With almost 30 million cases – no that is not a typo! – currently pending before the courts, and some commercial claims taking up to 15 years or more before judgment is given, it is no surprise there is an increasing appetite for arbitration in India.
However, the ad hoc nature of India-seated arbitrations, whereby a retired judge sits after court hours, but without an arbitral institution (such as the ICC and LCIA), leaves much to be desired. For example, disagreements over the selection of arbitrators requires resolution from the courts, further lengthening a dispute.
Keen to change investor perception and boost confidence in respect of contractual enforcement, the Indian government wants to make the nation a ‘leading hub’ for arbitration in Asia. However, that goal may not be realised if a controversial bill passes into law.
‘Having pushed the Sisyphean rock of Indian arbitration painfully step by step up the steep slope of international acceptability it will release that boulder to plummet in free fall back down again,’ said Lord Goldsmith QC when describing India’s Arbitration and Conciliation (Amendment) Bill 2018 earlier this year.
Speaking at the 11th Annual International Arbitration Conclave in New Delhi in February, Lord Goldsmith said the amendment act could ‘set back the cause of Indian arbitration by perhaps a generation’ as it ‘prohibit[s] the appointment of foreign lawyers as arbitrators in Indian-seated arbitrations’.
Passed by the Lok Sabha (Lower House), but yet to be considered by the Rajya Sabha (Upper House) or receive the president’s assent, the amendment bill states: A person shall not be qualified to be an arbitrator unless—(i) is an advocate within the meaning of the Advocates Act, 1961 having [ten] years of practice experience as an advocate…, leading the former Bar Council chair to conclude arbitrators ‘would have to be an Indian advocate to qualify’.
Although the chair of Asian and European Litigation at Debevoise & Plimpton accepted there would be some exceptions for other qualifications – Indian chartered accountants, for example – it would nevertheless ‘prohibit the appointment of many experienced and able arbitrators’ including experienced ships masters, architects, and doctors. This is a problem for India.
Leading lawyers contacted by fivehundred agree with Lord Goldsmith’s interpretation and consequences of the bill. Sanjeev Kapoor, a partner in Khaitan & Co.’s Tier 1 disputes practice, says the draft legislation creates ‘an innate bias’ towards the appointment of Indian practitioners as arbitrators.
‘Given the more developed arbitration bars in other jurisdictions,’ says Kapoor, ‘it would be beneficial, solely from a knowledge sharing perspective, for foreign lawyers to be appointed as sitting arbitrators even in domestic arbitrations in India.’
In agreement, former solicitor general and associate member of 3 Verulam Buildings in London Gopal Subramanium says the bill’s restrictions may also be a barrier for companies based outside India to agree to designating the arbitral seat in India.
‘Indian arbitrations will certainly benefit from the experience of counsel from jurisdictions that have mastered, if not perfected, the practice of arbitration,’ he continues. ‘This experience would range from the professionalism with which one approaches a case to specialist knowledge of legal fields.’
Autonomous arbitration
In his speech, Lord Goldsmith also took aim at another ‘pernicious’ element of the bill, namely a proposal to have the Arbitration Council of India (ACI) act as regulator. ‘The idea that a government appointed body should regulate arbitration and arbitrators is anathema to the idea of free and autonomous arbitration,’ said the former UK attorney general.
With ACI members appointed, and their salaries approved, by the government, Kapoor is likewise wary of the bill’s proposals. ‘Such factors definitely cast a shadow of doubt over the independence of ACI and prejudicially affect the idea of a fair, unbiased, and autonomous regulator especially when government and public sector institutions are one of the biggest consumers of Indian arbitrations,’ he says.
‘Further, given that the ACI is proposed to be the repository of all arbitral awards, and the fact that in India, a large number of arbitrations involve public sector undertakings, there is no clarity on how confidentiality would be maintained.’
Assuming foreign-qualified lawyers can be arbitrators in India-seated arbitrations, the idea of government regulation would pose a threat to the idea of arbitration as we understand it, says Subramanium, former Bar Council of India chair.
‘In a single stroke, the Eighth Schedule [of the bill] takes away the liberty of an arbitral institution to choose the arbitrators on its panel. Institutions must now choose arbitrators that meet the criteria, effectively prohibiting an institution from creating a specialist panel tailored to its own specific needs.
‘Further, while state regulation may provide some transparency to the functioning of arbitral institutions, state-accreditation of arbitrators may prove to hamper their independence and impartiality.’
Asked to comment on whether the bill would negatively impact Indian arbitration, Percival Billimoria, formerly a partner at Cyril Amarchand Mangaldas but now independent counsel and door tenant at Outer Temple Chambers in London, says: ‘It’s not about capabilities but availability. Indian arbitrators who are good are equally capable [as foreign arbitrators] but they are quite few in number. ‘There are a lot of high-value arbitrations which are India seated and very few good arbitrators. Therefore, allowing foreign lawyers to be arbitrators in India-seated arbitrations is essential. So yes, to that extent if it is enacted in its present form this provision will be counterproductive.’
Kapoor, however, suggests the bill does contain positive elements that would help grow commercial arbitration in India. The New Delhi-based partner says the bill is ‘essentially geared towards expediting the appointment of arbitrators; reducing court interference in the process at all stages; encouraging institutional arbitration; and development of a strong arbitration bar with requisite legal, contractual, and commercial expertise capable of giving reasoned and enforceable awards’.
