Rishab Gupta, Partner, Shardul Amarchand Mangaldas
rishab.gupta@AMSShardul.com
+91 98217 80313

Arbitration is the preferred mechanism for resolving commercial disputes in India and, in particular, disputes that have a cross-border element. The advantages that arbitration can have over litigation in the Indian context include:

• Enforcement: ease of enforcement is often an important deciding factor in favour of arbitration. India is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). If a party receives a binding award from a country which is a signatory to the New York Convention and the award is made in a territory which has been notified as a ‘convention country’ by India, the award would then be enforceable in India. Only 48 countries have been notified by the Central Government as reciprocating countries, with the most recent addition being Mauritius.

There is no real equivalent for the enforcement of court judgments. Indeed, under Indian law, only 12 countries are recognised as ‘reciprocating countries’. A party seeking enforcement of a judgment of a court in a reciprocating country can directly file execution proceedings in India while in case of a decree from a non-reciprocating country, a fresh suit has to be filed before the relevant court in India. 

The above scheme means that, in the context of cross-border transactions involving India, parties are always well-advised to include arbitration clauses, and not court jurisdiction clauses. For example, while the U.S. is recognised as a ‘convention country’ for the purposes of enforcement of arbitration awards, it is not recognised as a ‘reciprocating country’ for the purposes of enforcement of foreign judgments. An arbitration award issued by a U.S. seated tribunal would be readily enforceable in India, but the same cannot be said for a judgment issued by a U.S. court. 

• Length of proceedings:  Indian courts are notorious for endemic delays in resolving commercial disputes.  Arbitration can be substantially quicker.  After the recent amendments[1] to the Arbitration and Conciliation Act 1996 (Act), all India seated arbitrations must be completed within 12 months of the constitution of the tribunal. The 12-month deadlineisextendableby consent of the parties for a period of 6 months and after which only the Court has the authority to grant furtherextension.[2]

• Finality: Indian procedural law offers parties several opportunities to appeal a judgment. On the other hand, there are no appeals against an arbitration award. The losing party may apply to the Indian courts to set-aside the award; however, unlike an appeal, such set-aside proceedings are not a full-blown review on the merits. 

• Procedural flexibility: arbitration allows parties to tailor procedures to the needs of a particular dispute. In practice, parties often choose institutional arbitration and simply adopt the standard rules and procedures of their chosen institution. In the absence of credible arbitration institutions in India, foreign parties entering into India related contacts often chose foreign institutions such as Singapore International Arbitration Centre (SIAC), International Chamber of Commerce (ICC) or London Court of International Arbitration (LCIA). However, with the establishment of the Mumbai Centre of International Arbitration (MCIA) and the expected launch of similar institutions in other Indian cities, this practice might change in the future.

• Neutrality and expertise: in arbitration, parties are able to refer their disputes to a neutral forum.  This is particularly attractive in the context of cross-border transactions.  Singapore has emerged as the most commonly chosen foreign seat for India related arbitrations, displacing London as the preferred choice. 

Arbitration also enables the parties to ensure that the composition of the tribunal is neutral and has the relevant technical expertise.Indian parties are known to select former judges of Indian courts as arbitrators. However, as a result of recent changes to the Act, this practice is changing. The Act now incorporates provisions of the IBA Guidelines on Conflicts of Interests in International Arbitration (IBA Guidelines) in order to promote independence and impartiality of arbitration. The Fifth and Seventh Schedules of the Act now set out the circumstances that would give rise to justifiable doubts, and situations which make an arbitrator ineligible to be appointed (except where express waiver is made by parties), respectively. In fact, India is the first country in the world that has statutorily incorporated the IBA Guidelines into its arbitration law.

• Confidentiality: arbitration hearings are usually held in private and the fact that a party is involved in arbitration proceedings is confidential. The only situation in which certain aspects of an arbitration may become public is where there are related court proceedings (e.g., where a party applies to courts for interim relief in support of an arbitration or challenges an arbitration award in courts). By contrast, Indian court proceedings, with some exceptions, are almost always open to public. 

Indian law also recognises an implied duty of confidentiality which prevents the disclosure to third parties of most documents produced or disclosed in an arbitration. This includes pleadings and the award. In order to make confidentiality an “express” duty in the context of arbitration, further amendments have been proposed to the Act.[3]

If a party decides to choose arbitration over litigation, it must also decide the ‘seat’ of arbitration.  Seat is the juridical place of an arbitration and determines the arbitration law that would be applicable to that arbitration. For example, if the seat is London, the English Arbitration Act, 1996 will apply to the exclusion of all other national arbitration laws. Similarly, if the seat is in Mumbai, Part I of the Act will apply on an exclusive basis.

The choice of seat depends on a variety of factors, including neutrality and impartiality of the legal system, national arbitration law, track record of enforcing arbitration agreements and arbitration awards, availability of quality arbitrators and arbitration counsel, as well as efficiency of the local judicial system.[4] Historically, India has fared badly in respect of all these factors. Therefore, not surprisingly, India is not a preferred seat of arbitration. Other jurisdictions like Singapore and the UK (often chosen by designating London as the seat in the arbitration agreement) have emerged as the default choices for international arbitrations relating to India.

However, the Indian government has been trying to make India a more attractive seat for international arbitration.[5] This is most evident in the recent amendments to the Act. Some of the advantages of choosing India as the seat of arbitration include:

• Timeline: as noted above, under the Act, Indian seated arbitration must be concluded within 12 months of constitution of the tribunal. That period can be extended by 6 months with parties’ consent, but any further extensions require court’s consent. The introduction of timelines in the Act have had a notable impact on the Indian arbitration regime: in my experience, most arbitrations which began after 23 October 2015 (the date on which the amendments came into effect) have been completed within 12-18 months. 

However, if a foreign seat is chosen, the above-stated timelines will not apply and the arbitration may take substantially longer to complete.

• Enforcement: in case the assets of the award debtor are based in India, an arbitration award issued by a foreign seated tribunal would have to be enforced in India under Part II of the Act. While the pace and certainty of such enforcement proceedings have increased substantially in recent years,[6] there is no fixed period within which a foreign award must be enforced in India. By contrast, any challenges against awards issued in India seated arbitrations must be completed within 12 months of notice being issued to the other side.

• Interim relief: the ability of a party to obtain interim relief is central to the efficacy of arbitration (e.g. a party might require a freezing injunction to prevent the other party from dissipating its assets during the pendency of the arbitration). Indian courts can grant interim relief in support of arbitration, including arbitrations seated outside India. Parties can approach Indian courts for interim relief at any point before the constitution of the arbitral tribunal. However, after the tribunal has been constituted, parties are generally expected to seek interim relief from the tribunal directly. 

• If the tribunal is seated outside India, interim orders issued by that tribunal will not be enforceable in India.  That is because only final arbitration awards are enforceable under Indian law.  By contrast, if the interim order has been issued by an India seated tribunal, it would be enforceable in India in the same way as an order of an Indian court. 

The above-stated reasons, along with the changing arbitration landscape and establishment of new arbitration institutions like the MCIA, mean that India, in certain circumstances, may be the preferred seat of arbitration even for cross-border transactions.  In particular, when one of the parties has all its assets in India and therefore any enforcement proceedings would have to be commenced in India, it may be sensible to seriously consider choosing India as the seat of arbitration.  Of course, the positives in favour of India would have to be balanced against other factors, such as the possibility of intervention by Indian courts (which has decreased substantially in recent years, but cannot be ruled out completely), availability of qualified arbitrators and counsel, and costs.