The emerging Indian arbitration ‘ecosystem’ – A view from abroad

By Leigh Crestohl, Zaiwalla & Co LLP

Posted: 18th December 2017 08:25

At a time of unprecedented economic growth, the Indian Government is pursuing a policy to position India as a global ‘arbitration hub’. It is an ambition rooted in the view that sustainable economic growth depends on creating a legal and institutional framework that bolsters international confidence.
 
The pace of legal reform and development in the arbitration ‘ecosystem’ has been impressive, and demonstrates a resolve to overcome historical negative perceptions. The project to establish India as an arbitration hub acquires particular relevance as the United Kingdom (the largest single source of inbound FDI of all G20 nations)[1] prepares to leave the European Union.
 
This article considers the progress being made to attain this policy goal, and the extent to which these developments may, from the perspective of international business people and legal practitioners, promote greater confidence about the future of commercial arbitration in India.
 
The historical context
 
Commercial Arbitration remains an important factor in cross-border transactions with Indian parties. This is due in large part to the reluctance of international parties to become embroiled in court litigation within India and concern about endemic delays. While efforts are no doubt being made to improve the situation, the legal system is burdened by some 22 million cases, six million of which reportedly have been pending for five years or longer.[2]
 
Against that backdrop, commercial arbitration in the Indian context assumes great importance. In 1996, India adopted the Arbitration and Conciliation Act, 1996 (“Act”),[3] based on the UNCITRAL Model Law on International Commercial Arbitration. However, whilst Model Law-compliant legislation is typically a hallmark of “arbitration friendly” jurisdictions, the first decade of the new millennium saw a number of Indian Supreme Court decisions that caused concern.
 
These precedents are largely of historical interest in light of recent statutory amendments. For present purposes, it suffices to observe that decisions such as Bhatia International v Bulk Trading S.A.,[4] Venture Global Engineering v Satyam Computer Services Ltd,[5] and ONGC Ltd v Saw Pipes Ltd[6] were seen as evidencing an unhealthy judicial appetite for interference in arbitration proceedings, and an approach to the enforcement of foreign awards that appeared out of step with other UNCITRAL Model Law jurisdictions. In particular, uncertainty and controversy emerged over the contours of the ground for setting aside an arbitral award on the basis of “conflict with the public policy of India[7] and its relationship with a similar exception as a ground for refusing to enforce a foreign arbitration award.[8]
 
The Supreme Court began to redress this situation with a 2012 decision known by practitioners as “BALCO”.[9] However, it is unnecessary to trace the further jurisprudential evolution of these issues, as they were quickly overtaken by legislative developments. By 2010, the Law Commission of India had commenced a consultation process on amendments to the Act, leading to a report in August 2014,[10] shortly after the election of a new government.
 
The path to becoming a global “arbitration hub”
 
Whether and how quickly India may become a global arbitration hub must be measured by actions, and not mere statements of intention alone. A number of positive steps in this direction have already been taken.
 
Firstly, the vast majority of amendments proposed by the Law Commission were swiftly implemented.[11] Noteworthy amongst these were provisions designed to encourage parties and arbitral tribunals to act in a time and cost efficient manner. This includes the introduction of a somewhat controversial 12-month limit to make an award. Significantly, the amendments also reverse controversial aspects of the prior jurisprudence, particularly in relation to the public policy exception. The relevant sections of the Act now expressly stipulate “for the avoidance of doubt” that the application of those provisions “shall not entail a review on the merits of the dispute”.
Secondly, the government passed separate legislation providing for High Court commercial court divisions, primarily in Delhi and Mumbai.[12] Arbitration applications and appeals arising out of the Act can now be heard in the commercial division in these two important cities.
 
These changes need to be accompanied by a shift in cultural paradigm.
 
In this regard, a significant challenge is to confront the lack of a developed culture of institutional arbitration in India. The current law minister recently lamented that the International Centre for Alternative Dispute Resolution (ICADR) in Delhi had conducted only 22 arbitrations in its 23 years of existence.[13]
 
The London Court of International Arbitration (LCIA) ventured into the Indian market in 2009, when it opened LCIA India in New Delhi. However, despite active marketing and well organised conferences, it proved unsuccessful, and ceased registering new cases on 1 June 2016. In some respects, LCIA India may have been an idea ahead of its time. In its report, the Law Commission identified the failure of institutional arbitration to spread in India as a serious issue.[14] As Prime Minister Modi declared at an arbitration conference in October 2016, the “creation of a vibrant ecosystem for institutional arbitration, is one of the foremost priorities of our Government."[15]
 
This challenge has already been taken up. In 2016, the Mumbai Centre for International Arbitration (“MCIA”) opened for business, with modern rules, including some of the more innovative features found in rules such as the 2014 LCIA Rules, including an emergency arbitrator provision. The MCIA is supervised by a council comprising experienced international arbitration practitioners from both within India and abroad. The extent to which commercial parties begin to include MCIA (or other institutions’) arbitration clauses in their contracts depends very much on whether the cultural shift desired by the government and Law Commission begins to occur.
 