Liberalism needed
It seems odd, to say the least, that while there is increasing desire in politics – and elements of the legal profession – for an open legal market in India (see fivehundred, issue 01), we are also seeing the passage of a conservative bill likely to undermine the nation’s hope of establishing itself as an arbitration hub.
As Kapoor explains, given the rapid growth of investments in India, commercial contracts entered into between Indian and foreign parties may contain foreign governing law, making the ability to appoint an expert familiar with said law crucial.
‘If foreign lawyers are prevented from being appointed as arbitrators in India-seated arbitrations, then parties may consciously start choosing alternative seats, such as Singapore, Hong Kong, or London for their cross-border contracts involving Indian parties,’ he opines.
When asked what the benefits to parties arbitrating in India are, Billimoria replies: ‘Cost is one huge factor. However, if you have a substantial matter you may be better off with foreign-seated arbitration, the way things stand right now.’
‘For businesses, India offers the advantages of an English-speaking population and a legal system based on common law,’ says Subramanium. ‘These traits though aren’t unique to India, with Singapore being the most notable jurisdiction to share them.’
India could learn from its neighbours to the south east. The Singapore government’s positioning of the city-state as a dispute resolution hub continues to prove successful: the Singapore International Arbitration Centre received 452 new cases in 2017, a 32% increase on 2016 and a 67% increase from 2015.
‘In terms of professionalism and experience, India has the ability to catch up with Singapore or Hong Kong,’ adds Subramanium. ‘Indian companies themselves often choose Singapore as the seat for their arbitration. For many companies, one benefit of arbitrating in India would be the lower costs incurred.
‘In view of the fact that Singapore, Hong Kong, London, Sydney, and New York are well-known centres of arbitration, and in the light of growing business and free flow of expertise, a liberal arbitration regime is needed for encouraging both investment and professional arbitration in India.’
While the amendment bill is, some respects, an improvement, it’s not a panacea. If the draft legislation continues in its current state, then it seems unlikely the nation of over 1 million lawyers will ever challenge its near neighbours as a premier arbitration venue.
Reasons to hope for arbitration in India
Sanjeev Kapoor, disputes partner at Khaitan & Co, explains the benefits to arbitrating in India as opposed to other jurisdictions across Asia
Why should clients consider choosing India as their arbitration seat?
- Certainty of proceedings: Only the higher judiciary in India (i.e. the High Courts and Supreme Court) are able to exercise supervisory jurisdiction over international commercial arbitrations, rendering greater certainty to proceedings;
- IBA Rules on Conflict of interest in International arbitrations: The Arbitration and Conciliation Act, 1996, has incorporated the IBA Rules on conflict of interest in international arbitrations which provides for declaration by the arbitrators of their relationship with
the parties and counsels.
These provisions ensure independence and impartiality of arbitrators;
- Limited Scope of challenge: Challenge to enforcement of arbitral awards on the grounds of public policy is limited by stipulating that both in case of domestic and foreign awards, there cannot be a review of the award on merits for determining whether there has been a contravention of the fundamental public policy of Indian law;
- Availability of International Arbitral Institutions: India permits parties to have their arbitration proceedings administered through foreign arbitral institutions, including SIAC (Singapore International Arbitration Centre), ICC (International Chamber of Commerce), HKIAC (Hong Kong International Arbitration Centre), LCIA (London Court of International Arbitration), etc.;
- Fast track Arbitrations: Parties to an India-seated arbitration, while entering into a contract, have the freedom to opt for an expedited arbitration procedure. In the event of such an option being exercised by the parties, the arbitration has to be completed within six months from the date of appointment of the arbitrator;
- A good, talented pool of lawyers experienced in complex commercial disputes available; and
- Easy geographical access and connectivity.
What elements of The Arbitration and Conciliation (Amendment) Bill 2018 will help grow international commercial arbitration in India?
- Amendments to ensure lesser interference of courts in the appointment process of arbitrators which would bring with it time and cost efficiencies. In the event the ACI could be made an autonomous body outside the sphere of influence of the Government of India, this would be an extremely effective measure;
- Given the 12 month timeline for completion of all arbitral references was unrealistic for complex commercial arbitrations, the Amendment Bill has made a two-fold change: (a) in case of domestic arbitrations, the 12-month time limit prescribed for completion of the arbitration proceedings will commence after exchange of pleadings is complete (for which a new time limit of six months has been introduced). This provides a comfortable time frame to arbitrators and parties to ensure completion of arbitrations within the statutory timelines without seeking extensions thereto, bringing with it time and cost efficiencies; and (b) the applicability of the timeline has been done away with for international commercial arbitrations. The rationale appears to be that there is an innate assumption that such arbitrations are typically more complex and it may be impractical to have them adhere to such a stringent timeline. Whether this would result in advantages in terms of cost savings in approaching the Indian courts for repeated extensions or cause avoidable delays in completion of proceedings is a matter to be assessed empirically later.
- Parties, in an application for setting aside a domestic arbitral award, are restricted to proving their case by reference to documents produced in arbitration. This curtails the scope of challenging arbitral awards and will promote finality of awards and greater respect for the arbitral process; and
- An obligation of confidentiality has been imposed upon parties in terms of arbitral proceedings, thereby brining it at part with international norms in this regard.