Building India into a Global Arbitration Hub

Over the past few years, the government has taken a pro-active approach to promote India as an arbitration hub.

With a view to revamp the International Centre for Alternative Dispute Resolution (“ICADR”), which was set up in 1995 to promote alternative dispute resolution mechanism in India the New Delhi International Arbitration Centre Act, 2019 was passed by the Parliament. Before going into the details about the Act and the mandate of the Centre, it is pertinent to have a background about what major circumstances and developments led to the passing of this Act.

Increasing Foreign Direct Investment in various sectors, indicators like Ease of doing business in general and enforcement of contracts (the indicator where India has lot of scopes to improve upon) in particular a special mechanism had to be set up in place to promote institutional domestic as well as international arbitration and also to make India a preferred destination by the foreign parties for arbitration.

To further this goal New Delhi International Arbitration Centre Act, 2019 was enacted, based on the report of the Committee headed by former Supreme Court Judge B. N. Shrikrishna.

The Act provides for the establishment of the New Delhi International Arbitration Centre (“NDIAC”), an institution to better manage domestic and international arbitration in the country. The NDIAC is to be declared as an institution of national importance. Further, the Act envisages NDIAC to take over the infrastructure and other facilities of the ICADR.

Settlement of commercial disputes is a key factor and this move will help India to come on a global map. India has qualified lawyers and a lot of scopes to develop the arbitration law. The NDIAC will help to make the arbitration of excellent quality and will also help in reducing the burden of already overburdened courts.

By incorporating New Delhi International Arbitration Centre, the Government now has a huge responsibility for gaining international investors’ confidence for choosing the Institutional Arbitration as a settlement mechanism. By gaining confidence from the investor community on quick dispute settlement, there is a huge chance of increasing of investments in India. It will be helpful to the country’s economy and GDP growth. It has been seen quite often that foreign companies entering into business contracts with Indian companies prefer a foreign arbitration centre for dispute resolution, primarily due to lack of institutionalised arbitration in India. This newly passed Bill puts India, with the help of the to-be-established Arbitration Council of India (ACI), at a parallel footing with big arbitration hubs such as the London Court of International Arbitration (LCIA), the Singapore International Arbitration Centre (SIAC) and the ICC International Centre for ADR (ICC).

The potential for arbitrations in India has also changed with the reform in third-party funding, making the country all set to present itself and compete with other international jurisdictions as an international arbitration hub. The Supreme Court, in the Bar Council of India vs AK Balaji case, has clarified that the third parties (i.e. non-lawyers) can fund the litigation and get repaid after the outcome. This is similarly applicable to arbitration, which would go a long way in making India an arbitration-friendly jurisdiction. The availability of third-party funding offers businesses an additional financial and risk management tool, while engaging in arbitration.

However, how these new laws and rules are implemented is yet to be seen. But thanks to these new amendments, India stands on a goldmine of opportunities with respect to international arbitrations. Not only can the country become an international arbitration hub, but it can also become the most sought-after international arbitration hub. Hence, the next five years are incredibly significant, especially in terms of policy formulation and execution. However, the speed with which the country is progressing, there will be a paradigm shift in its favour, and sooner rather than later.

The initiative to promote institutional arbitration through the NDIAC is an excellent one. There is, however, a likelihood of a perception that the NDIAC may not be a neutral institution, considering the active role that the Central Government will play in its establishment and operations. This aspect, in my view, needs to be addressed as a priority so that parties (especially foreign parties) understand that whilst the Government is involved in the establishment of the institution, it will have a ‘hands-off’ approach when it comes to the appointment of arbitrators and administration of cases. If this can be achieved, NDIAC certainly has the potential to be the flagship arbitral institution in India and an institution of international repute in the years to come.

It is hoped that NDIAC will change the perception of doing business in our country and will expedite the dispute settlement mechanism. However, the Parliament must clear the ambiguities associated with NDIAC. Particularly, an investor friendly procedural framework must be adopted. A transparent process for appointment and removal of the members must be incorporated. Separately, the Central Government involvement or interference in the functioning and funding of NDIAC must be phased out to gain investors’ confidence.

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