Law

How Realistic Is India’s Dream of Becoming a Global Arbitration Hub?

From judges' specialisation in arbitration to creating incentives for those deciding where to take cases, a number of factors go into building an arbitration-friendly atmosphere.

In the wake of governmental efforts like the introduction of the New Delhi International Arbitration Centre (NDIAC) Bill, 2018 in the Lok Sabha, India is, at least on paper, all set to present itself and compete with other jurisdictions like London, Paris, Geneva, Singapore and New York as a global arbitration hub.

While Prime Minister Narendra Modi made the intention of the government with regard to arbitration amply clear domestically through his valedictory speech at the conference organised by the NITI Aayog on ‘National Initiative towards Strengthening Arbitration and Enforcement in India, the Union minister of law and justice reiterated the same at an international forum – the BRICS summit in 2016. Indeed, by conferring the status of “institution of national importance” to NDIAC, it seems that the government is serious about this ambitious plan.

It appears reasonable to call this plan an ambitious one, as it gives rise to several pertinent questions like whether merely opening a considerable number of arbitration centres is sufficient to transform India into a global arbitration hub. In light of Clause 14(a) of the Bill, that envisages the NDIAC as a flagship institution for conducting international and domestic arbitration, what will be the future of existing institutions like the Indian Council of Arbitration, under the aegis of the Federation of Indian Chambers of Commerce and Industry (FICCI), that has been functioning for more than half a century?

Considering the recent judgment by the Supreme Court on the issue of entry and practice of foreign lawyers and law firms in India, and other initiatives like the establishment of the Mumbai Centre for International Arbitration (with support from the Maharashtra state government) and contemplation of the NDIAC Bill (a Union government initiative), it’s important to analyse the likelihood of India’s success as a global arbitration destination. Both aspects: India’s success as the “juridical seat/place” i.e., the law governing the arbitration; and India as a preferred venue for conducting arbitration proceedings administered by Indian arbitral institutions, need to be discussed.

As the idea is also to strengthen enforcement of foreign arbitral awards, an analysis will be done from an enforcement perspective, though in a limited manner.

Jurisprudential certainty

It is no surprise that in the arbitration framework, it is the choice of “seat” along with the choice of arbitration institution that captures the interest of stakeholders. “Arbitration friendliness” and other practical aspects also play a key role in determining the success of an arbitration destination.

Before the commencement of the Arbitration and Conciliation (Amendment) Act, 2015 the Supreme Court on various occasions had the opportunity to address intrinsic issues related to international commercial arbitration. In ONGC vs Saw Pipes, the court added “patent illegality” as a separate head under the public policy exception, eventually allowing courts to practically revisit the merits of a dispute already decided by an arbitral tribunal. Further, in BALCO (though widely-appreciated as a welcome step in streamlining arbitration jurisprudence), the court overruled its previous judgment in the Bhatia International case, and limited the applicability of part I of the Arbitration and Conciliation Act, 1996 in the context of the power of Indian courts to grant interim relief in arbitrations “seated” outside India.

In light of the cases mentioned, it may be suggested that the 2015 amendment to the arbitration law of India was an inevitable intervention to stop the judiciary from further developing unreliable arbitration jurisprudence. However, the success of these legislative efforts largely depends on the kind of interpretation they receive from domestic judges while dealing with arbitration-related matters. Considering the complexity involved in corrective measures to be taken by the legislature, and that unreliable jurisprudence can be created even at the highest level of the judiciary as seen through the cases mentioned (with utmost respect to the overall credentials of respective judges), it may be constructive to explore possibilities of appointing judges with demonstrable experience and/or knowledge in the field of arbitration.

The prime minister, during the same speech at the conference mentioned, while quoting Roscoe Pound, affirmed that “The law must be stable but it must not stand still.” As arbitration cannot survive in isolation, the role of domestic courts to “aid/support” the arbitration process at various stages like for the appointment of arbitrators, grant of interim relief and assistance in taking evidence cannot be ignored while discussing the effectiveness of a comprehensive effort to strengthen arbitration in the country. Considering such a role of the domestic courts, irrespective of the nature of arbitration as international or domestic, it becomes inevitable to discuss relevant provisions of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 which will now be the jurisdictional basis for domestic courts dealing with arbitration related matters.

