Global Administrative Reforms

  • Rajesh SharmaEmail author
Living reference work entry
DOI: https://doi.org/10.1007/978-3-319-31816-5_1162-1

Keywords

World Trade Organization Arbitral Tribunal Bilateral Investment Treaty World Trade Organization Rule Investment Dispute 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Synonyms

Introduction

Globalization has been mostly viewed from an economic perspective. However, the impact of globalization on judicial administration has not been considered with the same vigor. Globalization has no doubt contributed in the economic development of countries at the same time economic exchanges at the global level have also contributed towards globalization of dispute resolution system, which has been used by private as well as state parties. The one classic example is the creation of the World Trade Organization (WTO), which has created one set of trading rules, which must be followed by all Contracting States. If domestic rules of a particular country are not in line with the WTO rules, then that country is required to amend or legislate its law or regulations in line with the WTO rules. Such consistency with the WTO rules must be followed even when new laws, rules, or regulations are made in the future by any Contracting State. Any violation of the WTO rules may trigger the dispute resolution mechanism to resolve state-state dispute at the WTO forum. The dispute settlement mechanism of WTO is very effective because irrespective of the size of the economies, political power, or military power, the decisions or recommendations of the WTO dispute resolution body must be honored by the concerned State whose rules are found to be inconsistent with the WTO. Since its establishment in 1995, WTO and its dispute settlement body have been considered synonymous with globalization, which has had a significant impact on the judicial and administrative system of a country. One example is the administration of antidumping disputes, which are conducted and decided in accordance with the WTO rules.

As it is the States that are party to the WTO, the WTO dispute resolution system does not resolve disputes between private parties. Private parties, in general, use arbitration for resolving their disputes related to international trade and commerce. In this regard UNCITRAL Model Law on International Commercial Arbitration (Model Law), UNCITRAL Arbitration Rules (UNCITRAL Arbitration Rules), and the Convention on Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) set the international standards, which are followed by the domestic courts. In a dispute between an investor against a state, International Center for Settlement of Investment Disputes (ICSID) Convention together with relevant Bilateral Investment Treaty (BIT) is regarded as the internationally accepted standards. These international rules, law, and standards have created a significant impact on the administration of justice through courts or arbitration tribunals at the domestic level.

This paper will first highlight the importance of the Model Law, UNCITRAL Rules, the New York Convention, ICSID Convention, and BITs and how they set an international standard, which is seamlessly followed globally. In the next part, this paper will demonstrate how these rules and standard have affected, in a positive way, judicial and arbitration system including changes in relevant laws and practices in India. In conclusion this paper recounts the progress made in dispute resolution system so far in the Indian context and also suggests the necessary future developments required in this area.

Global Rules of Dispute Resolution

In the domain of the dispute resolution by the private parties, the UNCITRAL Model Law on International Commercial Arbitration (the Model Law) and the Convention on Recognition and Enforcement of Foreign Arbitral Awards (The New York Convention) have played an important role in the globalization of dispute resolution rules. The domestic courts have consistently followed the New York Convention, which was signed in 1958, where a party approaches the court for enforcement of a foreign arbitral award. The grounds for resisting the enforcement of a foreign arbitral award serve as the outer limit of the power of the domestic courts during enforcement of that award. (Article V of the New York Convention enumerates grounds on which a court may refuse to enforce a foreign arbitral award. The court handling the enforcement of foreign arbitral awards is not allowed to reopen the case or judge the merit of the case again.) This is because the New York Convention has established global rules for the enforcement of foreign arbitral awards.

The Model Law has also helped to make the arbitration law a global one. Ever since it was first adopted by UNCITRAL in 1985, the Model Law has created a global benchmark for an arbitration system to be recognized in the world. From an arbitration perspective, if a country adopts the Model Law, then it is considered as the “Model Law” country, which creates a positive image of that country in the mind of private business parties. From a government perspective, this fact is used as a means to attract foreign investment. A Model Law country satisfies the basic minimum criteria of noninterference by a domestic court in the process of arbitration; even if it interferes, that would be a positive interference, i.e., in support of the arbitration. In other words, if the Arbitration Law of a country is the same in the form and spirit as that of the Model Law, then that country is considered as an arbitration-friendly country. The principles of arbitration, as adopted in the Model Law, are accepted internationally both in common law and civil law countries. Thus, the Model Law guarantees that the domestic legal culture or traditions (i.e., common law, civil law, or continental law) have no effect on the process of international commercial arbitration.

