Prof. Anurag K. Agarwal

 

The government has, of late, been taking steps to make the country a hub of international commercial arbitration. As of now, global hubs include Paris, London, Singapore, Hong Kong, Geneva and New York. Foreign companies entering into business contracts with Indian companies usually prefer a foreign city for resolution of disputes. This is the truth, whether we like it or not, and it is not due to the poor business prowess of Indian businesses vis-à-vis foreign counterparts, but due to the abysmally low perception of the legal environment in India.

International commercial arbitration has been the chosen method for resolution of business disputes for several decades as it offers the advantage of not going to the regular courts and thus saving oneself from the bother of the legal maze. The parties instead rely on the expertise of neutral arbitrators whose decision—called an award—is binding.

However, the award has to be executed by a court of law. Also, the losing party may challenge the award in a court of law, though on extremely limited grounds. Thus, willy-nilly, the parties can ultimately reach the court of law. In most matters in India—typically either with heavy stakes or with the involvement of the state as a party—the awards are challenged till they reach the highest court. Thus, instead of speedy redress of business disputes, international commercial arbitration has begun to be viewed, and not wrongly, as another tier in the already cumbersome process. And despite being known for its independence, neutrality and boldness, such is the image of the Indian judiciary with respect to the time taken for final disposal of matters that foreign business leaders are wary of choosing India as the seat of arbitration to avoid the courts.

Even when the seat of arbitration is abroad, the award has to be enforced in India, if against the Indian party; that is done by the courts in India. In the White Industries Australia case in 2011, India was chastised by the arbitral tribunal in a bilateral treaty arbitration as there had been a delay of seven years in Indian courts. This delay was considered by the tribunal as equivalent to not providing an effective and speedy legal remedy, and thus keeping the foreign investor in a disadvantageous position.

The arbitration matter in the KG Basin case between Reliance, BP, Niko and the Union of India has not yet taken off due to initial hiccups in the appointment of the arbitral tribunal. One really does not know how much time it will take before the final decision is made, as it is almost certain that whatever the award will be, it will be challenged in the court, and will ultimately reach the Supreme Court.

With such a state of affairs, which foreign company, in its right frame of mind, will agree to have the seat of arbitration in India? Some may be driven to it, if they are desperate to do business with Indian companies and the Indian companies insist on locating the arbitration in India. Realistically speaking, this is wishful thinking. Even Indian businesses entering into contracts with international investors and companies do not push hard for conducting arbitration in India. Not only do the foreign players not want it in India, but the Indian businesses themselves prefer execution of awards against foreign companies in their jurisdiction and arbitration abroad may facilitate the process.

To make arbitration in India even more unlikely, aggressive moves are being made by certain well-known global arbitral institutions—for example, the International Chamber of Commerce (ICC) Paris, the London Court of International Arbitration, the Singapore International Arbitration Centre—through setting up offices in India and offering their services locally. Such is the size of the business disputes pie in India that every foreign arbitral institution would like to have a slice of it, and is more than willing to walk the extra mile to woo Indian businesses.

Though there is no dearth of legal expertise in India, with its large numbers of lawyers, retired judges, technocrats and bureaucrats, Indian arbitral institutions are simply no match for their international competitors in terms of experience, networking, commensurate remuneration to arbitrators, professionalism in secretarial services, and timely completion of tasks. The quality of service offered by international arbitration institutions is of such a high order that Indian institutions—primarily the Indian Council of Arbitration (ICA) and the International Centre for Alternative Dispute Resolution (ICADR)—can at best be seen as baby steps.

The popularity of some of the global arbitration hubs is difficult to ignore. All the Enron and Dabhol-related arbitration matters were conducted in London. The matter related to GMR building an airport in the Maldives was conducted in Singapore. And, ICC Paris has long been the favourite destination in numerous contracts that Indian public sector undertakings sign with foreign companies. It is difficult to force foreign companies to switch to arbitration in India.

The situation with Chinese businesses is almost one-sided, with everything to be decided in Chinese jurisdiction. Despite the common knowledge of a weak legal environment in China, Indian businesses feel helpless and agree to the ‘take-it-or-leave-it’ dispute resolution clauses. The bargaining power of Chinese businesses vis-à-vis Indian businesses is immense.

To make India the hub of international commercial arbitration, there needs to be a concerted effort by the government, the legal fraternity and corporate India. Foreign companies will pick India as the destination of choice only if the environment for conducting international commercial arbitration in India is business-friendly. The government alone will not be able to do it despite making efforts to get the requisite amendments to arbitration law approved by the legislature. Full support by businesses and the legal fraternity is essential, which can only be achieved based on purely commercial and practical criteria and not on the basis of nationalism, patriotism or protectionism.

 

Anurag K. Agarwal teaches business policy at the Indian Institute of Management, Ahmedabad. His teaching and research interests include business dispute resolution, primarily arbitration; corporate governance; business, leadership and law; intellectual property; law, strategy and business; and the relationship between business, government and law.

 

First published in 'View from IIMA' column in Mint.