INDIA AS A HUB OF INTERNATIONAL COMMERCIAL ARBITRATION: THE CHALLENGES

By Bhavy Jyoti Sharma

Legal Intern, H.K. Law Offices

ABSTRACT

International commercial arbitration is a very big aspect of dispute resolution because most of the disputes are settled under its ambit. Thus, it is one of the very important fields where India as a country needs to be ahead. India needs to be a hub of international commercial arbitration, to succeed in the field. Thus, the article will seek to answer many questions pertaining to India being a hub of international commercial arbitration. 

The article seeks to find out:

A. What qualities does India has as a country to be the hub? 

B. What is the current position of India in the field?

C. What are the challenges faced by India in the field?

D. What are the recent developments made to achieve the goal?

INTRODUCTION

Today the whole global trading community accepts arbitration and specifically international commercial arbitration as an effective tool to resolve commercial disputes. The main reason that this is found to be an effective tool is that parties are reluctant to get the matter resolved through the national court of the other party, which may come with an unknown language, law or culture. Thus, it is needless to say that international commercial arbitration is known to be one of the most effective tools and is highly used to resolve disputes between the parties. 

To understand this in depth, we need to understand what arbitration is and why is it needed. According to Redfern and Hunter on International Arbitration, “Arbitration, in short, is an effective way of obtaining a final and binding decision on a dispute, or series of disputes, without reference to a court of law.”[1]

Arbitration is a form of Alternative Dispute Resolution, which means alternative ways to resolve dispute. It includes many forms such as arbitration, mediation, conciliation, etc. Arbitration presents an alternative to the judicial process in offering privacy to the parties as well as procedural flexibility.[2]

Arbitration in its easiest form, can be defined as procedure started to resolve a dispute between two parties by a person called arbitrator (appointed by both the parties), whose decision is binding. It is an outside court settlement which means that one can resolve the dispute outside the court through settlement. Now that we have understood the meaning of arbitration, the other question that may come into the mind of the readers is, why arbitration is important and the most effective way to resolve a dispute? 

It is evident that arbitration is one of the most effective ways to resolve a dispute between two parties. The main reason that arbitration is found to be effective is that it provides neutral forum to parties for dispute resolution. Additional reasons may include that it is faster as compared to litigation. Disputes generally take years to get settled in courts as compared to the process of arbitration. Another reason is that arbitration is cheaper than litigation. Litigation is costly because it takes more number of hearings as compared to arbitration. It also provides more flexibility, since the process is very flexible as compared to litigation. Other than that, the confidentiality of the arbitral proceedings are also maintained unlike in litigation. Further, other ADR methods such as Mediation is also cheaper and expeditious process where confidentiality is maintained but the result of mediation is not binding whereas, the final result of arbitration i.e. Arbitral Award is binding upon both the parties. Thus, it is also perceived to be an alternative to litigation and best among ADR techniques to tackles disputes and conflicts in International Commercial market. 

INTERNATIONAL COMMERCIAL ARBITRATION

Since we are going to talk about international commercial arbitration throughout this paper, it is necessary that we take a look at the definition of international commercial arbitration given in section 2(1)(f) of The Arbitration and Conciliation Act, 1996. 

An ‘international commercial arbitration’ means an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is-

i. an individual who is a national of, or habitually resident in, any country other than India; or 

ii. a body corporate which is incorporated in any country other than India; or

iii. a company or an association or a body of individuals whose central management and control is exercised in any country other than India; or

iv. the Government of a foreign country[3]

Therefore, it can be interpreted that international commercial arbitration is a kind of arbitration where at least one of the parties to the dispute is from a foreign country. All the international disputes whether contractual or not, are considered to be commercial dispute. 

WHAT DOES IT MEAN TO BE AN INTERNATIONAL COMMERCIAL HUB?

While making India a hub of international commercial arbitration, the first question one may ask is- what is an international commercial arbitration hub and what makes a country an ICA hub?  To answer this question, the focus should be on the factors of an international commercial hub. 

There are many factors that makes a country an international commercial hub, some of them are:

i. A Corrupt Less Legal System: A corruption free system provides faith in the legal system. Parties to a dispute would often choose a corrupt less legal system which may give them a faith of neutrality and impartiality. Thus, parties would choose a corrupt free country as the seat for arbitration. 

ii. Speedy Settlement of Disputes: A country’s capability of delivering speedy decisions is one of the main criteria of parties to choose the country as their seat. Thus, it is important for the country to deliver speedy decisions to become an ICA hub. 

iii. Convenience of Location: The party to dispute will choose a seat while thinking of accessibility and cost of stay in the country. Thus, such a location will be preferable to become an ICA hub. 

iv. New York Convention: It may become difficult for parties an enforce arbitral awards in their favour without their seat being a party of New York Convention. Thus, it is important for a country to either be a party to New York Convention or has a better system than that to become an ICA hub.

INDIA’S POSITION IN INTERNATIONAL ARBITRATION

Arbitration and dispute resolution itself is a very new field in India. Although, arbitration has proved itself to be better alternative to litigation yet there are many challenges the country is facing regarding the international arbitration. 

The focus is to create an ADR friendly environment in order to make India an ICA hub. The focus is also to have better facilities to attract foreign parties in terms of corrupt free system, speedy decisions, etc. 

Today due to covid 19 the situation has changed for better. ADR and specially international arbitration is growing as a field. More lawyers are practicing it and there is a possibility of India being more comfortable with arbitration in future. Thus, it may become suitable for an ICA hub in near future. 

