Preferring foreign arbitrators

Written by Indu Bhan | Indu Bhan | Updated: Jan 30 2014, 08:19am hrs
Famous jurist Nani Palkhivala had once said: If longevity of litigation is made an item in Olympics, no doubt the Gold will come to India. Recently, law and justice minister Kapil Sibal said in the Lok Sabha that more than 32 million cases are pending in high courts and subordinate courts across the country. As per December 2012, there are at least 27.6 million cases pending in subordinate courts while 4.4 million are pending in various high courts.

Around 66,349 are pending in the Supreme Court as of December 2013. In this scenario, it is no surprise that arbitration is increasingly emerging as the most effective and favoured method of settling high-stake commercial disputes. As companies are wary of litigation in India because of the endemic delays and expensive court battles, well-drafted arbitration clauses are now becoming integral part of contracts between corporates.

This alternate dispute resolution (ADR) mechanism is not only less expensive but also results in a prompt settlement of disputes compared to courts and further chances of litigation are minimised as it is through mutual consent. But even with this growing faith in arbitration throughout the world, India is yet to emerge as a destination for resolving foreign disputes. The current dispute resolution system in India is time-consuming, antique and cumbersome. As a result, even most of the Indian companies are increasingly preferring foreign venues for resolving of differences. Even the Supreme Court has backed dispute resolution on foreign shores. Last week, it allowed a dispute over the Board of Control for Cricket in Indias media rights between World Sport Group (Mauritius) and MSM Satellite (Singapore) to be decided by the Singapore-based International Chamber of Commerce (ICC).

The dispute between the Tata Industries and the AV Birla Group over Idea Cellular was also referred to the apex court-appointed arbitral tribunal in 2008. Even Mukesh Ambani-led Reliance Industries is seeking appointment of an umpire arbitrator from a foreign country to preside over an arbitral tribunal set up to resolve differences with the petroleum ministry over cost recovery for developing the KG-D6 gas field off the coast of Andhra Pradesh.

The most popular arbitral institutions are based outside India. The Singapore International Arbitration Centre and Industrial Arbitration Court, Singapore topped the list, closely followed by the International Chamber of Commerce and London Court of International Arbitration.

The disadvantages of an arbitration in India are: lack of a pool of trained arbitrators; tendency to conduct arbitrations like court proceedings; courts ongoing struggle with relinquishing control and giving primacy to the arbitral process and the absence of strong domestic arbitration institutions. The tendency of courts to supervise the process and even overturn the arbitral awards goes against the spirit of the new Arbitration and Conciliation Act, 1996, based on the modern UNCITRAL Model Law, which provides for maximum judicial support of arbitration and minimal intervention.

Absence of credible and efficient Indian arbitral institutions is also a major drawback. Lack of ability on part of retired judges to work in sync with the best practices of international commercial arbitration is a big issue.

With economic liberalisation in full swing, there is a need to provide with fast track arbitration. To plug this gap, the courts need to take a less interventionist approach towards arbitrations.

While drafting, arbitration agreements must clearly reflect the intention of the parties. Well-drafted arbitration clauses are not only advisable, but necessary. Law firms need to strengthen themselves in this area by engaging domain experts. Also world-class arbitration centres or institutions, which will have readily available, impartial and reliable expert panel of arbitrators at competitive rates, will enhance the credibility of robust arbitration mechanism and attract faith of global companies as well.

Less preference should be given to appointing lawyers mastering court-craft techniques as more meaningful negotiators and mediators are needed.

To make India a compelling choice for the conduct of international arbitration, let there be only one court to scrutinise the arbitrators award, otherwise parties would avoid giving finality to the arbitral awards. In this regard, the present arbitration law may be suitably amended so as to have clear provisions to mitigate all the drawbacks in the implementation of the ADR mechanism in India. Of course, the role of bar in successful implementation of the real alternative to court proceedings in commercial matters cannot be denied.