Since 1976, UNCITRAL with its Rules on International Commercial Arbitration (UNCITRAL Rules 1976) has been promoting and handling arbitration proceedings in a way which is considered as a globally accepted standard. Its ad hoc arbitration rules have helped parties and countries to adopt such rules when they did not have or agreed to any institutional arbitration rules. UNCITRAL Rules in effect have provided everything what international arbitration institutions like ICC would have contributed in the administration of arbitration proceedings. Even before the Model Law came into play, the UNCITRAL Rules have been serving as the global standard of a fair and objective process of arbitration. UNCITRAL Rules have now been revamped, and the new rules have been in effect since 2010. As UNCITRAL Arbitration Rules are also used for the investment arbitration, therefore heeding to the new demand of transparency in the investor-state disputes, UNCITRAL Rules have now included the Transparency Rules in Treaty-based Investor-State Arbitration. (UNCITRAL Rules 2010 was revised in 2013 to include the Transparency Rules of Treaty-based Investor-State Arbitration. However, these transparency rules are not applicable on commercial arbitrations.)

In order to protect the investments of an investor in a host country, ICSID Convention was drafted which provides legal protection to an investor against a State which has unfettered power to regulate or acts in such a way that may be detrimental for the investors. (ICSID was established in 1966 by the Convention on the Settlement of Investment Disputes between States and Nationals of Other States.) ICSID Convention protects investors from such powers of the host government. A Contracting State of the ICSID Convention has to give consent for arbitration with an investor, and this is effected by the taking away the sovereign immunity of that State and make the Contracting State subject to the jurisdiction of the investment arbitration tribunal. A Contracting State, by giving up its sovereign immunity from jurisdiction of investment arbitration tribunal, agrees to a compromise in return to attract foreign investments and technologies for the development of that State. Because of that the host State is barred to exercise its sovereign immunity from the jurisdiction of the arbitral tribunal, and thus the investors could accept the standing offer of arbitration of that State anytime when they believe their rights in the Bilateral Investment Treaty (BIT) and/or Free Trade Agreement (FTA) are infringed by the host State. However, there are certain conditions that must be satisfied by the concerned investors before the State takes part in the arbitration with an investor. When an investor opts to initiate investment arbitration under a different forum, other than ICSID, then UNCITRAL Rules are generally used to conduct the arbitration proceedings to ensure that the arbitration process is conducted as per internationally accepted standards. (It is also possible to choose different institutional rules like ICC Rules, etc. in BITs.).

ICSID arbitration also pushed for advocating an open and transparent arbitration system. The argument, which was more forceful in the support of transparency, was a very simple one. If the subject matter of investment arbitration is a public law or the conduct of a State, then that arbitration must be public and not confidential like a typical international commercial arbitration. The argument went on to emphasize that any investment arbitration with a State inherently involves public interests; therefore such arbitration should be open. Transparency has outweighed confidentiality, and now UNCITRAL has adopted Transparency Rules for Investment Arbitration, which has become part of the UNCITRAL Arbitration Rules but only applicable in investment arbitrations and not applicable on the commercial arbitrations. (See Article 1 (4) of UNCITRAL Rules 2010 as amended in 2013.) These transparency rules will help to understand and analyze the conduct of an investor as well as the actions of the host State. The decision of the tribunal will help comprehend the acceptable and nonacceptable conduct of an investor or a State. Moreover, the process of investment arbitration, earlier did not pay emphasis on public interests, has now become open to public to either praise or condemn the conduct of States as well as investors.

