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The future of arbitration in India: Strengthening the process of alternative dispute resolution


Being a global economic powerhouse, and in the interest of integrating with the global business community, Indian laws have repeatedly been amended to keep the country at par with legal regimes in other leading commercial law jurisdictions.

Arbitration as a method of alternative dispute resolution has been around for a long time. The Arbitration and Conciliation Act 1996 has been modelled on lines of the UNCITRAL (United Nations Commission on International Trade Law) framework of laws with the idea to modernize Indian arbitration law and bring it in line with the best global practices and also make India a global hub for arbitration.

Though changes in law have made arbitration a popular alternative to litigation, it has to be kept in mind that most arbitration in India is ad hoc arbitration with institutional arbitration still a minor proportion of all arbitration conducted. Presently India lacks institutions which are at par with organizations of international repute like ICC (International Court of Arbitration), LCIA, SIAC, HKIAC, etc. As a result, it has been seen quite often that foreign companies entering into business contracts with Indian companies prefer a foreign arbitration centre.

Arbitration Council of India

The recent 2019 amendment seeks to remedy this problem mentioned above by providing the framework for institutionalized arbitration in India. It mandates the creation of the Arbitration Council of India, which has the duty to “take all such measures as may be necessary to promote and encourage arbitration, mediation, conciliation or other alternative dispute resolution mechanism and for that purpose to frame policy and guidelines for the establishment, operation and maintenance of uniform professional standards in respect of all matters relating to arbitration”.

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The 2019 Amendment has also introduced a tiered system of referring disputes to arbitral institutions. As per the 2019 amendment, arbitral institutions will now be graded by the Arbitration Council of India. The grading of arbitral institutions is to be done “on the basis of criteria relating to infrastructure, quality and calibre of arbitrators, performance and compliance of time limits for disposal of domestic or international commercial arbitrations, in such manner as may be specified by the regulations.”

The grading system would give a measure of the quality and integrity of a particular arbitral institution and attribute legitimacy to the awards passed by it. The 2019 Amendment also empowers the Supreme Court of India (in the case of an International Commercial Arbitration) and the High Courts (in cases other than international commercial arbitration) to designate such graded arbitral institutions for appointment of arbitrators.

This amendment essentially seeks to reduce the intervention of courts in matters of arbitration to increase the effectiveness of the procedure in terms of time. This newly introduced, swift and progressive legal regime will go a long way in encouraging more parties to resort to arbitration as the preferred mode of dispute resolution and is a huge step forward in streamlining the process of resolution of commercial disputes and making India a preferred spot for International Arbitrations.

Third-party funding of arbitration

Funding litigation is quite expensive for a company as its cash flow, EBITDA and market value are all negatively impacted. Litigation funding allows companies to leverage their scarce resources for productive usage such as product development, capacity expansion, etc. as compared to locking capital to fund expensive litigation.

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The third-party financing comes without any cost of capital and hence increases both the operating profit as well as the market value of the company. The future probability adjusted payoffs from litigation are usually discounted at an IRR that investors are willing to underwrite and is a win-win situation for the parties involved.

Since, in India, neither contingent liabilities nor contingent assets are recognized in financial statements, selling a possibility of a claim for a definitive sum of money, coupled with the savings to be made on probable litigations, is extremely beneficial for a company.

Manoj-K-Singh,-Founding-Par

Manoj K Singh, Founding Partner, Singh & Associates.

Singapore has recently passed amendments to its Civil Law Act legalising third party funding for arbitration and associated proceedings. Similarly, Hong Kong recently legalised third party funding for arbitrations and mediations. The Paris Bar Council has also indicated its support for third party funding.

In India, there is no legislation as of now, which deals with third party litigation, however, the Supreme Court has clarified the legal permissibility of TPF in litigation and observed that “There appears to be no restriction on third parties (non-lawyers) funding the litigation and getting repaid after the outcome of the litigation”.

The Report of the High-Level Committee to Review the Institutionalisation of Arbitration Mechanism in India, (also known as the Sai Krishna Committee Report), which came out in 2017 had also recommended third party funding with respect to Arbitration in India.


Emergency arbitration


The emergency arbitrator provisions can be utilised where urgent relief is required and during the pandemic, the recourse to this provision was taken by the parties. However, in India there is significant uncertainty in the law regarding the enforceability of emergency awards and orders in arbitrations seated in India. The LCI in its 246th Report had recommended recognising the concept of emergency arbitrator by widening the definition of arbitral tribunal under section 2(d) of the ACA to include emergency arbitrators. However, this recommendation was not incorporated in the 2015 Amendment Act. The same was also recommended by the Sai Krishna Committee Report.

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The issue again came to the forefront in the recent widely publicized dispute between Amazon, Future Group and Reliance, wherein Amazon managed to obtain, an interim order from an Emergency Arbitrator under the SIAC Rules, restraining the Future Group entities from proceeding with the Rs 24,700 crore deal to monetise the retail business. However, questions were raised as to whether such an interim order passed by an emergency arbitrator could be enforced in India, and

publicly stated its intention to go ahead with the sale.

Reliance on technology

The pandemic COVID-19 has already changed the manner in which arbitration hearings are being conducted, across the world. In India also, parties and tribunals have moved past their initial apprehension and have embraced technology. It can be safely concluded that even when the world returns to normalcy, there will be a much greater role of technology.

The writer is Founding Partner, Singh & Associates.



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