India aims to be global arbitration hub. And cut costs for its biggest litigant.

New Delhi: The Union law ministry has commissioned a study of the legal frameworks in top international commercial centers as part of its efforts to position India as a global arbitration hub. 

It has another reason for this ambitious exercise: to cut legal costs for India’s biggest litigant—the government.

The ministry is looking to address challenges in India’s arbitration system and improve the execution of arbitral awards, or out-of-court settlements, two officials said, declining to be identified.

“We are looking at other countries… global commercial hubs in this research," one of them said.

Executing arbitral awards requires court intervention. In Singapore, once an arbitral tribunal passes an award, the beneficiaries have to move a local civil court to ensure that the award is enforced.

The key difference between India and global arbitration hubs like Singapore and the UK lies in insufficient support from the domestic legal system for enforcement procedures following arbitration, such as appointing receivers and auctioning assets.

Also, Indian courts already have more than 50 million lawsuits pending, as per data from the National Judicial Data Grid.

Also read | Arbitration pros resist govt.'s advisory favouring mediation over arbitration

The law ministry’s efforts to expedite the enforcement of arbitral awards are expected to significantly benefit the government, which is included as a party in a considerable number of arbitration proceedings.

Law minister Arjun Ram Meghwal initiated the national litigation policy in June soon after taking office. This policy, which is a survey of the Union government’s exposure to litigation, is the first step in reducing legal costs for the government, as Mint reported.

The Union government has issued an advisory to all arms of central and state administrations and public sector enterprises to avoid arbitration in procurement contracts where the disputed amount is over ₹10 crore.

This advisory, which has received pushback from arbitration professionals, was aimed at reducing the government’s costs in enforcement of contracts since arbitration is too expensive and time-consuming.

Court-related delays

Another challenge in expediting the execution of arbitral awards in India lies in the quality and availability of assets tagged in the proceedings.

“While the arbitration proceedings can take place anywhere in the world, the assets involved in the process are located in specific countries. Indian assets are often tied up in other litigation, which can often delay the execution of the arbitral award," said Gauhar Mirza, partner, Cyril Amarchand Mangaldas, a tier-1 Indian law firm.

“The execution of arbitral awards in jurisdictions like the US, the UK and even the UAE is comparatively better because legal matters are disposed of faster there."

Another hurdle in streamlining the domestic arbitration process lies in interference from courts in India’s out-of-court dispute resolution process.

Also read | The Judiciary has given India a better chance to emerge as an arbitration hub

“Parties often delay arbitration proceedings by initiating court proceedings before or during arbitral proceedings, or at the enforcement stage of the arbitral award," stated a 2017 report by a committee chaired by former Supreme Court Justice B.N. Srikrishna. “The high pendency of litigation before Indian courts means that arbitration-related court proceedings take a long time to be disposed."

The Union law and justice ministry did not reply to queries emailed on Wednesday.

Multiple attempts at streamlining

To be sure, India’s arbitration ecosystem, among other elements, had bolstered the country’s ranking in ease of doing business from 100 in 2018 to 77 in 2019, as per the World Bank’s now-discontinued Doing Business Report.

The Union government has sought to speed up the arbitral process by amending the Arbitration and Conciliation Act, the country’s code on arbitral proceedings, thrice since it was passed in 1996, with the latest amendment in 2021.

The amendments, after numerous expert suggestions, aimed to reduce court-related delays in executing arbitral awards due to frivolous or fraudulent reasons, as per a Rajya Sabha disclosure.

A panel led by former law secretary T.K. Viswanathan has proposed arbitration reforms to speed up the process of enforcement of arbitral awards and align India’s arbitration process with global standards.