Global Rules and Effects on the Administration of Justice in India

The arbitration law in India was in operation since 1940 through the Arbitration Act of 1940. The Arbitration Act, 1940, was based on an old idea where courts have the power and were capable of intervening at every stage of an arbitration proceeding. After the adoption of Model Law in 1985, India did not amend its arbitration law until 1996 to bring the arbitration law in line with the Model Law. (The Arbitration and Conciliation Act of India was promulgated in 1996, which was largely based on the Model Law.) After the promulgation of the Model Law in 1996, the government started promoting India as a Model Law country. However, in international quarter India was still criticized for not adopting the Model Law as it is and modified the Model Law to the extent that it lost the text and spirit of the Model Law to some extent. However, at least in law, the power of court was curtailed so that the role of courts was limited to positive interference in support of arbitration.

However, the less exposure of the Indian judges to the international commercial arbitration under the Model Law created the effect, which was neither intended nor expected by the Model Law. The situation became worse when the courts were asked to interpret the wordings of the Arbitration Act, 1996.

The first case on this point is relating to the number of arbitrators. (See Narayan Prasad Lohia vs Nikunj Kumar Lohia & Ors, Appeal (civil) 1382 of 2002, decided on 20 February, 2002, by the Supreme Court of India.) In Lohia v Lohia, parties agreed to a sole arbitrator. In the course of arbitration, they agreed to add one more arbitrator, thus constituting a panel of two arbitrators. (The Supreme Court did not comment upon the argument as to whether the two persons in this case were discharging the role of arbitrator or mediator, which was a matter of contention between the parties.) It is to be noted that the Arbitration Act provides that “the parties are free to determine the number of arbitrators, provided that such number shall not be an even number.” (Section 10, Arbitration and Conciliation Act 1996.) Therefore, at the end of the arbitration, the losing party invoked the supervisory jurisdiction of the local court to set aside the award as it was not in accordance with the parties agreement, i.e., a panel of sole arbitrator and also the award rendered by two arbitrators were against the law which does not allow a panel of even number of arbitrators. The High Court followed the text of the law and set aside the award. The Supreme Court, however, rejected the decision of the High Court on the ground of party autonomy. The Supreme Court emphasized party autonomy and opined that it was also the agreement of parties to continue the arbitration with a panel of two arbitrators. Therefore, according to the Supreme Court, party autonomy is higher than the text of the law because arbitration is based on party autonomy. This would also mean that the composition of the arbitral tribunal was in accordance with the parties’ agreement, and hence the ground of setting aside of award under Section 34 of the Arbitration and Conciliation Act cannot be invoked. (Section 34 (2) (a) (v) states “the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties.” In this case the Supreme Court also opined that the objecting parties did not raise any objection during arbitration, which meant that the party has waived its right to object under Section 4 of the same Act.)

The second decision shows the ignorance of the Indian judges as to how international arbitration works. In Bhatia International v Bulk Trading case, two Indian parties opted for ICC arbitration, and the seat of arbitration was agreed to be in Paris. (Bhatia International vs Bulk Trading S. A. & Anr, Appeal (civil) 6527 of 2001, decided on 13 March, 2002, by the Supreme Court of India.) As per the acceptable practice within an international arbitration, the court at the place of arbitration exercises the supervisory jurisdiction. However the Indian court adopted a contrary view that, on a subject matter of dispute connected with India and the potential enforcement of award resulting from that arbitration also in India, an Indian court has the supervisory jurisdiction over arbitration between Indian parties. The Court stated that

“a proper and conjoint reading of all the provisions indicates that Part I is to apply also to international commercial arbitrations which take place out of India, unless the parties by agreement, express or implied exclude it or any of its provisions.”