INDIA AS A HUB OF INTERNATIONAL COMMERCIAL ARBITRATION 

It is obvious that India has a lot of potential to become a hub for international commercial arbitration but how will India be as an ICA hub? It is important to visualise the goal to work upon it. Thus, it is important to see how India will be an ICA hub in order to convert India into one. India would have some basic features as an ICA hub, which are discussed below-

A. Common Law: The legal system in India is based on common law system which is practiced throughout the world. The language of the legal system is too a common language- English. Thus, considering the commonality of language and legal system followed, India will be more preferred by foreign parties for the seat of arbitration. 

B. New York Convention: India is a party to New York Convention. As stated earlier it is important for the parties to dispute that their seat is either a signatory to New York Convention or has a better system than that. Thus, India would have more chances of being chosen as seat by foreign parties.

C. Supportive Arbitral Regime: Courts started looking from a pro arbitration approach since 2012. There had been many new amendments and acts including NDIAC Act, 2019 and Arbitration and Conciliation (Amendment)Act, 2021 which shows that India is trying to create a pro arbitration environment which will increase its chances of being an ICA hub in future. 

CURRENT CHALLENGES FACED BY INDIA REGARDING INTERNATIONAL ARBITRATION

As stated earlier, arbitration is an emerging field in India. Thus, there are many challenges that India is facing to become a hub for international commercial arbitration. Some of those challenges are stated below-

i. Corruption: As discussed earlier, a party will always look for a seat which is corruption free, whereas the rate of corruption in India is much higher for it to become an ICA hub. 

ii. Lack of Efficient Arbitration Institutions: Although India does have some Arbitration institutions including Delhi International Arbitration Centre, Mumbai Centre for International Arbitration, etc. Still India lacks the efficiency that Singapore International Arbitration Centre, London Court of International Arbitration, etc has maintained. Most of the arbitrators practice ad hoc in India, Thus, institutional arbitration lacks the efficient arbitrators. 

iii. Retired Judged Appointed as Arbitrators: Young lawyers get less chances to be appointed as arbitrators it is mostly the retired judges who are appointed as arbitrators. Thus, we have less arbitrators and more cases leading to overburdened arbitrators. 

iv. Judicial Intervention: Once the matter goes to the court, it may take end number of years. Thus, it becomes unfavourable for foreign parties and reduce the chances of India being a seat for dispute resolution. 

v. Government Intervention: Almost all the efficient Arbitration Centres including LCIA, SIAC, etc are independent of Government control whereas in India NDIAC or MCIA are still functioning under the control of government since they have many members from government in the institution. Thus, government’s Intervention should be least in Arbitration.

vi. Lack of Arbitration Bar: Members of Bar Council are not vocal about arbitration issues. Thus, many of the urgent Arbitration issues may not get resolved due to lack of attention they deserve.

EFFORTS OF GOVERNMENT TO MAKE INDIA A HUB OF ICA

It is the vision of India to become an international commercial arbitration hub in near future. Although, there are many challenges faced by India in this journey which are already discussed. The government is trying to overcome these challenges in order to make India an ICA hub. 

In 2019, the government came up with New Delhi International Arbitration Centre Act, 2019. The act was introduced to establish an independent institution to manage arbitration better. As stated earlier, one of the challenges for India is that it lacks an independent institution that can function efficiently. Thus, this act was introduced to increase the efficacy in managing arbitration in the country. The Bill specifies that the NDIAC will establish a Chamber of Arbitration which will maintain a permanent panel of arbitrators.  Further, the NDIAC may also establish an Arbitration Academy for training arbitrators and conducting research in the area of alternative dispute resolution.  The NDIAC may also constitute other committees to administer its functions.[4]Chamber od Arbitration, panel of permanent arbitrators, training for those arbitrators, encouraging research in the field will help India to overcome the problem of less institutional arbitrators and will ultimately make India more preferable for ICA hub. 

Another step taken by government was amendment in Arbitration and Conciliation Act, 1996. The government has amended section 43(j) and section 36 and omitted eighth schedule of the act through this amendment. There had been many such amendments such as amendment of 2015 and 2019 since India is looking forward to become an ICA hub for which development in many areas are crucial. 

CONCLUSION

It is a big honour for any country to be a hub of international commercial arbitration and so it is for India too. Arbitration or dispute resolution as whole is still a new and emerging field in India but it is growing swiftly and that’s the reason why India can become a hub of international commercial arbitration.

India qualifies many of the conditions or factors that an international commercial arbitration hub must have. Although there are still many challenges faced by the country which are needed to be resolved without any delay in order to make India an ICA hub. The government is working on many of the challenges and has passed some acts and made some amendments in order to develop the country and make it pro arbitration. The courts are also trying their best to have a pro arbitration approach while giving judgements which can be seen since 2012. 

Thus, there are many initiatives going on to make India an ICA hub but there is still a long  way ahead and many more developments are needed in the country to make it more preferable as an ICA hub.

REFRENCES

  1. Redfern and Hunter on International Arbitration, 6th edition
  2. Arbitration and Conciliation Act, 1996
  3. Making India a hub for International Arbitration: https://www.scconline.com/post/2021/02/17/making-india-a-hub-of-arbitration-bridging-the-gap-between-myth-and-reality/?amp
  4. New Delhi International Arbitration Centre Bill, 2019: https://prsindia.org/billtrack/the-new-delhi-international-arbitration-centre-bill-2019
  5. Making India a Global Hub for Arbitration: https://www.thehindubusinessline.com/opinion/making-india-a-global-hub-for-arbitration/article34152992.ece

[1] Redfern and Hunter on International Arbitration, 6th edition, 2015

[2]Redfern and Hunter on International Arbitration, 6th edition, 2015

[3] The Arbitration and Conciliation Act, 1996

[4] https://prsindia.org/billtrack/the-new-delhi-international-arbitration-centre-bill-2019

Published by meghachaturvedi

Associate Partner, H.K. Law Offices

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