place of dispute resolution-an international location for resolving local disputes.

Arbitration as an alternative dispute resolution mechanism - vis-à-vis court-bound litigation - is gaining popularity in India for resolving commercial disputes. An EY study in 2011 found that India has seen a growth of nearly 200 per cent in a number of disputes that have been referred to arbitration during the previous three years. However, bulk of arbitration cases have been ad hoc in nature, and most international companies operating out of India have preferred a foreign location - Singapore, London, Paris or Hong Kong - as a seat for arbitration.

  • The London Court of International Arbitration (LCIA), one of the premier international arbitration institutions, opened its first independent subsidiary in April 2009. It simultaneously released the LCIA India Rules for arbitrations to be conducted in India under LCIA India.
  • In 2013, the Singapore International Arbitration Centre (SIAC) opened its first off-shore office in Mumbai. The India office of the SIAC is not involved in the administration of cases in India but is more of a liaison office with a view to marketing SIAC’s capabilities to its potential users.
  • The Paris-headquartered International Court of Arbitration of the International Chambers of Commerce hired its first Indian lawyer, in 2012 in a bid to expand in India by increasing visibility and uptake.
  • In March 2012,India recognised that arbitral awards passed in Hong Kong can now be enforced in India as a ‘foreign award’. This is expected to boost Hong Kong-bound arbitrations involving Indian parties.

"The grip of ad hoc arbitration in India is one of the key reasons for companies to choose international destinations," says N G Khaitan, president, Indian Council of Arbitration. This prevents institutional arbitration to kick-start in India, he adds.

Ad hoc arbitration refers to a kind of mediation which is not administered by an institution, with the concerned parties responsible for framing all aspects of arbitration, like appointing arbitrators and deciding on applicable laws. On the other hand, institutional arbitration refers to mediation administered by specialised institution, according to set rules and procedures.

Why foreign locations?

The Indian law does not make a distinction between pure domestic disputes, with seat in India, where the parties are Indian and the governing law is Indian. Further, it treats international disputes, with the seat in India, where the parties are from different nationalities and the governing law not necessarily Indian, the same way.

High level of legal intervention is regarded as another cause for lack of institutional arbitration in India. "Indian courts have historically been known to intervene in arbitrations. Previously, Indian courts have readily granted injunctions, preventing arbitrations from moving forward pending a complete hearing of the matter in India," says Lye Kah Cheong, partner, Norton Rose Fulbright, a global law firm.

"Some parties choose to arbitrate Indian disputes offshore to avoid delays often encountered with onshore arbitration," says Nicholas Peacock, partner, Herbert Smith Freehills LLP.

The preferred seats of foreign arbitration for Indian disputes are Singapore, followed by London and Paris. At Singapore International Arbitration Centre (SIAC), the number of cases from India rose from 36 to 85 between 2010 and 2013, a rise of nearly 136 per cent.

In 2011, India accounted for 1.5 per cent of total cases resolved through LCIA, which increased to 4.25 per cent in 2012. India accounted for sixth highest number of cases in LCIA in 2012.

"The number of cases filed at the SIAC, involving at least one Indian party, has grown by an astounding amount in the past three years since 2009," says Vivekananda N, deputy registrar & head (South Asia), SIAC. These cases have emerged in sectors such as trade, construction, joint ventures, corporate disputes, telecommunications, maritime, shipping and shipbuilding, amongst others.

A silver lining
What gave a fillip to foreign arbitration in India was the landmark judgment by Supreme Court in 2012, which said that the Indian courts have no jurisdiction over international commercial arbitration held outside India (Bharat Aluminium vs Kaiser Aluminium Technical Service, September 6, 2012). "The Balco case has been a game changer," says Ajay Thomas, director & registrar, LCIA India. Legal experts say that this decision by the Supreme Court will lead the way in reducing the intervention of Indian courts in arbitrations seated outside India. However, application of the decision is restricted to arbitration agreements entered after September 6, 2012.

Trouble with Arbitration Act, 1996
At present, arbitration in India is governed by the Arbitration and Conciliation Act, 1996. In 2010, the government released a paper on amendment in the Act with one of the objectives being reduction of interference of courts. This will promote international arbitration in India and align domestic law with international standards.

Legal experts say the amendments, currently being vetted by the Law Commission once come into effect, would result in minimal court intervention, enhance institutional arbitration and disclosure of any interest by the arbitrator.

Through these amendments, India would become a hub of international commercial arbitration, stated a Press Information Bureau (PIB) release on the proposed amendment. However, this will only happen after general elections when Parliament is in session. This would mean that the new government would have to start afresh the process of bringing in fresh amendments to the Act.

The real test is how Indian courts will react to the amendments after they become law, says Cheong. Legal experts point out that it could take some time to change India's reputation of being an "interventionist" in international arbitration circles.

According to Sarosh Zaiwalla, senior partner, Zaiwalla & Co, a London-based law firm, India also needs to break away from its colonial mindset if it is to emerge as a destination for international arbitration. "Indian arbitration is largely decided by retired Supreme Court and high court judges. We need specialist and experts to man the arbitration process," he says.

Absence of quality arbitration institutions facilitating and administering arbitration is another major deterrent for companies preferring India as the seat of arbitration, points out Krishnayan Sen, partner, VERUS Advocates, a Delhi-based law firm.

The philosophy of alternate dispute resolution systems was well stated by Abraham Lincoln when he said, "... discourage litigation, persuade your neighbours to compromise whenever you can. Point out to them how the normal winner is often a loser in fees, expense, cost and time." Indian law makers could well heed his advice to make India a seat for international arbitration.

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First Published: Sun, March 23 2014. 21:35 IST