The Aakhya Weekly #103 | Making India Arbitrate
In Focus: India’s “Arbitration Hub” project: an achievable but distant dream
by Sujaya Sanjay
For several years now, India has been attempting to establish itself as a hub for arbitration. As global markets become more and more integrated and cross-border commercial activities becomes more commonplace, arbitration has emerged as a strong contender for resolution of commercial disputes. In jurisdictions like the UK where legal services contributes to about 3% GVA to UK’s economy, arbitration becomes a multiplier, accounting for about 60% of litigation revenue. Cities like London, Singapore, Hong Kong, and Geneva have thus developed a strong culture of arbitration, which has enabled them to become arbitration hubs where commercial entities come from all over the world to arbitrate their disputes.
For the uninitiated: arbitration is a mode of alternate, out-of-court dispute resolution before a neutral third party, known as the arbitrator. Its core features include privacy, party autonomy, cost-effectiveness, expeditiousness, and procedural flexibility. The arbitrator’s decision (known as arbitral award) is final and binding on the parties, with limited scope of review, thus obviating the possibility of appeals before higher courts.
As a result, arbitration is vastly popular worldwide for resolution of cross-border contractual and commercial disputes, particularly cross-border disputes. In a highly litigious market like India, arbitration has been viewed as an excellent alternative to expedite commercial disputes to take the pressure off the courts, which are already dealing with an enormous backlog of cases. In addition to reducing the backlog in course, a strong arbitration culture could give a big boost to India’s legal services sector and anchor it as a revenue generator for India’s rapidly growing economy.
Building capacity in arbitration is a tough endeavour. In addition to having excellent physical infrastructure to facilitate physical and online hearings, there is also a need to ensure that local arbitration laws are aligned to global best practices. India enacted the Arbitration and Conciliation Act, 1996, which was drafted according to the widely adapted Model Law proposed by the UN Commission for International Trade Law (UNCITRAL). However, India’s arbitration case history of the past 25 years and the multiple amendments made to the Arbitration Act suggest that its implementation has been far from satisfactory.
Two steps forward…
This month, Law Minister Arjun Ram Meghwal signed the National Litigation Policy (NLP) to clear the mountainous backlog of cases pending before the Indian Courts. The NLP is part of the new government’s 100-day agenda to ensure faster justice by expediting disposal of cases. It is the latest in a series of measures being undertaken to modernise litigation in India, along with a complete digitisation of case records and establishing an e-filing system. A big part of this policy is promoting arbitration as an alternate mechanism for dispute resolution.
Members of the legal profession have also been working in tandem to promote arbitration in India. In May 2024, the Arbitration Bar of India (ABI) was inaugurated in the presence of EAM S Jaishankar and the who’s who of legal luminaries in India. The ABI’s stated purpose is to promote academic and professional excellence in arbitration by providing a platform for capacity building through learning and collaboration.
… one step back
Barely a couple of weeks into the launch of the ABI, however, the Finance Ministry (Department of Expenditure) issued an office memorandum containing guidelines for arbitration and mediation in public procurement contracts. The memo pushes for mediation and recommends not using arbitration to address disputes with a value of Rs. 10 crore or more without additional approval.
The guidelines suggest that the Government is not quite convinced about arbitration as an appropriate tool to resolve disputes arising from procurement contracts. The routine manner in which arbitral awards are challenged before the courts—even with restrictions in place—have led the This appears to be a knee-jerk reaction to the recent case involving the Delhi Metro Rail Corporation, where after several rounds of challenge and appeal, the Supreme Court of India resorted to the extraordinary remedy of a curative petition (intended for cases of gross abuse of process or gross miscarriage of justice, a rare occurrence in commercial disputes to begin with), to overturn an arbitral award that directed DMRC to pay Rs. 2782.33 Cr plus interest to Delhi Airport Metro Express Pvt Ltd for breach of contract.
An endless impasse
The Supreme Court’s decision in the DMRC curative petition can only be described as the latest in a long saga of misadventures involving the interpretation of arbitration law in India. There is much work to be done from the perspective of harmonising the law in accordance with global best practices—a task that can be carried only so far by the Parliament through amendments to the Arbitration Act.
