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New ADRC in GIFT City Set to Revolutionize Global Arbitration and Third-Party Funding

The Union Budget 2024 has set a new course for the Gift City IFSC, attracting global fund managers to boost management and dispute resolution. Following the promises of the members of the Union Cabinet on various occasions and the entire vision for GIFT-IFSC, an expert committee dedicated to drafting institutional arbitral rules was constituted to set up the Alternative Dispute Resolution Centre (‘ADRC’). The arbitration centres in India are yet to scale up internationally.

The global alternate dispute resolution services market is projected to be 14.5 billion by 2030. Existing International Institutional Structures for Alternative Dispute Resolution Centres, such as the London Court of International Arbitration (‘LCIA’) can be traced back to 1883 when the Court of Common Council set up a committee to formulate recommendations, creating a tribunal dedicated to domestic arbitration. Like most other centres, LCIA started as a government-controlled body and transitioned into its current private, not-for-profit company structure. Similarly, the Singapore International Arbitration Centre (‘SIAC’) was set up in 1991 as an independent and not-for-profit organisation to provide a neutral dispute resolution platform.

Most prominent institutions for commercial arbitration observe this trend of transforming into a truly autonomous body. Consequently, the IFSCA framework will be facilitated by an internationally comparable regulatory framework under a special offshore status within India.

After comprehensively scrutinising the extant ADR laws in India and best practices worldwide, the committee suggested amendments to the existing enactments to streamline ADR services offered at IFSC and align them with the standards upheld by other international dispute resolution centres and global financial hubs.

Regulatory Architecture of ADRC 

The ADRC envisions resolving disputes arising from contracts executed anywhere in the world and between parties from different nations under the jurisdiction of other laws. Arbitration at the centre ought to be of international character, and hence, arbitrations seated at GIFT City are to be considered international commercial arbitration.

The committee opted for a (Section 8) Company Structure for the ADRC as a corporate body with perpetual succession, complying with the terms and conditions of the Companies Act 2013. For overarching governance, the ADRC is envisioned to have a four-tiered administrative structure consisting of a Board of Directors, an International Advisory Council, the Executive Council, and a Secretariat. Other issues for deliberations in the IFSCA Report that edge over the present court system include:

  • One of the most lucrative aspects of the ADRC is the enhanced choice of governing law for the parties bringing disputes to the IFSC. This means that if a multinational decides to set up aircraft leasing at the GIFT City and continue its business activities, it should not be restricted in the choice of law and courts to enforce its contract. Moreover, after the union budget, the government provided relaxations in customs. In particular, the repair period for maintenance and overhaul of aircraft and ships has been increased to a year. All things coming together shall facilitate ease of doing business.

  • A new ‘Documents-only’ procedure has been introduced under the Arbitration and Conciliation Act. It aims to allow parties to opt for a documents-only proceeding for the challenge and stay of the award passed by the arbitral tribunal.

  • The committee extensively deliberated on whether the statutory right to appeal against orders by an adjudicating authority (under section 34) should be removed for arbitration seated at IFSC. The committee suggested removing the additional layer of appeal (under section 37) and providing IFSC with a competitive advantage. It was suggested that the parties may apply to set aside an arbitral award (under section 34); however, if dissatisfied with the decision, they can approach the Supreme Court directly with a Special Leave Petition.

  • Presently, arbitration seated at IFSC does not necessarily fall under any category. Per the status of the parties, it may fall under purely domestic or international commercial arbitration. The Arbitration and Conciliation Act states that domestic arbitrations that do not fall under the category of international commercial arbitration are treated according to the substantive law of India.

  • The first-ever legislative text for third-party funding has been proposed within the ADRC to facilitate adoption and ease of arbitration. Third-party arbitration funding is introduced to address the liquidity hamper businesses face during disputes. Owing to the rise of TPF, jurisdictions like Hong Kong, Singapore, and Ireland have brought legislation to regulate it. In India,  per the Apex Court, there appears to be no restriction on third parties, or non-lawyers, funding litigation and getting repaid after the outcome of such litigation. In an arrangement wherein third-party funding is received by either of the parties between whom an agreement is executed, the funder's liabilities would depend on the terms of the agreement between the funder and the funded party.

    • The Expert Committee recommended a framework for ADRC that provides arbitration and mediation but is flexible enough to accommodate other alternate dispute resolution mechanisms, including those that may evolve. A testimony of the efforts, only so far, by the IFSCA and government has been the notable growth in the volume of business activities in the GIFT City across various sectors.

    Author: Anuroop Omkar

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