As a crucial pillar in creating a business-friendly regime within India, arbitration has the great ability to supplement our courts by alleviating pressure and possibly reducing the pendency of cases as well.
Kumar Ritwik
While the Indian citizenry has placed faith in the judicial system of the country since independence, it has also inevitably led to a situation where around 4.3 crore cases are pending in the district courts alone. In addition, around 60 lakh cases and 70,000 cases are pending in the high courts and the Supreme Court of India, respectively. With the immense backlog of cases in the courts, alternate methods of dispute resolution have become attractive prospects for clients that seek an early and effective redressal of their grievances. In that context, arbitration has risen rapidly across the globe as a viable option to provide such redressal. Although destinations like New York, London, Singapore, and Hong Kong have already been able to create a suitable environment for arbitration, India is now gaining ground towards the same.
As part of the Government of India’s long-professed goal of creating an effective business and arbitration-friendly regime, the establishment of the India International Arbitration Centre (IIAC) has been a step in the right direction. At the same time, the recent amendments to the arbitration law have ensured that certain hurdles in the process were rooted out along with creating an independent body that would ensure quality control and capacity building for arbitrators in India. True game-changers in creating an effective dispute resolution framework, these steps together have the potential of ensuring arbitration evolves as an institution while successfully contributing towards turning India into a true hub on an Asian and global level.
Besides these well-intentioned steps, a division bench of the Delhi High Court recently recognised third-party funding as a genuine option during arbitration proceedings, while holding that these third-party funders could not be forced to compensate for awards that go against their funded parties unless a financing agreement to that effect was in place between the party and the funder.
It is likely that the judgment would open up a significant number of opportunities for funds and donors that are looking at litigation financing as an investment option in India. It is also one in a long line of recent decisions that point towards a welcome trend within the Indian judiciary of reduced intervention in arbitration proceedings in general. The constant bouts of intervention by courts at the beginning or during arbitration proceedings have often been regarded as a major hurdle for those parties considering India as a possible venue for arbitration. Therefore, all in all, both the government through legislation and the judiciary through orders have signaled a positive shift in the arena.
While the idea for an arbitration-friendly regime in India is a noble one, there is a lot of competition to contend with as well as learn from. Asian destinations like Hong Kong and Singapore have become leading powerhouses in arbitration over the years. In fact, it is both fascinating and disheartening to observe that approximately 40-50% of the cases that the Singapore International Arbitration Centre (SIAC) receives annually involve Indian parties. Clearly, the arbitration regime in India has not yet developed sufficiently to seem attractive enough to these Indian parties. With constant evolution and well-thought-out regulatory changes, both Hong Kong International Arbitration Centre (HKIAC) and SIAC have been able to attract companies from different parts of the globe to partake in a swift and effective redressal. On the other hand, India has lagged behind due to multiple factors: (1) unnecessary meddling by courts in cases that require no or little interference, (2) long delays in completing arbitration proceedings, (3) lack of mechanism to ensure enforcement of arbitral awards, and (4) a total revamp in the arbitration setup of the country every few years.
While mindful legislation keeping up with the changing trends ought to be appreciated, stakeholders must also be careful to not overhaul the system so frequently and to such an extent that it begins to lack stability. If there is one aspect that the industry (particularly, the international players) raises red flags over, it is the constant change and overhauling of laws in a regime. Taking SIAC as a reference point, the upcoming IIAC must be supported adequately with financial and infrastructural support along with creating a conducive environment for arbitration to take place in a flexible, swift, and effective manner. Strict adherence to a mutually agreeable timeline for the proceedings to be completed and the immediate enforcement of arbitral awards should become an area of prime focus for IIAC to rub shoulders with the established players.
Therefore, it is quite clear that the entire arbitration ecosystem of India has its work cut out. As a crucial pillar in creating a business-friendly regime within India, arbitration has the great ability to supplement our courts by alleviating pressure and possibly reducing the pendency of cases as well. In addition, a swift and effective dispute resolution process bodes well for the industry and the investor in general. However, there must be a balancing act so as to not revamp the system to the extent that it creates issues instead of resolving them.
Due for a long while now, many of the steps taken recently by the Government of India have given hope to those who have been looking at India with great expectations. However, these alone would not be enough in the long run. Given the emerging trends and how dynamic the law must be to adequately account for changes coming up, continuous progress is needed on multiple fronts: legislative, regulatory, and judicial. Only with a certain degree of constant and meaningful engagement with this arena of law can India actually hope to compete with other attractive destinations of arbitration like Singapore, Hong Kong, and London within the next decade.
(The writer is an advocate practicing in the high courts of Patna & Delhi)
