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London Branch discusses the new face of Arbitration in India

27 September 2017 Branch News
Amanda Lee

On 14 September 2017 the London Branch and the LCIA held their 13th Annual Joint Seminar, generously hosted by Stephenson Harwood LLP, entitled “Arbitration in India – its new face and global ramifications”.

India[L to R:Kamal Shah, Sitesh Mukherjee, Sherina Petit, Irvinder Bakshi, Abhijit Mukhpadhyay and Vivek Kapoor]

The seminar was chaired by Irvinder Bakshi (KSB, London Branch Chairman) and comprised of Kamal Shah and Vivek Kapoor (Stephenson Harwood LLP), Abhijit Mukhpadhyay (Hinduja Group), Sitesh Mukherjee (Trilegal) and Sherina Petit (Norton Rose Fulbright, LCIA). The panel discussed the evolving arbitration landscape in India and changing perspectives on investor-state arbitration, the pros and cons of choosing India as an arbitral seat, and implications for the future of arbitration on the sub-continent. 

"India is now travelling in the right direction" 

Kamal Shah began by providing an overview of the Indian arbitration scene, identifying the key stages of its development and the ever-increasing trade with and investment in India that necessitated changes. Highlighting the difficulties presented of Bhaha International (2002), which was finally overruled in Balco (2012), he observed that India was now travelling in the right direction. The Arbitration and Conciliation Act 1996 (the “Act”) was amended in 2015. Ad hoc arbitration is now on the decline, with an increased interest in institutional arbitration following the establishment of LCIA, SIAC and MCIA offices in India. Noting that the tide has begun to turn, the Indian government has spoken of the need to develop an ‘arbitration ecosystem’ and a high level committee has been established to consider international arbitration. 

Indian Bilateral Investment Treaties

Turning to investment treaty arbitration, Vivek Kapoor explained that India has terminated 58 bilateral investment treaties (BITs), with 25 still in their initial term. Existing investments will be protected by sunset clauses but new investments will not, presenting a risk for Indian investors. He provided an overview of the three key BITs: the 1994 India-UK BIT, the 2004 India Model BIT, and the 2016 India Model BIT. The latest introduces a definition of enterprise instead of using an asset definition, includes many exclusions and limitations, provides for the exhaustion of local remedies for at least five years, and requires investments to be constituted, organised, and operated in good faith in accordance with a prescribed standard of treatment. He further noted that there has been a tectonic move in judicial attitudes in India, particularly in respect of public policy and the arbitrability of fraud claims, where attitudes have become more progressive.

Cultural Attitudes Towards Arbitration 

Turning to the question of India as a seat, Abhijit Mukhopadhyay provided the perspective of a user, identifying key difficulties faced by foreign investors interested in India. In particular he highlighted the preponderance of laws in India and inherent difficulties in identifying the particular legal regime applicable to any given transaction, the overstretched judiciary and packed dockets of the judicial system, the lack of infrastructure to support India’s new laws including the shortage of judges, and cultural attitudes that make arbitration or mediation less attractive than pursuing a court claim. In concluding, he outlined the need for dependable Indian arbitration rules, the availability of good arbitrators, further support for institutional arbitration and a change in user attitudes.

The Key Open Issue Remaining  

Sitesh Mukherjee addressed the evolving arbitration landscape in India, describing it as a country that lives in many centuries. He highlighted a number of historical difficulties relating to enforcement of arbitral awards in India including the heavy docket of cases, lack of specialised commercial courts and judges, and the eagerness of the courts to intervene in respect of public policy. The position has been improved by amendments to the Act, which prescribes strict timelines for enforcement, narrowed the definition of public policy, and introduced a conflict of interest provision requiring arbitrators to declare conflicts in advance. In addition, international arbitral awards are now dealt with by better trained and more qualified judges in the High Courts. Amendments to s.9 of the Act enable parties in foreign seated arbitrations to approach the Indian courts for interim relief. A key open issue remains: whether two Indian parties can select a foreign seat and engage in international arbitration. 

A Bright Future

Sherina Petit concluded the presentations by focusing on delay. Amendments to the Act have been introduced to prevent delays – all awards must be handed down within 12 months of the constitution of the tribunal, save where a six month extension is agreed between the parties. Any further extensions must be granted by the courts, which are tasked with considering such applications within 60 days. The courts may also reduce the fees of inefficient arbitrators and impose cost sanctions on parties causing delays, terminate the mandate of arbitrators or substitute arbitrators, offer incentives for early decisions, and provide a fast track procedure where disputes are decided on paper. Challenges do remain, particularly that potential sanctions could encourage tribunals to rush to draft awards and use overly concise reasoning; increasing the risk of errors and wasting costs and time. However she concluded that the new regime has placed India back on the map for arbitration and that it has a bright future. 

The session concluded with a thoughtful question and answer session, following which Irvinder Bakshi extended thanks to the speakers and host. A reception for the speakers and attendees was generously provided by Stephenson Harwood LLP.