Proposed amendment in arbitration law needs to be dropped
The fact that court cases in India drag on for decades, needless to say, is one of the reasons why the country continues to fare poorly on most global competitiveness rankings. While there is little the government can really do to unclog the country’s courts since this involves hiring lots of new judges as well as building new courts, getting a modern arbitration law was the obvious solution—that would leave the courts to rule on non-commercial matters, primarily. Once this law was in place, retired judges, chartered accountants and other professionals could be pressed into service as arbitrators, and in venues other than courts.
Despite several years of the law being in place, however, the alternative dispute resolution mechanism hasn’t really taken off. If that is so, it is due to the government’s obduracy as well as the fact that the initial law had some critical lacunae. When it came to arbitration awards that went against the government or a PSU, especially those from international tribunals, as we have just seen in the Reliance-ONGC award, the government’s first attempt was to challenge it in court; in this case, since ONGC lost, the government has said it will challenge it in an Indian court. Normally, arbitration awards can be challenged only on very limited grounds—otherwise, they too would get stuck in courts for decades—but this has never stopped the government. Indeed, in even the Tata-DoCoMo matter where the government didn’t have to shell out anything, it challenged the global award against the Tatas. Ironically, since the government never allowed the Tatas to meet their contract with DoCoMo, the Tatas were quite happy when the award went against them since DoCoMo could now get the money it had been promised by Tata.
The situation on domestic arbitration is not much better either. Under the earlier Indian law, if the losing party challenged the award in a court of law, the award never got implemented; the court didn’t have to rule on it, a mere challenge was enough and many courts were happy to entertain such challenges even though the grounds weren’t solid enough. So, the new law took care of this and said that an award would be stayed only if a court ruled on it. When the Delhi high court ruled on the issue, it said old arbitration awards, given before the new law was in place, would not come under its ambit—that is, if they were challenged in a court, they would be stayed. The Bombay High Court ruled the other way and, when the matter came to the Supreme Court, it ruled the way the Bombay High Court did. Since this would have meant PSUs who have lost arbitration awards worth tens of thousand crores would have to pay up immediately, they petitioned the government which brought in a new clause saying the new Act would not apply to old arbitrations. This makes a mockery of the arbitration process and also denies Indian industry tens of thousand crore rupees due to it. The government needs to drop this clause if it is serious about improving India’s ease of doing business environment.