Making India a Hub of Arbitration: Bridging the Gap Between Myth and Reality

“Government has no business being in business” – Prime Minister Narendra Modi 

One of the fastest growing nations in the world is facing problems in becoming a hub of international arbitration. India has often been considered as a jurisdiction that sends mixed signals to the global investor community insofar as investments are concerned. Investors are often confused whether to invest in India or not. The efforts of the Government and the Judiciary in making India a hub of arbitration are praiseworthy however, somewhere we have lost the plot. Interestingly, India started early and was one of the first few countries to adopt the New York Convention in 1960 as compared to Singapore which adopted the same in 1986. Despite that, Singapore stands out as one of the leading centres for International Commercial Arbitration as parties prefer choosing it as a neutral venue for Arbitration. In a short span, Singapore has emerged as a hub of international arbitration alongside popular Arbitration hubs such as Paris, London and Geneva. The credit goes to the Supreme Court of Singapore that has upheld arbitration agreements, enforced foreign awards and construed public policy narrowly and the Government of Singapore that has ensured world class infrastructure and is known for its competence and integrity.

Every country aspires to become the centre of arbitration owing to various benefits that it entails. Also, every country wants to get more and more investment, but the investors take a note of various factors before investing in a country i.e. whether the country has a robust arbitration mechanism, whether the Courts and Government of that country are arbitration friendly or whether there is ease of doing business and stable environment, etc.

In India, most of the arbitrations are ad hoc and we are slowly moving towards Institutional Arbitrations. The Government has taken certain steps to make India a hub of arbitration. The Arbitration and Conciliation (Amendment) Act, 2019 , which was based on the recommendations of B.N. Srikrishna Committee Report, aimed to institutionalise Arbitration in India. It also provides for establishment of an Arbitration Council of India under Sections 43-A to 43-M. However, these steps are not sufficient. India can achieve its dream of becoming a hub of arbitration if the following issues are addressed.

Full-time Arbitration Lawyers

One of the major problems is that we do not have full-time arbitration lawyers. Lawyers often give second preference to arbitration matters and choose the time slot after the court hours for conducting arbitrations. After spending the entire day in court, they are already exhausted and thus, the proceedings do not go on for long. Also, sometimes they seek adjournments if they are in a court hearing and fix dates in arbitrations when they do not have hearings before the court. Similarly, some of the arbitrators, who are also practising in the courts, are unable to give sufficient time to the arbitration proceedings. Therefore, there is a need for full-time Arbitration Lawyers and Arbitrators who can devote sufficient time to arbitration so that there are no delays in the arbitration process.

Sloppy drafting of the law

Before the amendment of 2015, Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter “the 1996 Act”) was an invitation to file objections as it would automatically stay the operation of the arbitral award as soon as the petition under Section 34 was filed. This was a major hurdle in the execution of the arbitral awards. In 2015, this issue was addressed through the amendments made to the 1996 Act. However, the language of the Amendment Act was such that it took three years to understand whether the Amendment Act applied to pending Section 34 petitions or not. Even when the judgment of BCCI[1] was passed, another Section 87 was introduced by the legislature which was later struck down in Hindustan Construction Co. Ltd. v. Union of India [2] . A lot of judicial time got wasted to give clarity to these amendments.

Lack of proper law

The Arbitration and Conciliation (Amendment) Bill of 2021 seeks to amend Section 36 of the 1996 Act and raises several concerns as it provides for an unconditional stay on the operation of the award in case fraud or corruption is involved. This will take us back to the era of the automatic stay of arbitral awards as it would make it convenient for the judgment-debtors to avoid their obligations under the award. There is an ambiguity as to what constitutes fraud or corruption as it has not been defined under the 1996 Act. Thus, in every case a judgment-debtor may allege fraud and corruption for getting an unconditional stay on the operation of the award. As a result, the enforcement of awards will get more difficult and the ease of doing business will be adversely affected.

The Government has recently brought in amendments after amendments which shows that issues were not properly addressed, and the amendments were not properly drafted. In spite of a number of amendments, the seat versus venue conundrum has not been addressed in any of the Amendment Acts. Another example is Section 29-A which is contrary to the idea of minimum judicial interference as enshrined in Section 5 of the Act and an application under Section 29-A may itself take more than a year to decide whether an extension of six months should be granted.

Lack of institutional arbitration

In spite of a few good centres like Delhi International Arbitration Centre (DIAC), Nani Palkhivala Arbitration Centre (NPAC), Mumbai Centre for International Arbitration (MCIA), etc. India still does not have any institution that can be considered in the same league as Singapore International Arbitration Centre (SIAC), International Criminal Court  (ICC), London Court of International Arbitration (LCIA), etc. Most of the Arbitrations in India are ad hoc which is a major reason why arbitration mechanism in India is not robust. A world class arbitral institution would also need a renowned arbitration expert, e.g.  SIAC was led by Gary Born. Owing to the busy schedule of litigation lawyers in India, it is unlikely that any leading lawyer would thoroughly engage with an arbitration centre.

Judicial intervention

Another issue is inadequate support from the Courts. We have seen that there are judicial delays because the courts are overburdened. Once an arbitration matter gets entangled in the Court, then it gets delayed and it cannot be ascertained as to how much time the matter will take. For instance, if we take the example of a Section 34 petition, which deals with challenge to an arbitral award, the same may take forever to decide. The petition is also heard as an appeal by various courts in spite of clear directions from the Supreme Court that the Court under Section 34 does not sit over as an appeal and cannot go into the merits. In many cases, the courts have re-appreciated the evidence and have permitted the counsels to argue the merits of the case at length.

