Often the disputes take place mainly because of vibrant nature if the
business relations and transactions, geographical and cultural variations,
increased complexities in technology and misinterpretation of regulations,
responsibilities, terms and conditions in the contract, differences in revenue
sharing and cost calculations, change in ownership or management control and
regulatory changes enforced by the Government.
In India we now
prefer arbitration over the traditional litigation as arbitration is seen as a
more advance, faster and cost effective method of dispute resolution. According
to newspaper report, in 2011 around 3.2 crore cases were pending in high courts
and subordinate courts across the country while 56,383 cases were pending in
the Supreme Court. With the Government of India (GOI) opening the gates for
foreign investments and finally allowing Foreign Direct Investment (FDI) in
various sectors the number of commercial disputes are ordained to increase.
There is also pressure from international companies and various Governments as
they are making it mandatory to enforce arbitration clauses in the contract.
According to
Arpinder Singh, Partner and National Director – FIDS, Ernst & Young India “Key
factors such as entry of global Institutions & law firms, strengthening of
regulatory environment and building up of expertise in technical aspects would
be essential for the future of arbitration. In spite of several challenges,
consolidated efforts by all stakeholders in this direction can result in a
robust arbitration mechanism in India that will attract faith of global
companies as well.”
Eminent lawyers
at law firms like Zia Mody Partner at AZB & Partners feel that “Arbitration
is a much desired Alternative Dispute Resolution mechanism in India, and would
do much good to Indian companies. The improvement in certain issues such as
weaknesses of delay, high cost, ad hoc nature and a robust enforcement by
court, would ensure the growth of arbitration.”
Arbitration –
Past:
The arbitration
picked up pace in the country, with the inception of the Bengal Resolution Act,
1772 and 1781, which provided parties an option to submit the dispute to an
arbitrator, appointed after mutual agreement and whose verdict would be binding
on both the parties. Alternative
Dispute Resolution (ADR) gained further importance in India post the
implementation of the Arbitration Act, 1940, and the Arbitration and
Conciliation Act, 1996, which was passed in consonance with the UNCITRAL Model
Law of Arbitration. An important International Convention on Arbitration, which
enhanced the Indian mechanism, was the New York Convention of 1958 on the
Recognition and Enforcement of the Foreign Arbitral Award.
Traditionally,
the arbitration clause is one of the most neglected clauses, and while drafting
an agreement, often referred as the ‘midnight clause’ or ‘last
minute clause’.
During
2004–2007, the Supreme Court decided 349 arbitration cases and the Delhi High
Court’s mediation and conciliation centre decided 668 out of 868 cases,
indicating the growing importance of arbitration as an alternate dispute
resolution mechanism in India.
Considering the varying trend around Indian dispute resolution, Ernst
& Young conducted a survey, where 68 respondents including general counsels
in large companies, attorneys of various organizations in India and senior
partners of domestic and international law firms participated. Some key lawyers
and eminent personalities in this field were also interviewed to gain their
perspective on arbitration in India.
Significant findings of the survey:
1. 74% of the survey
respondents accentuated that the arbitration clause is an essential part of
their legal contract.
2.
The survey highlighted the mixed usage of the arbitration
mechanism. Out of the total respondents, 24%
of the respondents undertook Indian ad hoc arbitration, 20% of the respondents undertook international commercial arbitration
and 27% of the respondents undertook
both Indian ad hoc arbitration and international commercial arbitration.
3. During the selection of institutes outside India, 60% of the respondents preferred
Singapore International Arbitration Centre (SIAC), and while selecting
institutes within India, 34% of the
respondents preferred London Court of International Arbitration (LCIA), India.
4.
The survey also highlighted the importance given by the GOI to the
improvement of the arbitration mechanism. More than 50% of the respondents felt that the ministry's recent steps to
develop dispute resolution mechanism are in the right direction.
78% of the respondents
revealed that they were satisfied with the arbitral award. However, about 50% of the respondents said that
arbitration in India is expensive and does not provide timely resolutions,
which highlights the need for radical changes in procedural aspects.
6. 68% respondents believed
that subject matter experts should be appointed as arbitrators, as opposed to
the 22% who believed that retired
judges should play this role.
1.
The survey highlighted the growing importance of experts such as
forensic accountants in the arbitration process, more than 50% of the respondents said that they have used expert services and
they believe that expert advice made a difference in their arbitration process.
Arbitration –
Present:
The experiences
with delays in the Indian Litigation system and with increasing awareness of
benefits of ADRs have been key motivating factors for the companies to focus on
drafting a comprehensive arbitration clause.
