Indian arbitration on a slow road to death: Greatest resistance to arbitration posed by govt depts & PSUs

June 01, 2021 5:00 AM

The economy will require many measures for its revival in the time to come. Boosting arbitration should certainly be one of them. It is still not too late.

The ultimate aspiration was to get foreign parties to opt for an India-seated arbitration, much like Singapore where 80% of disputes arbitrated comprise international litigants.

By Payal Chawla

When the Arbitration and Conciliation Act 1996 was amended in 2015, to ensure time-bound completion of arbitration with minimal judicial interference, the general consensus was that India was finally ready to be the next arbitration destination. The ultimate aspiration was to get foreign parties to opt for an India-seated arbitration, much like Singapore where 80% of disputes arbitrated comprise international litigants.

The important ingredients of a successful arbitration model are the expeditious delivery of awards, limited judicial interference, a strong legal and English-speaking fraternity, opening doors to the international legal community, third-party funding, a strong institutional arbitration framework and keeping pace with international legal developments.

The amended Act provided for time-bound completion. The judiciary, to its credit, exercised restraint and refused to set aside awards except for cogent reasons. The courts also passed some landmark judgements to ensure that gaps were plugged in and awards were swiftly executed. Further, India has a strong English-speaking community of legal professionals and an indigenously developed robust jurisprudence. The stage was set. Or so we thought.

Though the Act was again amended in 2018, the amendment was found wanting on several aspects. Even recommendations made by the Supreme Court were not incorporated. In 2019, another set of amendments were brought in, but these were only partially notified.

Often, the stakes and the consequent legal fees are high, and funding becomes a necessity. Contracting parties are more likely to opt for jurisdictions which permit third-party funding. While several competing jurisdictions including Singapore, and Hong Kong opened their markets to third-party funding, we failed to even do away with the archaic principles of maintenance and champerty.

Further, no country can aspire to be an international hub of arbitration without opening its borders to foreign law-firms. International clients are bound to choose a jurisdiction where their preferred legal teams can be present. The government itself, acknowledged this, before the Madras High Court in 2010. In 2014, the government expressed its desire to have a phase-wise opening of the legal sector.

However, the Supreme Court, in 2018, in Bar Council of India v. A. K. Balaji and Ors, restricted foreign lawyers to ‘fly in and fly out’ on a casual basis to give advice. However, the court granted liberty to the Bar Council and government, to make specific legislation in regard to foreign lawyers. Despite this, no law was legislated.

Seclusive policies coupled with the continuance of retrospective taxation, refusal to renew bilateral investment treaties, insistence on the 2016 Model BIT, frequent policy vacillation (often driven by short-term fiscal gains) did not help matters. And the focus began to turn to domestic arbitration. If the government—the largest litigant—incorporates arbitration clauses, a robust economy around arbitration could get built, reducing the work-load of the courts.

But surprisingly, the greatest resistance to arbitration is posed by government departments and PSUs themselves. The diffidence to embrace arbitration is due to expeditious delivery of arbitral awards and disposal of appeals. It appears this efficacy in the system is also leading to a speedy outflow of disputed monies from the coffers of the government departments and PSUs. The approach also drives corporations to bankruptcy, in an already-hurting economy.

Instead, the government chose to amend the Act once again. In 2020, courts were given the power to stay a domestic arbitral award at the execution stage, if the agreement or award was obtained by fraud—a wholly unnecessary amendment since the law was already sufficiently armed to deal with the issue. The only impact this will have is to delay execution of a domestic arbitral award.

Indian arbitration is on a slow road to death, like much around us. As we struggle to grasp the enormity of the unfolding human tragedy, there is no mind-space even to spare a thought to the monetary calamity set to befall us. The economy will require many measures for its revival in the time to come. Boosting arbitration should certainly be one of them. It is still not too late. The government must course-correct and do so with immediate effect.

Writer is founder of JusContractus

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Covid-19 vaccine: 100 crore shots done, but can’t vax eloquent
2Inflexion Points: Amend Electricity Act for a future-ready power system
3Fortify nutrition efforts: Not just hunger index, NFHS data also points to malnutrition