State Interference in Commercial Arbitration in India?

By Suprateek Neogi
Suprateek Neogi is a fourth-year student at the Rajiv Gandhi National University of Law, Punjab studying Law and specializing in Business Laws.

​India’s arbitration regime has been criticized by the international community as being non-friendly towards arbitration. Despite good intentions, Indian courts often behave in an interventionist manner while dealing with arbitration disputes.[1] For instance, legal provisions for setting aside[2] and refusal of enforcement of arbitral awards[3] for “public policy” considerations had been inserted into the Arbitration and Conciliation Act, 1996 (“the Act”) to minimise court interference. These provisions have led to certain decisions by Indian Courts which set questionable precedents for the validity of arbitral awards.[4]

The Indian legislature has been trying to change that with amendments to the Act. The 2015 Amendment aimed at making India a hub for international commercial arbitration. The recent 2019 Amendment[5] has aimed at promoting institutionalized arbitration. Although the Amendment is a welcome step towards promoting institutionalized arbitration, this can inadvertently lead to State interference in the form of the Arbitration Council of India (“ACI”).
The 2019 Amendment to the Act came after deliberations by the High-Level Committee set-up by the Union Government on December 29, 2016. The Committee, headed by Justice BN Srikrishna, a retired judge of the Supreme Court of India, gave its final report on July 30, 2017, which was the basis for the 2019 Amendment.

India has over 35 arbitral institutions, including domestic and international institutions.[6] Despite that, India has shown a preference of ad-hoc arbitration over institutional arbitration despite the obvious advantages of an institutionalised process.[7] This is broadly due to certain misconceptions regarding institutional arbitration which exist in India and the lack of statutory backing.[8] For instance, contrary to the fact, institutional arbitration is considered to be expensive compared to ad hoc arbitration.

The Amendment mainly attempts to tackle the following: 

1. Grading arbitral institutions and promoting institutional arbitration by setting up the ACI,[9]
2. Relax time limit for international commercial arbitration by adding a statutory provision,[10] and
3. Maintain confidentiality of arbitral proceedings by adding a statutory provision.[11]
   

In order to show governmental and statutory support for institutional arbitration, the central government, through this Amendment, has set up the ACI as an autonomous body, along with promoting institutional arbitration, grading and recognizing arbitral institutions in India, making recommendations to the central government on commercial arbitration, and more.[12] 

The ACI does not intend to be a regulatory authority, but merely an authority for grading arbitral institutions. This is to maintain the separation of the State and judicial system from arbitration.[13] But this may backfire because as mentioned before, the Indian arbitration regime has numerous examples of how positive steps have led to increased State intervention despite intentions to the contrary.

But despite the positive steps taken by the Indian Parliament to promote institutional arbitration, one can’t help but wonder about the practical repercussions of the reforms. The repercussions will mostly be felt in the form of “red-tapism” and a decrease in party autonomy. The ACI is a governmental body and, by virtue of that, has certain fallacies which could act as a hurdle for the very purpose of the ACI. State interference can lead to excess red-tapism and regulation, unwarranted State control, delays and other discrepancies. The infamous red-tapism of Indian governmental bodies is a known deterrent for international commerce.[14] This can be detrimental for arbitral institutions whose business in India will rely upon the grading provided by the ACI.

Party autonomy is a very important and integral aspect of commercial arbitration. A lot of parties opt for arbitration largely due to party autonomy. Having a governmental body to grade arbitral institutions limits party autonomy to a certain extent. This is because the choice of the courts in determining arbitral institutions will be restricted by the decision of the ACI. This will also act as a hurdle for ungraded arbitral institutions which might be reputed abroad. The administrative hurdles posed by the ACI can act as a hurdle for such ungraded arbitral institutions in establishing their business in India.

The 2019 Amendment, despite its fallacies, is a much-needed respite for institutional arbitration in India. Accreditation of institutions by a statutory body has its cons, but it remains an important step forward for international commercial arbitration in India. The BN Srikrishna Committee Report showed a good understanding of the Indian arbitration landscape, which is why the recommendations were accepted without substantive modifications by the Parliament. The Report and the Amendment are reflective of the government’s policy of making India a global arbitration hub for commerce.

The opinions and views expressed in this publication are the opinions of the designated authors and do not reflect the opinions or views of the Penn Undergraduate Law Journal, our staff, or our clients.

References:
[1] Ghani, Moin. “Court Assistance, Interim Measures, and Public Policy: India’s Perspective on International Commercial Arbitration”, The Arbitration Brief 2, No. 1: 16-29 (2012). Available at http://digitalcommons.wcl.american.edu/cgi/viewcontent.cgi?article=1026&context=ab; Nair, Promod. “Ringfencing Arbitration from Judicial Interference: Proposed Changes to the Arbitration and Conciliation Act”, The Practical Lawyer (2010). Last accessed date October 11, 2019.
[2] Section 34, Arbitration and Conciliation (Amendment) Act, 2019.
[3] Section 48, Arbitration and Conciliation (Amendment) Act, 2019.
[4] Working Paper on Institutional Arbitration Reforms in India, HLC, Indian Council of Arbitration (2017): 8. Last accessed date October 11, 2019. http://www.icaindia.co.in/HLC-Working-Paper-on-Institutional-Arbitration-Reforms.pdf.
[5] Arbitration and Conciliation (Amendment) Act, 2019.
[6] Srikrishna, B.N. et al. “High-Level Committee to Review The Institutionalization of Arbitration Mechanism in India”, Department of Legal Affairs (2017). Last accessed date October 2, 2019. http://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf.
[7] “Corporate Attitudes & Practices towards Arbitration in India”. PricewaterhouseCoopers (2013). Last accessed date October 2, 2019. https://www.pwc.in/assets/pdfs/publications/2013/corporate-attributes-and-practices-towardsarbitration-in-india.pdf.
[8] Srikrishna, B.N. et al. “High-Level Committee to Review The Institutionalization of Arbitration Mechanism in India”, Department of Legal Affairs (2017): 18. Last accessed date October 2, 2019. http://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf.
[9] Section 10, Arbitration and Conciliation (Amendment) Act, 2019; Section 43D(2), Arbitration and Conciliation Act, 1996.
[10] Section 6, Arbitration and Conciliation (Amendment) Act, 2019; Section 29A, Arbitration and Conciliation Act, 1996.
[11] Section 9, Arbitration and Conciliation (Amendment) Act, 2019; Section 42A, Arbitration and Conciliation Act, 1996.
[12] Supra note 5.
[13] Srikrishna, B.N. et al. “High-Level Committee to Review The Institutionalization of Arbitration Mechanism in India”, Department of Legal Affairs (2017): 50. Last accessed date October 2, 2019. http://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf.
[14] “Red-tapism of Indian bureaucracy poses hurdle to red carpet for foreign companies: US”. The Economic Times (2015). Last accessed date October 2, 2019. https://economictimes.indiatimes.com/news/economy/policy/red-tapism-of-indian-bureaucracy-poses-hurdle-to-red-carpet-for-foreign-companies-us/articleshow/48639468.cms.