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Arbitration, ease of doing business

Even as they continue to battle each other on the procedure to appoint judges, there is one thing that Prime Minister Narendra Modi and Chief Justice of India TS Thakur can agree over. Both men have promoted arbitration instead of regular court proceedings to resolve commercial disputes. There is an urgent need to unburden the courts of commercial disputes and hand these over to professionally trained arbitrators to improve the ease of doing business in India. The aim here is to establish a time-bound and cost-effective manner of resolving these disputes. Lamenting that an avalanche of cases is putting the judicial system under stress, Thakur also pitched for revisiting legal framework to encourage arbitration and reforms in the existing government-run institution as it has performed “dismally”. India lacks proper institutions to hold arbitration proceedings, forcing people to approach “five-star hotels and clubs” for the purpose, he said. The government-run International Centre for Alternative Dispute Resolution has handled only 20 cases in two decades of existence, which talks about its “dismal performance”, he added. Experts contend that foreign companies entering into business contracts with their Indian counterparts tend to prefer a destination outside India for dispute resolution. The primary reason for their preference is that international companies do not trust the Indian judicial system to hand out time-bound and cost-effective resolutions to various commercial disputes. The choice for a foreign city or institution is not merely limited to international businesses. Even Indian entities prefer arbitration abroad, as it better clears the way for the execution of awards against foreign companies in their jurisdiction. At present, cities like London, Hong Kong, Geneva, Paris, and New York are popular destinations for arbitration proceedings. Businesses seek assurances that commercial disputes would be resolved efficiently. Prime Minister Modi has made a push for India to emerge as a global hub for arbitration. Addressing a conference on National Initiative towards Strengthening Arbitration and Enforcement in India, organised by the Centre-sponsored think-tank NITI Aayog, Modi said that robust legal framework backed by a vibrant arbitration culture is essential. “This will provide additional comfort to investors and businesses. More importantly, it will also ease the case load on Indian courts,” he said. “An enabling alternative dispute resolution ecosystem is a national priority for India. We need to promote India globally as an arbitration hub.”

Commercial establishments have long preferred the process of international commercial arbitration for resolution of various business-related disputes instead of regular courts. The aim here is to rely on the expertise of neutral arbitrators, instead of losing themselves in the maze of legal proceedings. In most cases, the ruling offered by the neutral arbitrators is binding. In India, however, this is where things get a little complicated. During his address, CJI Thakur also acknowledged that criticism of courts for regular interference in arbitration awards was “not misplaced”. “There is a need to sensitise courts for deference to arbitration awards,” he said. “We need to not only train judges but re-look at the statutory provisions.” Domain experts have long complained of the same. In a recent column for Mint, Anurag K. Agarwal, a senior professor of business policy at the Indian Institute of Management, Ahmedabad, writes:  “However, the award has to be executed by a court of law. Also, the losing party may challenge the award in a court of law, though on extremely limited grounds. Thus, willy-nilly, the parties can ultimately reach the court of law. In most matters in India—typically either with large stakes or with the involvement of the state as a party—the awards are challenged till they reach the highest court. Thus, instead of a speedy redress of business disputes, international commercial arbitration has begun to be viewed, and not wrongly, as another tier in the already cumbersome process. And despite being known for its independence, neutrality and boldness, such is the image of the Indian judiciary on time taken for final disposal of matters that foreign business leaders are wary of choosing India as the seat of arbitration to avoid the courts.” 

Prime Minister Modi’s bid to develop a domestic arbitration ecosystem comes in the face of assertive advances by some well-established global arbitral institutions on Indian soil. Reports in business dailies indicate that the likes of the International Chamber of Commerce (ICC) Paris, the London Court of International Arbitration, and the Singapore International Arbitration Centre have set up shop in India. With Indian businesses not very keen on approaching local courts to resolve commercial disputes, there is a market available for these institutions. The NDA government has pushed for the passage of requisite amendments to arbitration law approved by Parliament to facilitate the process of developing a business-friendly ecosystem in India. But the responsibility for improving the state of arbitration in India does not merely lie with the government. The legal fraternity and corporate India must get on board too. 
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