In a 2011
judgement of M/s Dozco India P. Ltd. (the petitioner) v. M/s Doosan
Infracore Co. Ltd.1, the Supreme Court while rejecting the
application for the appointment of an arbitrator by the Court under Section
11(6), Part 1 of the Arbitration Act held that where parties have chosen a
foreign law and seat of arbitration outside India, application of Part I of the
Act (i.e., appointment of the arbitrator by the Court on account of failure to
appoint an arbitrator by one of the disputing party after the arbitration
clause has been invoked by the other party) was deemed to be
excluded even in absence of express exclusion.
Thus, this judgment
comes as a welcome change, limiting the scope of judicial interference in line
with the objective and policy behind the Act and the UNCTRAL Model law.
In the Ernst
& Young study it was noted that while 20% respondents had undertaken an
international arbitration 24% respondents had undertaken the Indian ad hoc
arbitration and 27% respondents preferred both the options, thus meaning that
in India while Institutional arbitration hasn’t really been able to set its
roots, Indian ad hoc arbitration was a preferred route.
An ad hoc
arbitration is one which is not controlled by an institution and therefore, the
parties are required to determine all aspects of the arbitration like the
number of arbitrators, manner of their appointment, procedure for conducting
the arbitration, designation of rules, applicable law, procedures and
administrative support, etc.
On questioning
the respondents on their preferred seat for institutional arbitration 60%
preferred Singapore International Arbitration Centre while 50% showed interest
in London International Arbitration Centre.
In the case of Penn
Racquet Sports v. Major International Ltd. [2011], the court on the
question of the award passes by a sole arbitrator in international arbitration
being misinterpreted and against the public policy the court held relied on Smita
Conductors Ltd. v. Euro Alloys Ltd.,2 where it was held that ‘…a
foreign award cannot be recognised or enforced if it is contrary to (1)
fundamental policy of Indian law; or (2) the interests of India; or (3) justice
or morality.’
In the Penn
case the Court held that “…even in case of domestic awards, courts would not
interfere with the interpretation by the arbitrator of the contract unless such
interpretation is contrary to the terms of the contract.”
“…An award
cannot be denied enforcement merely for the reason that it contravenes Indian
law. The award should be contrary to the fundamental policy of India or because
the award is contrary to interests of India or is contrary to justice or
morality.”
The courts in
India offer full support and encouragement for arbitration. At the request of a
party they:
(i) stop a court case
from being carried on in breach of an arbitration agreement
(ii) enforce foreign
arbitral awards made in New York Convention countries
(iii) enforce awards made
in international arbitrations taking place in India
(iv) compel witnesses to
attend arbitral proceedings
(v) issue a wide range of
interim measures of protection, including: preservation and interim custody of
the subject matter of the dispute, interim injunctions to preserve the status
quo, appointment of receiver, securing the amount in dispute, securing costs of
the arbitration
Indian courts
do not review the merits of an award in arbitration, unless it is at the
request of a party and only under restricted grounds of challenge laid down in
the Arbitration Act. A foreign award may also only be reviewed according to a
similarly limited set of criteria.
Singapore as a
Seat for Arbitration
Traditionally
London and Paris were preferred seats for International seat, however now
Singapore is the most preferred seat for international arbitration cases in
Asia. Experts feel Singapore is preferred because of very favourable local
laws, responsive Singaporean government and almost no interference by the
Singapore judiciary once the award is passed. India seems to be following the
same path.
According to a
Bloomberg report4 almost 36 UK cases were referred to SIAC and 33
cases from India. From 2000 to 2011 the number of cases being referred to SIAC
has increased phenomenally, in 2010 198 cases were referred to SIAC while in
2011 188 cases were referred. These cases involved 1.4 billion SD in 2010 and
1.2 billion SD in 2011.
Singapore is
one of the most preferred seat for international arbitration. According to Singapore's
Law Minister, K Shanmugam, there has been an increase in the number of Indian
companies using Singapore as an arbitration destination. About 21 per cent of
the 114 international cases Singapore International Arbitration Centre (SIAC)
saw in 2009 involved at least one Indian party. The number of cases also
doubled in 2008.
Other Reasons for preferring Singapore:
1.
Singapore is one of the most convenient for Indian parties, in
relative terms, as regards both distance and time zones.
2. Focus of the
Singapore Government on delivering efficient public services.
3. Use of English
language
4. Perception of reduced
cost
5. The Singapore courts
are “arbitration-friendly”
Bibliography
3.
(2011) 6 SCC 179
4.
(2001) 7 SCC 728