The Court thus rejected the connection between seat and supervisory jurisdiction of the court at the seat and considered that arrangement as sham to take away the supervisory jurisdiction of the Indian courts. Once again the text of the Arbitration Law played a crucial role in fueling the lack of understanding of Indian judges about the features of international commercial arbitration. (The Supreme Court also accepted the problem in text and stated, “Lastly it must be stated that the said Act does not appear to be a well drafted legislation. Therefore the High Courts of Orissa, Bombay, Madras, Delhi and Calcutta cannot be faulted for interpreting it in the manner indicated above.”) This decision of the Indian court was heavily criticized internationally. This erroneous decision was in effect for almost 10 years. In 2005, in another case the Supreme Court reversed the earlier decision and brought the end to the uncertainty and restored the internationally accepted principle that the court at the seat of the arbitration has the supervisory jurisdiction. (Bharat Aluminum v Kaiser Aluminum Technical Services [Civil Appeal No. 7019 of 2005] decided in 2012.) As this decision is effective from prospective date, all cases that were decided before have still been left in lurch and are subject to the old decisions of the Supreme Court.

The courts in India have applied “public policy” quite widely that it is difficult to ascertain the content and grounds of applying this ground for setting aside of an award. The judicial decisions have swung from one extreme to another. In some cases it is even looked into the merits of the case, which is not acceptable in resolution of dispute through arbitration. It is to be noted that within international arbitrations, the Indian case of “Renusagar case” is cited as enumerating the criteria of “public policy,” where a court could not enforce an award, but the recent decisions of Indian courts have created a crisscross puzzle of public policy that is not easy to fix. (Renusagar Power Plant Co. Ltd v. General Electric Co., AIR 1994 SC 860. This case was decided under the Arbitration Act of 1940, but the ratio of the court is still considered as a good law.) The decisions are also at odds with the views of the Law Commission of India (LCI). After the submission of LCI Report No. 246 on Amendment of Arbitration, the Supreme Court in India decided two cases on the ground of public policy, which were interpreted expansively as opposed to the proposal of the LCI. (The LRC submitted its Report 246 on August 2014, and then the Supreme Court decided two cases ONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263 and Associate Builders vs Delhi Development Authority, CIVIL APPEAL NO. 10531 of 2014, decided on 25 November 2014.) This led the LCI to draft and present a supplementary report on public policy. (As the approach of the Supreme Court was different from the LCI, a Supplementary Report No 246 was issued in February 2015 by the LCI.) Under the federal structure of India, High Courts in different states serve as the supervisory courts, and they are able to interpret and apply public policy differently. Therefore, both LCI and Niti Aayog in their recommendations have asked the government to control the interference of the courts in relation to arbitrations and more importantly while dealing with application of setting aside of an award. (The National Institution for Transforming India, also called NITI Aayog, was formed via a resolution of the Union Cabinet on January 1, 2015. NITI Aayog is the premier policy “Think Tank” of the Government of India, providing both directional and policy inputs. While designing strategic and long-term policies and programs for the Government of India, NITI Aayog also provides relevant technical advice to the Center and States. Niti Aayog has replaced the old Planning Commission.) It has gone to the extent to suggest that courts ought not to deal with the cases, which have been challenged on the basis of public policy alone. The Model Law has provided the grounds for the setting aside of an arbitral award which is based on the New York Convention Article V. According to the Model Law, the court may invoke the ground of public policy whether or not the Party argues it. There is a general acceptable principle, which is also confirmed by the drafting history of the New York Convention and the Model Law, that the courts should adopt the narrow interpretation of public policy. As the courts of India have not followed such proposition, therefore the LCI and Niti Aayog have proposed that Indian courts should also give narrow interpretation to public policy. The amendment to Indian Arbitration and Conciliation Act added explanation with the following effect in Sec 34:

Explanation 1. —For the avoidance of any doubt, it is clarified that an

Award is in conflict with the public policy of India, only if, —
  1. (i)

    the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or

     
  2. (ii)

    it is in contravention with the fundamental policy of Indian law; or

     
  3. (iii)

    it is in conflict with the most basic notions of morality or justice.

     

Explanation 2. —For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.

In the paper presented by Niti Aayog titled “Strengthening Arbitration and its Enforcement in India – Resolve in India,” the Aayog has acknowledged that in order to make India as a place of “Resolve in India,” the very first frontier to succeed is to streamline the governance framework of arbitration.

