One Step Back, Then Three Steps Back: The Unfavourable Pitch of Indian Arbitration

A tale of two fields: Cricket and arbitration in India

After a promising run in the recent 50-over World Cup that ended in disappointment, India’s cricket team was determined to redeem itself in the ongoing T20 World Cup. By taking corrective steps, they have indeed redeemed themselves by clinching the T20 World Cup title, which had eluded India for almost 13 years.

The Indian arbitration ecosystem, which has long aimed to become the global hub, can draw inspiration from the World Cup-winning team, and take bold corrective measures and solidify its long-term legacy in the realm of global dispute resolution. The stakes are high, and the next few moves will be crucial in defining India’s standing on the international stage.

Is the Finance Ministry’s recent notification a hit wicket?

Only recently, was the arbitration landscape in India rocked by the Supreme Court’s decision in the DMRC Ltd. v. Delhi Airport Metro Express (P) Ltd.¹, one step back, where it invoked its curative jurisdiction to overturn an arbitral award. This unusual move expands the judiciary’s role in arbitration, undermining the principle of finality that arbitration typically provides and setting a precedent for prolonged litigation. Just as the legal community was digesting the implications of this ruling, the Finance Ministry issued a new notification² that has thrown yet another wrench into the works.

At a time when the Government has consistently been focused on increasing ease of business and attracting foreign investment and has come up with a pro-industry policy, this notification is particularly disconcerting given its timing. It has come just weeks after the Government celebrated the launch of the Arbitration Bar of India (ABI), signalling a commitment to enhancing the arbitration framework in the country. Unsurprisingly, the ABI has expressed concerns and urged the Finance Minister to review and withdraw the notification.

Arbitration versus Mediation

The notification fails to recognise that mediation and arbitration are not alternatives to each other but are complimentary to the ultimate objective of speedy resolution of disputes. The Finance Ministry’s proposal to establish High-Level Committees (HLCs) for dispute resolution, comprising retired Judges and senior officers or technical experts is well-intentioned but not an alternative to arbitration. The success of these measures hinges on the willingness of all parties, particularly government entities, to engage in good faith and respect the outcomes. In practice, similar mechanisms, such as Dispute Adjudication Boards (DABs) in construction disputes, have faced significant challenges. Government entities disregard DAB orders that do not favour them, preferring instead to escalate matters to arbitration, which ironically, the notification aims to curtail.

Government versus Private

The notification reveals a fundamental lack of confidence in the very arbitration system the Government has cultivated over the years. The decision to limit arbitration to disputes involving amounts less than Rs. 10 crores appears both arbitrary and short-sighted. If the Government finds arbitration problematic, it should be stopped for all kinds of disputes, irrespective of the parties involved or the amount involved.

The notification by limiting the use of arbitration to low-value disputes in public procurement contracts, the Government appears to be favouring litigation or mediation, which will likely increase the load on already overburdened courts and counter the original intent of promoting arbitration. This shift diverges from global trends and strengthens the perception that India is not conducive to arbitration. Such an approach risks undermining the credibility of India’s arbitration framework and could discourage both domestic and international parties from choosing arbitration, ultimately hindering India’s goal to become a global hub for commercial dispute resolution. This regressive stance may deter foreign investors and prompt Indian businesses to seek more favourable arbitration environments elsewhere, potentially jeopardising India’s aspirations to be a preferred destination for commercial dispute resolution.

Hitting a six: Reforms to drive arbitration to the boundary

When there was dissatisfaction among cricketing nations due to faulty umpiring decisions, nations did not stop playing cricket. Instead, they introduced the Decision Review System (DRS). While the Government’s concerns, such as delays, high costs, and a lack of accountability among arbitrators, are valid to some extent, they reflect broader systemic issues that require targeted reforms rather than a wholesale retreat from arbitration. Instead of outrightly avoiding arbitration as a means to resolve high-stake disputes, the need of the hour is to fix the problems and make the arbitration ecosystem more robust and effective. We are providing five key reforms that will address the issues raised in the notification effectively:

1. Diversifying the arbitrator roster

The time has come to broaden the spectrum of arbitrators beyond the conventional pool. Although experienced, they may not always possess the technical expertise necessary for intricate and specialised cases. Integrating domain experts from various fields, seasoned counsels, law firm partners, and lawyers with niche specialisations into arbitration panels can enhance the overall competence and adaptability of arbitrators.

2. Elevating arbitrator standards

Just as a cricket match relies on fair and unbiased umpires, the arbitration process depends on impartial and accountable arbitrators to maintain trust. To achieve this, establish rigorous criteria for arbitrator selection and conduct. One effective strategy is to introduce a grading system based on factors such as industry expertise, case resolution efficiency, the ratio of awards upheld versus those overturned by courts and feedback from counsels in each matter. Additionally, improving training and certification processes for arbitrators will elevate the quality of arbitration and restore confidence in the system.

3. Ensuring award integrity

Much like the DRS assists umpires in cricket, arbitration awards should undergo thorough scrutiny before publication. This step ensures they are consistent and resilient against legal challenges. Drawing inspiration from globally respected institutions like the International Chamber of Commerce (ICC), which only publishes awards after rigorous review to uphold high standards, can help ensure the reliability and acceptance of the arbitral decisions.

4. Streamlining court processes and facilitating swift award enforcement

The effectiveness of arbitration is often contingent on the efficiency of the associated court procedures. Delays in court processes, such as appointing arbitrators and enforcement of awards, significantly prolong dispute resolution. It is crucial to have legislative reforms so that the courts can handle these matters promptly to ensure that arbitration remains a swift and effective dispute resolution method.

The real challenge in India’s arbitration system lies in the execution of arbitral awards. Much like the 50-over World Cup, where the Indian Team won all the matches but lost the final match and lost the cup, delays in enforcing awards can undermine the entire arbitration process. Ensuring prompt enforcement is vital to maintaining the credibility and efficacy of arbitration. A step in this direction could be to have courts dedicated to deal with arbitral awards.

5. Promoting institutional arbitration

Institutional arbitration offers a more predictable and transparent process, which can inspire greater confidence among domestic and international parties. To elevate Indian arbitration to global standards, it is essential to adopt practices from leading institutions like the ICC, Delhi International Arbitration Centre (DIAC), and Singapore International Arbitration Centre (SIAC). The Government should mandatorily provide for institutional arbitration in every contract.

Conclusion

This notification represents a step backwards in India’s journey towards becoming a global hub for dispute resolution. Instead of addressing the existing challenges within the arbitration system, the Government is opting for an approach that threatens to increase the burden on the courts and discourage both domestic and international parties from choosing India as a venue for arbitration.

To truly enhance the dispute resolution framework in India, the Government should prioritise reforms that make arbitration more accessible and efficient rather than restricting its use. By doing so, India can better position itself as a global hub for arbitration and attract more foreign investment, fostering greater confidence in its legal and business environment. This approach will ensure that India plays a leading role in the international arbitration arena, like our well-prepared cricket team which is ready to take on any challenge.