The government aims to put India on the global institutional arbitration map with The New Delhi International Arbitration Centre Act, 2019, and The Arbitration and Conciliation (Amendment) Act, 2019.
The first act proposes that the New Delhi International Arbitration Centre (NDIAC) takes over the undertakings of the International Centre for Alternative Dispute Resolution (ICADR), an autonomous New Delhi-based dispute resolution forum set up by the government in 1995.
The NDIAC will compete with other established international hubs such as the London Court of International Arbitration (LCIA), the Singapore International Arbitration Centre (SIAC) and the Hong Kong International Arbitration Centre (HKIAC).
But questions are being asked about the laws’ efficacy. Will they deliver?
It has been evident for some time that India has an ambition to establish itself as a leading hub for international institutional arbitration. That aside, the country’s overburdened judicial system stands to benefit greatly from the creation of such a centre.
The Indian government’s economic survey, tabled in parliament in July, said the country’s judicial system has a backlog of around 35 million pending cases, of which 87.5% is pending in district and subordinate courts.
So, with the courts in Asia’s third-largest economy battling to clear a huge backlog, the formation of the NDIAC could well provide relief for the judicial system, helping ease that burden.
There is also the government’s push towards making India more business-friendly to consider. The NDIAC could help boost India’s ratings as far as “ease of doing business” rankings go in reports such as that of the World Bank.
But, the NDIAC act, as it stands, has raised several concerns, particularly about autonomy.
Stakeholders, and India’s opposition parties, have argued that the government’s approach could rob the NDIAC of its autonomy, its neutrality, and therefore its relevance.
Speaking in the upper house of the parliament in July, former finance minister P Chidambaram, who is also a senior lawyer, said, “… It will be in the larger interest of this country, it will inspire confidence, if the central government maintains as much distance as possible from this centre. On the contrary, what this bill does is bring the government so close to the centre, it’ll be seen as a sarkari [government run] arbitration centre…”
Practitioners India Business Law Journal spoke with argue that only a fully autonomous centre, devoid of government intervention, can make India an international hub for institutional arbitration.
The NDIAC act, 2019, is a step in the broad framework envisaged by the amendment bill to further institutional arbitration in the country, says Tine Abraham, a partner at Trilegal, New Delhi.
A focus on better institutionalized arbitration will attract quality experts to India, and as a consequence, substantially reduce the cost incurred in the process of arbitration by Indian parties, especially at various international institutions.
Though these are steps in the right direction to promote arbitration institutions in India, “the [act] does contain certain significant drawbacks,” says Abraham.
“The amendments on institutional arbitrations are based on recommendations of the high-level committee report headed by Justice B N Srikrishna,” she says. “However, the [Act] makes critical departures from the committee’s recommendations. For example, (1) the council will comprise seven members, of whom most are either appointed or nominated by the central government, and (2) the council has been granted the power to frame regulations for discharge of its wide functions and duties. This may raise issues of over-legislation, as well as expose the independence of the council to risk, as the government of India is the largest litigator.”
Both acts indicate there could be too much government interference in arbitration in India going forward.
“The premise of the Srikrishna committee report on institutionalization of arbitration in India, released in July 2017, was that the Indian government should support institutional arbitration in the country and not control it,” says M P Bharucha, a senior partner at Bharucha & Partners, Mumbai. “The Arbitration and Conciliation (Amendment) [act], 2019, provides that the government will control all appointments to the Arbitration Council of India (ACI), which, to my mind, makes no sense.”
Bharucha adds that the issue of how the system must go about appointing arbitrators also needs more clarity.
“With the bills having passed both houses of the parliament, the government will need a few years to iron out the wrinkles and establish a world-class arbitration centre here, and one of the things that it needs to ensure to attract users is neutrality”, says Sanjeev Kapoor, a partner at Khaitan & Co, New Delhi. He stresses that the government’s involvement and interference in an international arbitration centre must be minimal.
Arbitration centres in London, Singapore and Hong Kong are known for their neutrality, and for their timely awards. “The New Delhi centre’s neutrality will be questioned if most of the governing members are appointed by the government,” says Kapoor. “If that happens, the centre will fail to attract foreign interest, as it may not be perceived to be neutral. An international arbitration centre in New Delhi must be able to match the credibility associated with arbitration centres in competing mature jurisdictions.”
Hasit Seth, an independent counsel in the Bombay High Court, notes the government’s big ambitions with the NDIAC, but labels its attempt “inchoate”. Regarding the Arbitration and Conciliation (Amendment) Bill, 2019, he says the appointment of arbitrators was not the most critical problem to resolve.
“Courts are quite fast in appointing arbitrators,” says Seth. “It is unclear if arbitral institutions appointing arbitrators will insist on arbitrations happening under their own rules and at their own premises, both factors where institutions have a vested interest.
“The ACI is an attempt to find non-judges as arbitrators. But again, the ACI remains in danger of descending into a bureaucratic quagmire. Another round of amendments is inevitable to iron out the wrinkles. As an arbitration practitioner, I can only hope that these layers of regulations put on arbitrations in India do not destroy the core principle of party autonomy in arbitrations.”
“Arbitral claims come in various shapes and sizes,” says Karan Singh Chandhiok, who heads the dispute resolution and competition law practice at Chandhiok & Mahajan, New Delhi. “The timelines on these suits vary. Legislating timelines such as, ‘statement of claims and defence shall be completed within six months’ is a clear example of over-prescription.
“An easier method would be to prescribe an 18- or 24-month period for arbitrations to conclude. This would have preserved the flexibility.”
Bharucha adds that legislation could be good in itself – illustrated by the Commercial Courts Act – but given the nature of commercial contracts and systemic issues, law suits do not progress the way legislation expects them to.
“The issue of how the system must go about appointing arbitrators needs more clarity,” he says. “On what basis do you grade an arbitrator? If a case takes two years to conclusion, given complexities involved, two years could be justified, but then, will the arbitrator be graded as below par?”
“What makes arbitration so special that it needs to be regulated (through the ACI) in this manner in India? This is unprecedented,” argues Chandhiok.
Arbitration in any jurisdiction is a sort of club, he says, and by creating barriers to entry via qualification and grading, one would end up making that club smaller than it already is. “And who’s to say that the qualification and grading isn’t subjective?”
Chandhiok assumes that the NDIAC will use the ICADR premises in Vasant Kunj, New Delhi, which is about an hour’s drive away from the city’s central business district. “If you look at Maxwell Chambers, where the SIAC is located in Singapore, or the LCIA location on Fleet Street in London, they are central. The institute and its infrastructure must be easily accessible to two key users, arbitrators and practitioners.
He notes that the ICADR has received 53 cases since its 1995 inception. “If you compare this with the centrally located Neeti Bagh Club, which provides facilities for ad-hoc arbitrations, it probably hosts hearings for more than 53 cases every month.”
Chandhiok and others believe the future of institutional arbitration in India is “under-regulation”, and the government’s efforts should be directed towards simple capacity building.
With the NDIAC almost complete, Seth says the government can do three things to make it succeed: (1) create and follow a multi-decade policy of encouraging arbitrations, and avoid knee-jerk lawmaking in the arbitration space; (2) accept and implement international and domestic arbitration awards where any government entity is a party with demonstratable sincerity; and (3) keep bureaucratic culture away from the NDIAC and let enthusiastic professionals manage it.
“The prudent thing to do would be to invest the ₹200 million (US$2.8 million) earmarked for the creation of the arbitration council into an arbitration academy. Eventually, better arbitrators will surface,” says Chandhiok.
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