Though the Act provides for the appointment of judges in commercial courts, commercial divisions of high courts and commercial appellate divisions of high courts (collectively referred to as commercial courts) with “experience in dealing with commercial disputes”, there are no further provisions ensuring specific specialisation in the field of arbitration. Taking into account the wide scope of “commercial disputes” as defined under Section 2(1)(c) of the Commercial Courts Act, it would be practically challenging to appoint judges with specialisation in each branch of a “commercial dispute”, however, considering the fact that arbitration, as a procedural element in a legal dispute, has considerably evolved and frequently poses complex issues before domestic court judges, a commercial matter with an arbitration clause deserves a differential treatment through the appointment of judges with specialisation in the field of arbitration. The need for the same was also highlighted by the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India.

Though discussing the details of the commercial courts, functioning in various forms, in other jurisdictions like Abu Dhabi, Dubai, Singapore and Qatar is outside the scope of this article, one thing is settled that under the Commercial Courts Act, 2015, there is no scope to take benefit from the knowledge and experience of international judges (judges from other nationalities forming a part of the bench). Thus, it becomes even more important to ensure specialisation in the field of arbitration (preferably commercial arbitration) for domestic judges who will preside over such commercial courts.

The government may consider making necessary amendments to Section 3(3) of the Commercial Courts Act, 2015 to include judges with demonstrable experience and/or knowledge in the field of arbitration.

Enforcement of foreign arbitral awards

Not only in “aid/support” of arbitration, but domestic courts will also face complex questions related to law of arbitration after the arbitral award has been rendered; at the stage of enforcement.

With the 2015 amendments to the arbitration law of India, especially the clarification of the scope of “public policy” exception, a consistent jurisprudence can be expected to evolve regarding the enforcement of arbitral awards arising out of domestic arbitrations or arbitrations “seated” in India (avoiding the discussion whether parties to an arbitration having Indian nationality are allowed to choose a foreign seat or not, and if allowed, whether it will still qualify as a domestic arbitration as per the definition provided under the arbitration law which is solely based on the nationality of persons).

However, in the near future, with regard to “foreign awards” subject to enforcement proceedings before the domestic courts in India, the judiciary is likely to face interesting issues like whether to consider enforcing an arbitral award that has been set-aside by the courts at the “seat” or whether to follow “international public policy” school of thought or “domestic public policy” school of thought while adjudicating enforcement proceedings under the “public policy” exception. These issues have already been dealt with by the courts in France and the US, however, as the opinion remains divided, stakeholders in India have to wait till a definite jurisprudence evolves through Indian case laws. Indian courts, yet, did not have the opportunity to answer such questions. Attitude of the judiciary in addressing such issues will ultimately decide the country’s overall image as “arbitration friendly” or otherwise.

Other incentives including the right to a lawyer of one’s choice

Along with characteristics of a neutral and impartial jurisdiction, “arbitration friendliness” is often understood in terms of establishing a pro-enforcement regime. It can be suggested that though pro-enforcement character remains one of the primary considerations while analysing the arbitration regime of a particular jurisdiction, other incentives may also play a crucial role.

The Singapore model sets close to a perfect example on this by providing fiscal and other work-related incentives:

Tax exemption for non-resident arbitrators: Income derived by a non-resident arbitrator for arbitration work carried out in Singapore for the period from May 3, 2002 to March 31, 2020 will be exempt from tax, subject to qualifying conditions. This is applicable to all non-resident arbitrators who are appointed for any arbitration which is governed by the Arbitration Act or the International Arbitration Act or would have been governed by either of those Acts had the place of arbitration been in Singapore.

Work pass exemption for arbitration services: Non-residents do not need to apply for a work pass to carry out arbitration work in Singapore for up to 90 days in a calendar year. The only requirement is to have a Short-Term Visit Pass issued by the Immigration and Checkpoints Authority of Singapore along with notifying the Ministry of Manpower by submitting an e-notification.

The above information certainly compels the stakeholders in arbitration to push for more, in terms of policy measures. However, considering a recent judgment by the Supreme Court, it appears there are more pressing issues to address first.

The Supreme Court in the Bar Council of India vs A.K. Balaji & Ors. (2018), while interpreting, Sections 29 and 33 of the Advocates Act, 1961 held that foreign lawyers are not allowed to “practice” in India even in non-litigious matters including international commercial arbitration. The court further clarified that the same restriction will apply to entities or association of lawyers. It modified one of the directions given by the Madras high court (in the same case) which allowed foreign law firms or foreign lawyers to visit India for a temporary period on a “fly in and fly out” basis, for the purpose of giving legal advise to their clients in India regarding foreign law or their own system of law and on diverse international legal issues.