The erroneous decisions by the courts with respect to arbitration provided an urgent impetus to proceed with the amendment of the Arbitration and Conciliation Act of 1996. Moreover, the Model Law also got amended in 2006; therefore the new provisions of the Model Law were missing in the 1996 Act too, which were needed to be included. For faster and efficient arbitration, many institutions and countries have already adopted new rules or provisions such as emergency arbitration, which were missing in the Indian Arbitration Act. Therefore in 2015, India amended its Arbitration Act, which also corrected the text to avoid any misinterpretations of law, not in line with the internationally accepted principles.

The 10 years of delay in correcting the error set by the Supreme Court triggered another dispute, which was decided by the investment arbitration tribunal in the White Industries case. (White Industries Australia Limited and The Republic of India, Final Award, 30 November 2011) In this case an Australian claimant was seeking to enforce an ICC award. However, the respondent Indian company resisted the enforcement of the award. As the law was incorrectly applied by the Supreme Court earlier as discussed above, the enforcement case remained pending before the Supreme Court. The case, which reversed the earlier decision of the Supreme Court, Bharat Aluminum also had White Industry, as party to that case. (White Industries was also one of the parties in the case Bharat Aluminum case which ultimately corrected the legal position about the jurisdiction of the Indian courts over arbitration in a foreign jurisdiction as discussed above.) Since that case took 10 years to decide, White Industry started an investment arbitration case against the Indian government on the ground of “denial of justice” and “effective means for exercising rights and obligations.” The ground of denial justice is a very strong one, and any positive award by the tribunal would mean that the judicial system of the country, which is subject to the denial of justice claim, is ineffective or has collapsed or become nonfunctional, where no justice can be expected from the courts in that country. In other words, the positive award on denial of justice will in effect infer that the third pillar of a legal system has become nonfunctional. Thus, it would be a very negative message for the State as it means there is no justice available for investors. In the White Industries case, the investment tribunal was critical of delay in the courts of India, but it did not pronounce that such delay amounts to denial of justice.

The tribunal in White Industries decided that delay in enforcing an award by the Indian court is a violation of the “effective means” clause, which was not available in the Australia-India BIT, but was brought from India-Kuwait BIT, applying the Most Favoured Nation Treatment (MFN) principle. The delay by the Court did not allow the investor to exercise its right to claim its money under the award. In other words there was no “effective means” available for the investor to exercise its right to claim money in the award which violated the Australia-India Agreement on Promotion and Protection of Investments. As this paper is not focusing on the application of the MFN principle in investment arbitration, it may be sufficient to say that application of MFN principle in investment arbitration is not a settled issue.

The reaction of Indian government was stern because such investment arbitration award was tantamount as basically judging the courts and the judiciary of the country by a three-person arbitration panel. The then finance minister India Mr. P Chidambaram said “We have put Foreign Investment Promotion and Protection Agreement (FIPPA) on hold – because of two major legal issues: namely right of a foreign investor to sue a sovereign State in a commercial dispute, and jurisdiction.” He made this statement in Canada on 15 April 2013 in reply to a question asked by Mr. Peter Sutherland. The Finance Minister further stated, “We cannot allow our highest court of the land to be subjected to any foreign courts or tribunal.” He even asked Mr. Sutherland and the audience of Canada a rhetoric question in return “will you allow the Supreme Court of Canada be subjected to jurisdiction of any other court or tribunal?” The current government of India, though a different political party than the previous government, has also followed the same approach and proceeded to draft a Model BIT. It has consequently also issued notice to its current BIT and FTA partners (which includes investment provisions) for unilateral termination of BIT. Australia-India BIT is one of those BITs which has come to an end on 23 March 2017. Such termination of BITs means that the investments, which are protected through BITs, are no longer protected if those investments are made after the termination of the BIT. However, it is to be noted that every BIT generally has termination provision to the effect to provide the protection of BIT to investments already made before the termination of the BIT for another 10–15 years. In the case of Australia-India BIT, such protection is available for 15 years from 23 March 2017. Thus any investment made on or after 23 March 2017 will have no protection under the Australia-India BIT.

