India’s Reform of Arbitration
Marine Maffre Maucour, Senior Consultant, Driver Trett France explains India’s Reform of Arbitration: an attempt at commercial attractiveness.
Arbitration in India has historically been subject to ad hoc procedures, however that is about to change through the proposal of two Bills. In a country with an ambition to become a hub for Arbitration, do the changes outlined in these Bills go far enough?
Galloping urbanisation and the need for infrastructure has made the construction market one of the main drivers of GDP growth in India.
In an emerging country with a predicted GDP growth of 7.5% for 2019-20201, where most industrial and public infrastructure projects can be considered unprecedented, large numbers of foreign investors and contractors have already taken an active part in the construction of buildings, airports, metros, highways and railways for example:
- The Navi Mumbai Airport project which plans to increase capacity to 60 million passengers per year;
- The Dedicated Freight Corridor comprising 3,300 km of “freight-only” Railway Tracks;
- The Bharatmala project - the construction of 35,000km of highways across 16 states over a 5-year period for Phase I;
- The Sagarmala project - the modernisation of all 12 of India’s existing major ports and the construction of 5 new ‘megaports’.
India seeks foreign direct investments through its Ministry of Commerce & Industry to supplement domestic companies in “establishing a ‘lasting interest’ in an enterprise that is resident in an economy other than that of the investor”2.
However, foreign companies are often obliged to establish local partnerships to comply with a “lasting” requirement, such players are all the more eager to safeguard their interests and to limit the sources of uncertainty should a dispute arise.
Consequently, where attracting and promoting key foreign investment is key to sustaining economic growth, Arbitration has a broader importance.
In such a context, adopting arbitration to resolve potential cross-border commercial disputes, thus avoiding domestic Indian courts and laws which have been suffering from a poor reputation, can be a very attractive option for foreign investors and contractors.
To some extent, the lack of confidence in the Indian courts reflects a fear of partial decisions favouring Indian entities. However, it could also result from the fact that parties seek to compromise and settle to avoid enforcement issues still faced for certain arbitration awards in India.
For these reasons, the potential for the use of Arbitration in India is an attractive reform for those seeking to make dispute resolution procedures in India more credible and effective.
The Arbitration & Conciliation (Amendment) Bill 2018 aims at addressing the challenges set out above to instil more confidence in foreign investors by “dusting off” the administration of arbitration and ensuring its independence.
The ongoing Arbitration process appears as a typical example of India’s exceptional iterative capacity.
Arbitration in India is currently governed by the 1996 "Arbitration and Conciliation Act" which is largely based on Article 34 of the UNCITRAL Model Law.
India participated in most of the frame agreements following the New York Convention in 1958 related to international arbitration. In this regard, the enforceability outside India of an award made in India will depend upon whether or not the foreign jurisdiction has signed the agreement.
India is also a party to the 1923 Geneva Arbitration Clauses Protocol and the 1927 Geneva Convention for the Enforcement of Foreign Arbitral Awards. To this extent an arbitration award is binding and most of the awards reached by major arbitration seats are enforceable in India.
Nevertheless, the lack of control of the ad hoc proceedings has led the law commission of India to issue a report in August 2014 containing measures to reform the "Arbitration and Conciliation Act". At the top of the list is the aim to reduce the number of reasons upon which an award can be challenged and to clarify issues relating to the enforcement of foreign awards. Based on the recommendations published in August 2014, an order was issued in October 2015. This order was ratified following the "Amendment Act" of 31 December 2015.
Key dates
The Amendment Act led to several changes (such as accelerated proceedings, stronger response toward conflicts of interest and arbitrators’ impartiality, provisional measures, a one-year time frame to provide the award) but it has not fulfilled all expectations.
The amendments are too recent for there to be any measurable results recorded. However, the amendment was considered incomplete by some players willing to go further and promote institutional arbitration in India and to provide confidence to international investors and contractors.
India is however, strenuously trying to overcome its reputation of being interventionist towards international arbitration.