That being said, it is for the Government to consider whether it is the best use of executive power to restrict use of arbitration in procurement contracts. While arbitration may not be the paragon of efficiency and cost-effectiveness that it is made out to be, it still remains a more effective remedy for commercial disputes than litigation before India’s already overburdened courts. Public sector enterprises (PSUs) who deal with large-scale infrastructure projects, will be constrained to go through the arduous and time-consuming process of litigation—with large sums of public money locked into seemingly endless disputes. PSUs
Trusting the process
The only way for India to become an arbitration hub is for the Government—legislature, executive, and judiciary included—to repose greater faith in the process of arbitration and to build local expertise in arbitration to serve the interests of speedy dispute resolution and overall, a better outlook on ease of doing business.
The courts are empowered to supervise arbitral proceedings by appointing qualified individuals as arbitrators and must do so in the interest of improving the quality of arbitration proceedings in India. The executive, for its part, may look to alternatives such as mediation (as it has done) and promote a culture of accepting arbitral awards as final instead of resorting to routinely challenging arbitral awards and placing an additional burden on the courts. Arbitration law may be streamlined through the process of amendment, but it is imperative that the process be considered in light of global jurisprudence and the need to harmonise Indian arbitration law with widely accepted jurisprudence.
Top Stories of the Week
Centre’s Push for Pulse Production
To bolster domestic production of pulses and reduce dependence on imports, the central government will procure tur, urad, and masoor dal at Minimum Support Prices (MSP). This move aims to promote crop diversification and achieve self-sufficiency in pulse production by 2027.
The initiative was announced by Union Minister of Agriculture & Farmers' Welfare and Rural Development, Shivraj Singh Chouhan, in a virtual meeting with agricultural ministers from various states. During the call, the role of the E-Samridhi portal was highlighted as a platform for farmers to register and sell their produce, guaranteeing that the government will buy agricultural products at MSP. To ensure that maximum farmers reap the benefits of assured procurement, the minister encouraged state governments to motivate more farmers to register on the portal.
On a side note, Union Minister Chouhan acknowledged state efforts to increase pulse production by 50% since 2015-16 and reduce dependence on imports from 30% to 10% in the last 10 years. Furthermore, he noted that the country has achieved self-sufficiency in green gram (moong) and gram (chana). For better performance, however, he stressed the need for further improvements in yield per hectare and broader encouragement of pulse cultivation. He urged states to collaborate with the central government to achieve food sufficiency and position India as the world’s food basket.
Other key announcements include the launch of the new Model Pulses Village scheme, set to commence from the current Kharif season, and the establishment of 150 Pulse Seed Hubs, to ensure the availability of quality seeds. The minister also urged state governments to utilise fallow lands available after rice harvesting for pulse cultivation and advocated vigorous inter-cropping of tur.
GST Council Proposal to address retrospective tax demands via Section 11A
The 53rd GST Council met on Saturday for the first time since the new Union government was formed, marking its first meeting in nearly eight months. Key recommendations from the Council include adjustments to tax rates on various goods and services, along with measures aimed at reducing litigation and easing compliance for taxpayers.
One notable recommendation was the insertion of Section 11A into the GST Act, which empowers the government to regularise instances of non-levy or short-levy of GST based on the Council's recommendations, addressing situations where tax was not paid due to common trade practices. Simply put, this section allows sectors that previously paid GST at lower rates, due to ambiguous or unspecified rates, to seek relief from higher retrospective taxes imposed. While this applies to all sectors, it is particularly relevant to the real money gaming (RMG) sector which faced multiple tax evasion notices from GST authorities. In 2023, the GST Council introduced a 28% GST on online gaming, including skill-based games, criticised by real money gaming firms. Despite clarifications that the hike wasn't retrospective, disputes arose over older tax demands, sparking debates on retrospective taxation.
Industry experts and lawyers caution that while this is a crucial step, the provision for the government to overrule retrospective tax demands did not previously exist under the GST Act. The recommendation will likely be debated in the interim budget session before implementation. However, under the aegis of a coalition government, it could complicate its passage. The amendment will require passage by Parliament and state legislatures to take effect.
A Few Good Reads
Gautam Chikermane writes on India’s Grand Strategy: A Framework for the Future that Builds on Bharat’s Ancient Statecraft of Peace, Prosperity, and Planet.
In this piece, C Raja Mohan provides his take on India’s opening amidst the growing interdependence of the European and Asian theatres.
Bibek Debroy opines how labour laws protect the interests of a few but exclude many others.
Pradip Phanjoubam talks about the agony and conflict in Manipur, and how there is no respite even a year later.
C.P. Rajendran offers his opinion about India’s tumultuous geological past and how it should be considered a part of its non-cultural heritage.
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