Investors may be jittery by the unilateral withdrawal of India from its BIT; the Indian government is convinced that the Indian legal system is robust enough to resolve any investment dispute which in the eyes of Indian government is simply a commercial dispute. The former Finance Minister (just one day after his statement in Canada), in his speech delivered at the Harvard Business School, stated “the best guarantor of investment protection is a stable and democratic political structure, a belief in the rule of law, and a transparent and independent legal system. India has all three. So have many other emerging markets.” The same approach is also adopted by the current government, which is pushing its Model BIT as the template for negotiating all BITs in the future.

There is no doubt that White Industries award has nudged India to draft its own Model BIT. The first draft of Model BIT was extensively reviewed and analyzed by the LCI, and upon their recommendations, India modified its Model BIT, which is now serving as the template for BIT negotiations. India is the first developing country, which has adopted its own Model BIT.

The Model BIT of India has received some positive support in the international arena. Until now there were two model BITs prevalent, i.e., US Model BIT and the EU Model BIT; so now the Indian Model BIT is presenting a third model which is considered as the middle path. The Indian Model BIT gives regulatory and policy space to State; therefore some host states have also shown inclination to follow the Indian approach in their negotiation of the BIT. Recently when EU demanded India to move away from its Model BIT, then few experts advised that India should stand strong in EU-India FTA negotiation. (Rob Howse, India should not let Europe undermine its new BIT and TRIPs flexibilities for medicines, Sunday Guardian Live|25 February, 2017, http://www.bilaterals.org/?india-should-not-let-europe)

Establishment of Commercial Courts, Commercial Division, and Commercial Appellate Division

The inordinate delay in deciding a case by courts in India affected the intentional image of the Indian court system. Even in situations like White Industries where parties opted for arbitration, if they need to go to court in post-arbitration situation, the time taken by courts in resolving such disputes is incredibly long. It is pertinent to note that the White Industries invoked Australia-India BIT to get relief from such delays by the courts in India. According to the data collected by the World Bank, contract enforcement takes 1,420 days (nearly 4 years), and the cost of enforcement comes around 40% of the contract claim. (This fact was noted in the Law Commission of India Report 253, p. 43.) Niti Aayog has also noted a study, which reveals that it takes 24 months to resolve challenges under section 34 (of the Arbitration and Conciliation Act 1996) at the lower courts, 12 months in High Courts, and 48 months in Supreme Court. In all it takes around 2508 days on an average to decide applications filed under Section 34.

This promoted the Indian government to enact a law concerning the establishment of “Commercial Courts, Commercial Division, and Commercial Appellate Division in the High Courts of India.” The pecuniary limit of such courts is a minimum of Rupees One Crore (US$152,828). Commercial courts have already commenced functioning in Delhi, Mumbai, Himachal Pradesh, and Gujarat. (http://timesofindia.indiatimes.com/city/delhi/Commercial-courts-begin-functioning-in-Delhi-Mumbai/articleshow/52488068.cms.)

Commercial courts have jurisdiction of a wide of rage of commercial disputes such as ordinary transactions of merchants, bankers, financiers, and traders such as those relating to mercantile documents, including enforcement and interpretation of such documents; export or import of merchandise or services; issues relating to admiralty and maritime law; transactions relating to aircraft, aircraft engines, aircraft equipment, and helicopters, including sales, leasing, and financing of the same; carriage of goods; construction and infrastructure contracts, including tenders; agreements relating to immovable property used exclusively in trade or commerce; franchising agreements; distribution and licensing agreements; management and consultancy agreements; joint venture agreements; shareholders agreements; subscription and investment agreements pertaining to the services industry including outsourcing services and financial services; mercantile agency and mercantile usage; partnership agreements; technology development agreements; intellectual property rights relating to registered and unregistered trademarks, copyright, patent, design, domain names, geographical indications, and semiconductor integrated circuits; agreements for sale of goods or provision of services; exploitation of oil and gas reserves or other natural resources including electromagnetic spectrum; insurance and reinsurance; and contracts of agency relating to any of the above. Central government of India has the power to include other disputes of commercial nature other than what are already identified in the law.

