INDIA’s arbitration friendliness in light of the enforcement regime

This is a co-authored article by Ms. Vinisha Jain and Mr. Yash Dadhich, 4th-year students of the Institute of Law, Nirma University, Ahmedabad. In this article, the authors explained INDIA’s arbitration friendliness in light of the enforcement regime.

Abstract

India is striving to gain popularity as an international commercial arbitration (ICA) hub and has been making constant efforts towards upgrading its arbitration laws. The Arbitration and Conciliation Amendment Bill, 2020 is believed to be yet another step in that direction.[i] For the longest time, the energy concerning arbitration laws had been directed towards minimizing judicial intervention in arbitration proceedings. It has shifted recently towards upgradation in the legal framework for arbitration with the vision of making India an ICA hub. However, not losing sight of the fact that India competes with Singapore and Hong Kong, India has a lot of further steps to take. This article analyzes the Arbitration and Conciliation Amendment Act, 2021 (“Amendment 2021”), the further amendments to be made to meet the set benchmarks for becoming a renowned ICA hub.

Also Read: Arbitration and Conciliation (Amendment) Bill, 2021: A Smart Move or Utopian Thought?

Introduction

One of the concerns of India concerning ICA is that India is not chosen as the seat for ICAs involving Indian parties.[ii] It aspires to reach the position where Indian institutions are selected for arbitral proceedings at least where Indian parties are involved. The major flaw with this aspiration is that parties choose a foreign seat unrelated to both the parties to ensure the neutrality of the proceedings for the fear that the home country of one of the parties having a bias for their citizens. India has however thought it through to the extent that by the recent Amendment 2021, as it has removed Schedule VIII to attract eminent foreign arbitrators,[iii] but to actually make that a viable idea for the parties and the arbitrators India must focus on the following – cost-effectiveness as an enticer and exceptional quality of institutional arbitration.[iv] The former is an inherent benefit that India has to offer, however as to latter India needs to make certain improvements.[v] The quality of any institution depends on factors such as the infrastructure, the advantages it has to offer in terms of quality of arbitrators, and the extent to which it meets international benchmarks.[vi]

Read: THE CASE FOR INSTITUTIONAL ARBITRATION IN INDIA

Enforcement-Friendliness

  • White Industries Case

The pro-enforcement policy is a part of arbitration friendliness for any nation. Being a part of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (New York Convention), India is obliged to enforce the awards passed in any of these countries.[vii] However, the delay India caused in enforcement in the case of White Industries v. India[viii], raises questions on its enforcement friendliness. In this case, White Industries had formed an agreement resultant from an India Australia Bilateral Investment Treaty (BIT), with Coal India Limited (CIL) which is an instrument of the government being owned by the government.[ix] White Industries became aggrieved with India claiming violation of certain clauses, particularly the Most Favored Nation (MFN) clause, and an arbitral award was passed against India in 2002 by the International Chamber of Commerce (ICC), awarding damages to White Industries.[x] In accordance with the New York Convention, only the tribunal passing the award, can hear an appeal on its merits, modify it, or set it aside.[xi]

  • NAFED Case

Another recent case passed by the Supreme Court that raises the questions regarding the arbitration friendliness of India is the case of National Agricultural Cooperative Marketing Federation of India (NAFED) v. Alimenta SA.[xiii] In accordance with Article 48[xiv] of the Act and also Article 32 of the Model BIT of 2016 that was highly influenced by the White Industries Case, India can refrain from enforcing arbitral awards. One of the very major grounds for the abstention is ‘the award being against the public policy of India’.[xv] Now public policy is an extremely subjective term and India in the NAFED case has given the impression that it can be used according to the whims and fancies of the nations. In this case, NAFED had failed to supply groundnut as the Ministry of Agriculture specifically prohibited NAFED to do the same.

The Government of India had formed a new policy banning the exports and applied the ban retrospectively to NAFED. Rejecting all the arguments of Alimenta SA, the Court decided that since the award was not in conformity with the export policy of India it should also be held to be violative of public policy, not considering that such refusal is in clear contradiction of pro-enforcement stance India aims to maintain and NAFED is an organ of the State and State’s action were derogatory to the contract of export signed. This case should serve as a lesson that India needs to either practice caution before entering into agreements or respect the agreements later even if the law or policy surrounding the agreement subsequently changes.