The other problem is that some of the judgments delivered by the High Courts have turned out to be bad jurisprudence. This is because it is not possible for all the courts in India to be on the same page. In fact, we have seen some regressive judgments even by the Supreme Court e.g. ONGC v. Saw Pipes Ltd.[3] We must remember that it takes years to undo the harm which such judgments cause. This forms a perception of India as a jurisdiction which is not arbitration friendly and where investments are not safe.

Practice of Appointment of Retired Judges as Arbitrators

It is surprising to see that the best arbitrators are overburdened with arbitrations because there are not many options to choose from. The reason is that we do not let young arbitration lawyers be appointed as arbitrators and as a result, mostly the retired Judges are appointed. This practice must be done away with and young lawyers must be appointed as arbitrators in disputes. This will make the arbitration mechanism more robust as a whole and the quality of awards will also not suffer. Usually, it gets impossible to maintain the quality of awards while having a huge quantity of arbitration matters. No other country is thus fond of appointing only retired Judges as arbitrators like ours.

Moreover, the appointment of young lawyers as arbitrators is also in line with the disclosure prescribed by Schedule 6. According to the Schedule, the arbitrator is bound to disclose how many ongoing arbitrations he is handling and whether he will be able to finish the arbitration within one year or not.  Also, in highly technical matters, we need skilled arbitrators from a particular field such as maritime arbitration.

Inadequate Representation of the Arbitration Issues: Need for an Arbitration Bar

The leaders of the Bar Associations do not speak about the arbitration issues as they are too busy dealing with the problems of the Court. This is one of the major reasons why the issues relating to arbitration mechanism are not highlighted or addressed. Thus, there is a pressing need to have a Bar to address the prevailing issues and the concerns of the arbitration practitioners.

Rigid Approach of the Arbitrators

Another reason why the arbitration mechanism has failed is because of the rigid approach adopted by the arbitrators. If in a tribunal there is an arbitrator who is strictly going by Civil Procedure Code, 1908 (CPC) and evidence, as opposed to Section 19 which categorically states that strict rules of evidence and CPC will not apply to arbitration, then the whole purpose is defeated. This is because the arbitration proceedings in such cases become just like a civil suit.

In addition to this, Arbitrators generally do not control the cross-examination. We have seen lawyers asking unnecessary and repeated questions, which eventually delays the arbitration proceeding immensely. Thus, the arbitrators must not sit as spectators when the cross-examination is taking place instead, they must control the cross-examination and should not permit questions that are based on contents and interpretation of documents.

Other issues faced during Arbitration Proceedings

The arbitration proceedings in India suffer from other difficulties such as absence of professionalism and mannerism. Arbitrators do not have dates for proceedings for months. This, in turn, leads to unnecessary delays. There is also a dire need to emphasise on the ethics and duties of Arbitrators as well as counsels.

Problems posed by the Public Sector Undertakings (PSUs)

We must focus on PSUs as most of the cases are filed by them. PSUs have a tradition of not settling and contesting till the end. The Government must direct the ministries concerned to analyse which cases should be contested and which should not be contested. For instance, if the award is a reasoned one then the same should not be challenged.

Government Interference

None of the institutions of the world including ICC, SIAC, LCIA, are Government controlled. On the other hand, the New Delhi International Arbitration Centre and Arbitration Council of India have members from the Government. Therefore, a lot will depend on the functioning of Arbitration Council of India and Government’s interference should be least in arbitration matters.

Suggestions and concluding remarks

Arbitration in India is like an unruly horse that moves forward, backward and sometimes even sideways. Undoubtedly, in the past few years, there has been a significant growth of arbitration in India. The situation has improved and now various arbitration centres have come up. These institutions are playing a significant role in strengthening arbitration in the country through their operations and are also imparting knowledge to the general public by organising number of conferences. However, we must remember that hubs are not made by getting a five-star property or by creating the infrastructure only. Making a building is not the only thing required as Delhi already has a lot of buildings. A lot will depend on the honest implementation as bringing amendments is not enough. Also, arbitration culture is required in other cities such as Kanpur, Ludhiana, Kolkata, Lucknow, etc. which are also hub of businesses. Focus should not only be on Delhi and Mumbai.

Ease of doing business, enforcement of contracts, and execution of arbitral awards are some key factors that will help in making any jurisdiction attractive for investment. Former Chief Justice of India Ranjan Gogoi, while speaking at an event organised by India Today, has highlighted the need of having a robust system to deal with commercial disputes. It is pertinent for India to adopt a pro-enforcement approach in order to increase the confidence of the foreign investors.

In cases where well-reasoned awards are passed by the Tribunal, the same should not be challenged by the parties. As officers of the court, lawyers should not resist arbitration or file frivolous challenges to the award to resist enforcement. Effective enforcement of awards would help in making arbitration more robust in India. This, in turn, will help in attracting more investment, which will prove to be beneficial for the economy as a whole. Indian economy is largely dependent on agriculture. It is important to get more investments in other sectors as well such as exports, infrastructure, etc.

There is lack of awareness in the general public about choosing arbitration over litigation. The reason is that institutions in India do not proactively hold conferences like SIAC and ICC. Thus, more awareness campaigns should be introduced to educate the society at large. Additionally, the students, practitioners and other members of the legal fraternity should be trained and encouraged to step in as full-time arbitration lawyers. Apart from this, less judicial interference is required. We should also look at the possibility of welcoming foreign lawyers to come and do arbitrations in India.

* Principal Associate at Advani & Co.

[1] Board of Control for Cricket in India v. Kochi Cricket (P) Ltd., (2018) 6 SCC 287.

[2] 2019 SCC OnLine SC 1520.

[3] (2003) 5 SCC 705.