Disputes such as exploitation of oil and gas reserve or other natural resources are mainly the subject matter of dispute in investment arbitration cases. The inclusion of electromagnetic spectrum is also included in the category of commercial dispute. This is perhaps when the Supreme Court of India cancelled the licenses issued by the Indian government for mobile telecommunication, which triggered few investment arbitration cases. (Centre for Public Interest Litigation and others vs Union of India and others WRIT PETITION (CIVIL) NO. 10 OF 2011, decided on 2 February 2012. After the cancelling of license, India was slapped with notice of Investor-State Treaty-based arbitration by various investors. See “Sistema threatens arbitration in 2G case.” http://timesofindia.indiatimes.com/business/india-business/Sistema-threatens-arbitration-in-2G-case/articleshow/12070637.cms) Including such disputes in the category of commercial disputes fortifies the view of the Indian government that all investment disputes are mainly commercial disputes. However, the jury is still out which may not agree with the view of the Indian government.

One of the causes of delay in courts is the lack of enough number of judges. Though commercial courts have been established, they are running with the help of current judges. Such use of current judges may give a kick start to the commercial court, but it may not be helpful in speedy decision-making unless new judges are appointed as per the recommendation of the Law Reform Commission. The LRC suggested that only specialized judges or new judges with specialized training in commercial disputes should be given charged to resolve commercial disputes. These courts are also allowed to handle arbitration-related cases such as setting aside of awards and enforcement of awards. If these commercial courts could decide arbitration-related cases speedily, then situations like White Industries may not arise again.

Institutional Arbitration in India

In the most jurisdictions, arbitration is generally administered by an arbitration institution whether as a governmental body or a professional body or as an NGO. The benefit of having institutional arbitration is that when parties have not agreed on any aspect of arbitration proceeding, then institutional rules may serve as the default rules. This is possible just by agreeing to use institutional rules in the arbitration agreement. Parties may also use UNCITRAL Arbitration Rules in their ad hoc arbitration; however it has been seen that institutional arbitration has many advantages over ad hoc arbitration.

In the last 20 years, though India has embarked upon making the arbitration a more acceptable mode of dispute resolution in India, the institutional arbitration has not acquired international recognition. In fact, arbitration institutes of India have been subject to scathing criticism. Even the Niti Aayog Report has criticized the current arbitration institutions and has recommended the government of India to work toward establishing an International Institution of international standard if India wants to promote “Resolve in India.” In comparison to other hubs of arbitration like Hong Kong, Singapore, Beijing, Paris, and others, India is far behind, and there is need to establish a central arbitration institution with offices in other cities, e.g., Delhi, Mumbai, Hyderabad, Bengaluru, and Gujarat. Considering the size of India, it is important that the state offices of the central arbitration institutions are also open. ICC, SIAC, and LCIA have shown such ways which help parties in filing notices of arbitration and conducting arbitration proceedings including appointment of arbitrators. Suggestions of Niti Aayog, in this regard, are influenced by the practices of these international arbitration institutions.

