Editorial: Arbitrary vs arbitration

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Published: January 5, 2015 12:49:47 AM

High time India’s arbitration laws were fixed

While confusion remains over whether the government has in fact cleared an ordinance to fix India’s arbitration procedures, it is important to keep in mind what finance minister Arun Jaitley asked at the Make-in-India function last week: Why is it that most foreign investors want a clause in their agreements that necessitates arbitration in overseas locations? The ordinance that the Press Information Bureau referred to, but then quickly withdrew, was trying to fix this by putting strict timelines for courts deciding on a challenge to an arbitration award, and for arbitral courts to dispose off matters. Since that will be a big step forward, it is to be hoped the ordinance comes in quickly and that Parliament passes it when this is introduced in the next session.

Fixing the arbitral process, however, will require a big mindset change, and perhaps a complete rewriting of the Arbitration and
Conciliation Act of 1996, ironically modelled along the lines of the United Nations law in order to bring India’s law on a par with global standards. The very first challenge that potential arbitrations find when they are being filed against the government—and there has been a spate of such demands in the last few years—is of getting the arbitration panels together. Reliance Industries took close to three years to get its panel together and, in order to do this, had to even approach the Supreme Court. Nor do such delays apply to just the government. Section 9 of the Act allow for ‘interim’ protection to disputing parties even as they approach the arbitral tribunal. It has been found that once this interim protection is given, parties delay approaching the tribunal.

It is once this is over, and an arbitral award given, that the fun and games really begin. In the infamous case of Australian mining firm White Industries, White won its arbitration against Coal India in May 2002, but Coal India got this set aside by the Calcutta High Court—the case is still pending in the Supreme Court. Meanwhile, White applied for justice under the India-Australia Bilateral Investment Treaty (BIT)—it argued the delay in enforcing an arbitral award violated the ‘effective means’ standard incorporated in the BIT, and won the case in 2011 though the government argued the case did not come under the jurisdiction of the BIT. Section 34 of the Act allows courts to set aside awards on grounds of ‘public policy’ and, thanks to a Supreme Court judgment, on grounds of what is called ‘patent illegality’. All of which means you have a pretty much open-ended challenge to arbitral awards—even those given at an international location—and till this is settled, you have an effective stay of the award. Since the whole idea behind arbitration clauses is to avoid cluttering up the courts and to look for speedy remedies, the sooner the government addresses the issue, the better.

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