This case is particularly prone to criticism as it notes that that public policy has not been defined properly in any particular Convention or the Indian Statutes for that matter, however, it has laid down a very broad and controversial interpretation of public policy by defining it to mean any action in violation of[xvi]:

  1. The fundamental policy of Indian law
  2. The interests of India
  3. Justice or Morality

This interpretation is extremely wide, particularly regarding the first two points of fundamental policy and interests of India which may subsume anything and everything. It is in direct contradiction of the pro-enforcement standard of a narrow interpretation of public policy which can be inferred from the judgments like PEC Limited v. Austbulk Shipping[xvii] and Vijay Karia and Others v. Prysmian Cavi E Sistemi SRL and Others[xviii] and the mention of any of such cases is conspicuous by its absence in the entire judgment.

Read M.C. Mehta v. Union of India and Ors.

Conclusion

The undue delay in the White industries case and the nonenforcement friendly approach in the NAFED case indicate that India is still in the phase of development and not as arbitration as it poses to be. India has come quite far and there is no doubt regarding that. It has been endeavoring to constantly improve its arbitration laws and also the arbitration-friendliness, but if the actions of the two cases discussed above are repeated it shall be devastating for not only its aspirations to become the ICA hub but to its business with foreign countries in general. Therefore, in conclusion, only time will tell how arbitration-friendly is India and whether it has learned from its mistake, but as of now all that can be said is that it has come this far but it still has a long way to go.

 

References

[i] Arbitration and Conciliation (Amendment) Act, 2021, The Gazette of India, pt. II, sec. 2 (Feb. 04, 2021).

[ii] Ramendra Pratap Singh, Institutional Arbitration: Indian Approach, Legal Service of India, http://www.legalserviceindia.com/legal/article-2809-institutional-arbitration-indian-approach.html.

[iii] Arbitration and Conciliation (Amendment) Act, 2021, The Gazette of India, pt. II, sec. 2 (Feb. 04, 2021).

[iv] Elvira R. Gadelshina, What plays the key role in the success of an arbitration institution? Financier Worldwide Magazine (Feb. 2013), https://www.financierworldwide.com/what-plays-the-key-role-in-the-success-of-an-arbitration-institution#.YG8g0ugzZPY.

[v] Anjali Anchayil, Medha Srivastava, Pushing institutional arbitration in India, Mint (Aug. 17, 2017), https://www.livemint.com/Opinion/AXgpyH01L4oIMw43nDx5NN/Pushing-institutional-arbitration-in-India.html.

[vi] Id.

[vii] Enforcement of Foreign Awards in India, Mondaq, https://www.mondaq.com/advicecentre/content/3100/Enforcement-of-Foreign-Awards-in-India.

[viii] White Industries Australia Limited v. The Republic of India, Final Award, https://www.italaw.com/sites/default/files/case-documents/ita0906.pdf

[ix] Id.

[x] Id.

[xi] Vasanth Rajasekaran & Reshma Ravipati, Enforcement Of Foreign Arbitral Awards: Supreme Court Promotes A “Minimal Interference” Approach, Mondaq (Feb. 28, 2020), https://www.mondaq.com/india/trials-appeals-compensation/897470/enforcement-of-foreign-arbitral-awards-supreme-court-promotes-a-minimal-interference-approach.

[xii] Briana Young and Emily Blanshard, India liable under BIT for extensive judicial delays, Thomson Reuters Practical Law, https://uk.practicallaw.thomsonreuters.com/4-518-2521?transitionType=Default&contextData=(sc. Default)&firstPage=true.

[xiii] National Agricultural Cooperative Marketing Federation of India v. Alimenta SA, Civil Appeal No. 667 OF 2012.

[xiv] The Arbitration and Conciliation Act, 1996, § 48, No. 26, Acts of Parliament, 1996 (India).

[xv] National Agricultural Cooperative Marketing Federation of India v. Alimenta SA, Civil Appeal No. 667 OF 2012.

[xvi] Id.

[xvii] PEC Limited v. Austbulk Shipping (2019) S.C.C. 620.

[xviii] Vijay Karia and Others v. Prysmian Cavi E Sistemi SRL and Others (2020) 11 S.C.C. 1.

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