After a neutral analysis and from a legal perspective, the concerned judgment, though has the potential of discouraging stakeholders from preferring India as an arbitration destination, it cannot be categorised as “bad law” as the court was supposed to interpret the impugned provisions of the 1961 Act and the rules framed thereunder. The court acknowledged the importance of international trade and commerce along with associated dispute resolution services like international commercial arbitration, and observed that the legislature is free to bring necessary changes to the law in accordance with the policy objectives of the incumbent government.

Interestingly, during the pendency of the case before the court, the government in 2017 amended Rule 76 of the Special Economic Zones Rules, 2006 apparently making legal and accountancy services from foreign entities possible in the Special Economic Zones.

Taking that into account, the anomaly exists that whether foreign lawyers or law firms will be allowed to provide legal services in India (in this context, in the field of arbitration). If, in practice, the decision goes against foreign lawyers and entities, it will pose serious threat to India’s dream of becoming a global arbitration hub as it will violate one of the sacred principles in international commercial arbitration or for that matter in any adjudication that is the right to be represented by a representative or a lawyer of one’s own choice.

Further, there may be a counter-argument that the rules of relatively popular arbitral institutions in India – the MCIA and the ICA do not provide, in express terms, the right to be represented by a representative or a lawyer of one’s own choice, but rather ensures adequate representation in a fair and equitable manner. However, it would be difficult to appreciate this counter-argument as it goes against the settled practice in various other jurisdictions like London, Paris and Singapore, where for arbitration proceedings, foreign lawyers and law firms are allowed to provide legal services in arbitration proceedings.

In light of this anomaly, an additional issue may arise from an enforcement perspective of “foreign awards” where the arbitration was administered by an arbitral institution in India. Article V(1)(b) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (hereafter the New York Convention) provides that the enforcement of the award may be refused if the party against whom the award is invoked “was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case”. In a situation where an international commercial arbitration (with a foreign “seat”) is administered by an arbitral institution in India, the enforcement of the arbitral award in India, arguably, may be challenged under the concerned provision of the New York Convention as the party against whom the award is invoked was otherwise unable to present his case “effectively”. This may affect the overall preference for Indian arbitral institutions.

Establishment of an arbitration bar

Our initial, if not primary, aim should be to substantially reduce the number of domestic disputes from reaching foreign jurisdictions like Hong Kong and Singapore for resolution through arbitration. In order to achieve the desired results, the establishment of a robust arbitration bar is inevitable. An arbitration bar would ensure the availability and accessibility to people at large, of practitioners with knowledge and experience in the field of arbitration.

On March 7, 2018, the Union cabinet chaired approved the Arbitration and Conciliation (Amendment) Bill, 2018 for introduction in parliament. Under this, the Arbitration Council of India is proposed to be established as an independent body primarily to grade arbitral institutions and accredit arbitrators in India. Its functions can be extended to creating an arbitration bar with enrolment of arbitration practitioners. An alternative could be the establishment of the bar by the NDIAC (an institute of national importance) in extension of its function to facilitate arbitration in the most professional manner as provided under Clause 15(a) or as a part of the “Chamber of Arbitration” to be established by the NDIAC for maintaining a panel of reputed arbitrators.

An initiative of national importance like the NDIAC can play an important role only when other factors, discussed above, are conducive. A consistent jurisprudence relating to arbitration matters tops the list of initiatives to be taken. Considering the complexities involved in bringing changes through legislative measures, a comprehensive legislative intervention like the 2015 amendments to the arbitration law of India cannot be expected on every occasion, and thus it becomes inevitable to ensure specialisation for judges dealing with arbitration related matters. Moreover, jurisprudential certainty will help foster public confidence in arbitration as a dispute resolution mechanism as opposed to traditional courts.

In relation to the success of Indian arbitral institutions, it can be suggested that the government may focus more on its role as a regulator. Considering the business-model arbitral institutions adopt worldwide, their establishment and functioning may be left for the private sector.

Somesh Dutta specialises in international dispute settlement. He is currently based in Paris, working with the public international law and international arbitration practice of a leading international law firm.