Innovative Appeal Mechanism in Arbitration

Arbitration is final and binding, and therefore courts cannot get into the merits of the decision. In this way power of courts is controlled vis-à-vis arbitration. However, this situation may also result into the wrong application of facts and law, which may create injustice. Therefore, it has been argued that there should be some sort of appeal mechanism, which may be helpful. It may be noted that in the Model Law, there is no provision of appeal, and even in jurisdiction like the UK, which has a limited scope of appeal, courts have been reluctant to allow appeal. (Article 69 of the UK Arbitration Act allows limited right to appeal against an award. However, courts in the UK are reluctant to grant leave to appeal against an award, which indirectly supports the finality of arbitral award. https://www.cliffordchance.com/briefings/2014/02/courts_reluctanttograntappealofarbitra.html) In investment arbitration the appeal system has picked up further momentum. EU-Canada FTA, (Relevant CETA provisions: Article 8.27 – Constitution of the Tribunal; Article 8.28 – Appellate Tribunal; and Article 8.29 – Establishment of a multilateral investment tribunal and appellate mechanism) EU-Vietnam FTA, (Chapter 8 of EU-Vietnam FTA, Article 13, provides for establishment of Appeal Tribunal.) and Australia-China FTA (Australia-China FTA does not have any provision relating to appeal mechanism; however, as for the future negotiation, both Parties have agreed to discuss appeal mechanism. As stated in, ARTICLE 9.23: Appellate Review, “Within three years after the date of entry into force of this Agreement, the Parties shall commence negotiations with a view to establishing an appellate mechanism to review awards rendered under Article 9.22 in arbitrations commenced after any such appellate mechanism is established. Any such appellate mechanism would hear appeals on questions of law.”) have opened the door for appeal mechanism in the investment arbitration.

The Supreme Court of India has recently allowed indirect ways of appealing an arbitration award, whereby parties may choose two arbitrations. (M/s Centrotrade Minerals & Metal Inc. v. Hindustan Copper Ltd., Civil Appeal No. 2562 of 2006 decided on 15 December 2016.) If the decision of the first arbitration is not acceptable, then the parties may commence second arbitration, and the decision of the second arbitration will be final and binding. As the Supreme Court of India has recognized double arbitration which may serve as an appeal mechanism with the parties’ consent, such methods may be used by other parties in the future arbitrations too. This is an example where Indian approach may affect global governance of arbitration.

Conclusion

Globalizations of dispute resolution rules have positively impacted the administration of justice in India. In this regard the Model Law is worth mentioning. The Model Law has helped develop the arbitration system in India. Many private parties have taken the benefit of arbitration whether as a domestic arbitration or as an international arbitration. The recent amendments in the Arbitration Law will further help India to establish itself as an arbitration-friendly jurisdiction. The establishment of commercial courts, commercial division, and commercial appellate division will help commercial cases to get resolved in a speedy way. More importantly these courts will supplement the development of arbitration system because arbitration-related cases will be dealt with by these courts also in a time-bound manner. Despite these developments there are several stumbling blocks. In the context of arbitration, it is important that India establishes a central arbitration institution with offices or branches in several parts of India. Without a centralized institution of arbitration, the practice of institutional arbitration will not develop, which will also affect the “Resolve in India” dream. The lack of judges for the new commercial courts is another problem. Commercial courts are also important to resolve investment disputes, which are, according to India, mainly commercial disputes. Therefore to avoid any further investment arbitration, these commercial courts must deliver decisions in a timely manner. The unilateral withdrawal of India from the BITs and insistence on accepting Indian Model BIT may create some resistance and may affect foreign investment. While foreign investors consider India as a profitable destination, at the same time they would like to have a legal guarantee for protection of their investments, which are generally granted under BITs. As long as the BIT system is not fixed, it is important for India to strengthen the arbitration and commercial court system so that investor finds solace in India with regard to availability of effective, efficient, and practical dispute resolution system.

Cross-References

References

  1. Arbitration and Conciliation Act (1996) (Amendment in 2015). http://www.indiacode.nic.in/acts-in-pdf/2016/201603.pdf
  2. Associate Builders vs Delhi Development Authority, Civil appeal no. 10531 of 2014. https://indiankanoon.org/doc/31621011/
  3. Bharat Aluminum v Kaiser Aluminum Technical Services [Civil appeal no. 7019 of 2005]. https://indiankanoon.org/doc/173015163/
  4. Bhatia International vs Bulk Trading S. A. & Anr, Appeal (civil) 6527 of 2001. https://indiankanoon.org/doc/110552/
  5. Centre for Public Interest Litigation and others vs Union of India and others Writ Petition (Civil) no. 10 of 2011. http://supremecourtofindia.nic.in/outtoday/39041.pdf
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© Springer International Publishing AG 2017

Authors and Affiliations

  1. 1.Justice and Legal StudiesRMIT UniversityMelbourneAustralia