The Indian Government established a dedicated committee chaired by Mr. Justice B N Srikrishna, Retired Judge, Supreme Court (‘the Srikrishna Committee’) which issued a report in August 2017. The aim was to establish a real institutional framework for arbitration in India. The Srikrishna Committee Report recommendations were gathered into two Bills.
The ‘New Delhi International Arbitration Centre Bill, 2018’ was presented to the lower house of parliament in January 2018 and the ‘Arbitration and Conciliation (Amendment) Bill, 2018’ introduced in August 2018.
One of the key measures brought by the ‘New Delhi Bill’ is the strengthening of the current International Center for Alternative Dispute Resolution, which at the same time became the New Delhi International Arbitration Center. The purpose of this operation is mainly to provide this institution with means to become emblematic in the conduct of national and international arbitrations.
Thus, the new version of the International Center for Alternative Dispute Resolution is to administer arbitrations, promote Alternative Dispute Resolution, offer training and cooperate with other institutions related to arbitration, in India or abroad.
The creation of a new body called the Arbitration Council of India to act as a regulator aims to oversee and record Indian arbitration institutions, but also to certify and accredit the arbitrators and grade arbitral institutions.
The Srikrishna Committee also concluded that limiting international arbitration proceedings to one year (as per established with the previous amendment) was irrelevant and extremely restrictive. The imposition of a confidential regime was also deemed necessary and added to the Arbitration and Conciliation (Amendment) Bill introduced in August.
However, while some argue that additional challenges remain unsolved (for instance, to date The Arbitration and Conciliation Act remains silent on third-party funding) critics suggest that changing the recently enacted law once again will create confusion and uncertainty, two significant drawbacks for foreign investors.
My personal feeling remains quite positive. There is no doubt that Indian authorities are now convinced they need to keep developing and securing the dispute resolution procedures in order to be attractive. Thus, promoting institutional arbitration seems relevant. However, both the scale of ambition and the magnitude of challenges facing Indian legislators demonstrates the complexities involved in reaching a unanimous and satisfactory outcome.
It is not a surprise to see that discussions on the Bills are still ongoing before the amendment of the arbitration law passes. Will India achieve its ultimate objective: being recognised by foreign parties as a global arbitration hub? Time will tell (and the Indian polychronic vision of time will definitely need to be kept in mind!) but it is certainly moving in the right direction.
Footnotes and Sources
1 World Bank Global Economic Prospect Report June 2018
2 Department of Industrial Policy and Promotion Ministry of Commerce and Industry Government of India, Consolidated FDI Policy (Effective from August 28, 2017)
India: A further revamp of arbitration - for better or worse? CMS Cameron McKenna Nabarro Olswang LLP.
DISPUTE RESOLUTION IN INDIA-FREQUENTLY ASKED QUESTIONS, Ravi Singhania, Shambhu Sharan, Madhu Sweta and Yaman Kumar
Proposed 2018 Amendments to Indian Arbitration Law: A Historic Moment or Policy Blunder? Pranav Rai
THE LONG AND WINDING ROAD OF ARBITRATION IN INDIA, EXAMINING 20 YEARS OF THE INDIAN ARBITRATION AND CONCILIATION ACT OF 1996
Amendment to the Arbitration and Conciliation Act 1996, 246th Report of the Law Commission, 05 August 2014.
Ordinance amending the Arbitration and Conciliation Act 1996, 23 October 2015.
Arbitration Reform in India: Challenges and Opportunities, Hiro N. Aragaki
Arbitration Bill 2018 – Regressive and Retrograde, Bar & Bench
Review of Foreign Direct lnvestment (FDI) policy on various sectors, Government of lndia Ministry of Commerce & lndustry Department of lndustrial Policy & Promotion FDI Policy Section Press Note No. 1 (2018 Series)
Department of Industrial Policy and Promotion Ministry of Commerce and Industry Government of India, Consolidated FDI Policy (Effective from August 28, 2017)
Economic Outlook for Southeast Asia, China and India, OECD Development Centre’s 2019 edition.