How India faces legal issues in ADR in the field of commercial arbitration

By Shylisia Nirsoe

Alternative dispute resolutions come in various forms, such as negotiation, mediation, conciliation, and arbitration. Even though they fall under the same category, they vary a lot from one another.

The Constitution of India contains many aims to deliver justice to every person who has been wronged. One example hereto is arbitration provided for under the Arbitration and Conciliation Act (1996). Unfortunately, arbitration in India has not been growing as much as it hoped to.

For the past decades, India is moving towards modernization, however, it is still a developing country. Due to its conventional ideas of how the law should be regulated, the people do not really recognize arbitration as a means to solve disputes. The people rather trust their courts to solve any dispute than trying arbitration, as it is considered unorthodox to solve disputes by means of ADR.[1]

With the introduction of the Arbitration and Conciliation Act (1996) India hoped to fulfill the serious need of its people to have a more comprehensive law regarding the arbitration process and proceedings. Meaning that the laws should become stricter and more carefully elaborated in order to gain more trust by the people in arbitration than they already have in the current judicial system.[2]

However, one of the biggest reasons why arbitration is not growing in India is due to the lack of awareness amongst the people.

The big question now is: How will we overcome these issues to make ADR more attractive in India?

The most important factor is creating consciousness amongst the people in India. When arbitration is promoted more and made attractive by solving disputes, the trust in arbitration will gain. Another important element is that people know what their rights are in arbitration. Most people tend to go to court rather than arbitration because it is believed that the outcome of the judgment has more influence, however, this is not the case.[3]

Under institutional arbitration, the judgment is as compulsory as the outcome in court. therefore, the arbitration agreements should specify the arbitration agreement and the entity that will be performing the arbitral process.[4]

With this, another important factor is the proper implementation of arbitration laws. These laws are expected to be amended from time to time in order to stay as up to date as possible.

In order to gain this trust in the arbitration process, minimum intervention by the court is required. As arbitration is an ADR mechanism, meaning that this dispute can be resolved by a process other than going to court, the intervention of a court can lead to the arbitration process feeling meaningless, as it can be intervened by the court at any time. Therefore, the minimum intervention will build a trustworthy relationship between the people of India and ADR.[5]

Judgments in recent case law have been growing towards the recognition of arbitral independence. An example hereof is the judgment in HSBC PI Holdings Ltd v Avitel Post Studioz Ltd and Others. This case concerned interim injunctive relief sought by HSBC for their Asia Division of HSBC in support of their Singapore arbitration proceedings to compel Avitel and Others to deposit monies to the extent of HSBC’s original investment in a failed project. It came to light that Avitel was involved in some fraudulent actions, therefore HSBC commenced SIAC arbitration proceedings against Avitel. The Bombay High Court, acting in favour of HSBC, held that, since the seat of arbitration was agreed by both parties to be Singapore, their laws would also cover the law governing the arbitration agreement. The Court held that HSBC was entitled to seek orders for interim measures and other relief against Avitel.[6]

Another fascinating judgment was the one in NAFED v Alimenta S.A., where the criticism for broadening the use of the “public policy” ground for refusing the enforcement of a foreign award has been covered. Over the years, the Indian Courts have made progress towards favoring the enforcement of foreign awards, however, their approach to be less involved in certain cases has been criticized. The dispute resolution clause, in this case, concerning arbitration under the rules of the Federation of Oils, Seeds, and Fats Associations (“FOSFA”). The Contract included a cancellation clause, stating that a contract would be canceled in the event the permission to export was denied. As a result, the contract could not be fully performed as the Indian government denied permission to export. Consequently, Alimenta S.A. initiated arbitration against NAFED before the FOSFA. The Court ruled in favor after considering the cancellation clause and initiated an award of damages in favor of Alimenta S.A.[7]

The ongoing issue with regards the enforcement of foreign awards is that India still has contrary laws on this matter. An example is the Limitation Act (1963), which bars the enforcement of foreign awards. Whereas, another example, the Arbitration, and Conciliation Act (1996) considers the enforcement of a foreign award contrary to the public policy.  Another example is Article 136 of the Indian Constitution which provides for slow interference with the enforcement of foreign arbitral awards, as it deems that no provision for appeal is available against a judgment in favor and enforcing a foreign award. All these different rules make it difficult for the Courts to decide on similar cases with a similar outcome, as it totally depends on which rules and regulations the Court decides to apply with each case.[8]

The Indian legal system has been modernizing for years now; however, it remains to be a developing country. As it aims for a better way of solving disputes ADR has proved to be a great alternative in many countries before. ADR is not only helpful in reducing the pressure in the courts, but also in other ways, such as decision-making in a shorter time span, the process is less expensive, and the parties have the opportunity to come up with their own terms and conditions. Unfortunately, India is still not where it wants to be with regards to the ADR process, but I am sure that if the abovementioned factors are taken into consideration and are being developed, this will change, and the growth of ADR in India will rise.

[1] Ayush Verma, ‘Challenges for Arbitration in India’ (IPleaders, 15 May 2020)

< https://blog.ipleaders.in/challenges-arbitration-india/> accessed 30 January 2021

[2] ibid

[3] