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Arbitration in India: a glass half empty or half full?

Arbitration in India: a glass half empty or half full?
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First Published: Fri, Nov 18 2011. 12 22 AM IST

Legal woes: A file photo of the Supreme Court of India. The dilution of the arbitration Act by the court’s judgements is worrying practitioners. By Mint
Legal woes: A file photo of the Supreme Court of India. The dilution of the arbitration Act by the court’s judgements is worrying practitioners. By Mint
Updated: Fri, Nov 18 2011. 12 22 AM IST
New Delhi: Businesses have always been wary of India’s courts because of the delays in cases. Which is perhaps why, a decade and a half after the Arbitration and Conciliation Act, 1996, was passed, a new study reveals that arbitration has become a well-established method of settling commercial disputes.
Legal woes: A file photo of the Supreme Court of India. The dilution of the arbitration Act by the court’s judgements is worrying practitioners. By Mint
Arbitration, along with conciliation and mediation, is an out-of-court method of resolving problems between persons or companies, who have previously agreed to allow a third party (arbitrator or a panel of arbitrators) to decide the case, pass an award and enforce the same.
Detailed arbitration clauses are now integral parts of high-stake contracts. Law firms have separate practice areas for arbitration and a growing number of foreign lawyers, retired judges and domain experts are being engaged to decide disputes. Also emerging are arbitration centres or institutions that provide basic rules and a readily available panel of arbitrators with a prescribed fee structure.
But with this growing faith in arbitration, a parallel scepticism has also crept in over the dilution of the law, ironically, by courts themselves. At the heart of the malaise afflicting arbitration is the tendency of courts to supervise the process, thereby going against the spirit of the law—which was to provide an alternative route to the court process.
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Through the Saw Pipes judgement (2003) the Indian Supreme Court effectively took into its domain the finality of a dispute that was meant to be settled by arbitration, according to lawyer Sumeet Kachwaha.
In Saw Pipes, the court said an arbitration award could be challenged on its merits, thus nullifying the finality of a tribunal’s decision. In Patel Engineering (2005), it said the appointment of an arbitrator was a judicial, not administrative function, thereby subjecting appointments of panellists to long litigation (Kachwaha adds that sometimes it could take a few years for an arbitrator/arbitrators to be appointed). In Venture Global (2008), the court held that even a foreign arbitration award could be challenged, hence subjecting even these to the jurisdiction of Indian courts. This judgement came in spite of India having adopted the 1958 New York convention, under which countries accept the finality of foreign arbitration awards.
In April 2010, a policy paper was introduced by the law ministry to amend the arbitration Act in a bid to rectify the situation. It sought to address the above issues in the arbitration process such as the enforcement of foreign awards, minimal interference of courts and the finality of decisions as if they were decrees of courts of law.
“It was a sensible sort of a move. It was widely circulated domestically and internationally, including to the International Bar Association. The momentum has been lost. So much work had gone into it,” says Kachwaha of the stagnation on the policy paper.
Nakul Dewan, a practitioner of domestic as well as international arbitration, disagrees that the government’s proposed amendments are suited to streamlining Indian and international arbitration.
“I think the consultation paper still has a lot of gaps to fill. It doesn’t really capture the way arbitration is practised internationally. It maybe suitable in an Indian scenario. It actually seeks to enhance a court’s supervisory powers over an award. Now that’s not how its gone internationally,” says Dewan, who also practises in Singapore.
“We’re missing the step that we’re not giving predominance to the agreement between the parties to subject themselves to arbitration. If we’re two commercial people who have chosen to arbitrate, we should live with it. There’s more justice in respecting the parties’ decision to arbitrate. Practitioners in India are still hesitant to accept this view,” he explains,
Arpinder Singh, a partner at consulting firm Ernst and Young, which conducted the study, said, “Worldwide arbitration is known to be much faster than litigation in a court. But in India, there is still a lot of confusion over what type of arbitration to go for.”
Singh added that most parties prefer to choose international or institutional arbitration over the ad hoc variety.
Of the international venues, Singapore and London are the most favoured destinations for Indian parties because of the presence of reputed institutions for arbitration. Whether India will eventually emerge as a destination for foreign disputes remains to be seen.
nikhil.k@livemint.com
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First Published: Fri, Nov 18 2011. 12 22 AM IST