Finally, the Law Commission articulated a concern that has for years caused malaise amongst practitioners in India about escalating costs and delay. There was a common perception that arbitrations had begun to resemble court proceedings, overseen by retired judges steeped in an ingrained culture of frequent adjournments, argued by counsel subordinating arbitration cases to their daily court commitments.[16] The Supreme Court had previously commented on the correlation between costs and the appointment of retired judges:
 
There is no doubt a prevalent opinion that the cost of arbitration becomes very high in many cases where retired Judges are Arbitrators. The large number of sittings and charging of very high fees per sitting, with several add-ons, without any ceiling, have many a time resulted in the cost of arbitration approaching or even exceeding the amount involved in the dispute or the amount of the award. (…)[17]
 
A cultural revolution in the practice of arbitration may be necessary, but it cannot be achieved by legislation alone. Embracing institutional arbitration may assist, but a change in attitude must ultimately evolve amongst the various actors inhabiting the ecosystem: litigants, lawyers, arbitrators, and judges.
 
Outlook
 
These developments are undoubtedly encouraging. However, an ecosystem is dynamic and must evolve over time. London grew its modern ecosystem over many decades, and it is well populated by a pool of talented arbitrators, a specialist arbitration bar, a specialist commercial court, litigation funders, and forensic experts. The government is endeavouring to put in place conditions conducive to nurturing a similar evolution in India, but it will take time.
 
At present, it is not the example of London, but rather Singapore that looms large. Some 44% of new cases in the Singapore International Arbitration Centre (SIAC) in 2016 involve Indian parties.[18] Singapore has very rapidly established itself as an arbitration friendly venue, and benefited from the uncertainties in Indian arbitration law which led to a shift, even by Indian parties, away from arbitration in India to other jurisdictions. It is this trend that the government is seeking to reverse.[19] SIAC now has two representative offices in India, and the MCIA will face strong competition in capturing market share. Although structural and systemic changes have now been carried out to raise India to international standards as an arbitration friendly jurisdiction, it remains to be seen whether the necessary cultural changes will flourish so as to establish it as a global arbitration hub.
 
Leigh Crestohl
Zaiwalla & Co LLP
Chancery House
53-64 Chancery Lane
London       
WC2A 1QS
Tel:  +44 (0)20 7312 1000
Web:  www.zaiwalla.co.uk 
Email:  leigh.crestohl@zaiwalla.co.uk
The author practices as a solicitor in London, and is a member of the Law Society of England & Wales, and the bars of Quebec and Ontario in Canada. He specialises in international commercial dispute resolution and arbitration, with particular experience representing clients in proceedings before international arbitration tribunals seated in London, Paris and Canada. He has particular experience acting for Indian, Middle Eastern and CIS clients in arbitration cases and proceedings before the English courts. He travels frequently throughout India speaking at conferences on arbitration and other commercial law topics.


[1]Foreign & Commonwealth Office, “India: Trade Factsheet” (July 2016).
[2]“Dropping the Scales”, The Economist, 19 May 2016 (on-line).
[3] No. 26 of 1996.
[4](2002) 4 SCC 105.
[5](2008) 4 SCC 190.
[6](2003) 5 SCC 705.
[7]  Section 34(2)(b)(ii).
[8]Section 48(2)(b).
[9] Bharat Aluminium Cov Kaiser Aluminium Technical Service, Inc. (2012) 9 SCC 552.
[10]Law Commission of India, Report No. 246, Amendments to the Arbitration and Conciliation Act 1996 (August 2014).
[11]Arbitration and Conciliation (Amendment) Act, 2015 (No. 3 of 2016).
[12] The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015(No. 4 of 2016).
[13]“Law ministry panel recommends revamp of arbitration framework”, Hindustan Times, 5 August 2017 (online).
[14]Supra, no. 10 at page 10.
[15]Prime Minister Narendra Modi, Speech at NITI Aayog “Global Conference on National Initiative Towards Strengthening Arbitration and Enforcement in India”, New Delhi 22 October 2016, text reproduced on www.livelaw.in/lets-make-india-global-hub-arbitration-pm-modi
[16]Supra no. 15, at pages 11-12.
[17]Union of India v Singh Builders Syndicate (2009) 4 SCC 523, at para 10.
[18]Singapore International Arbitration Centre, Annual Report 2016.
[19] Law Commission of India, Supplementary to Report No. 246 on Amendments to the Arbitration and Conciliation Act 1996 (February 2015), at pages 3-4.

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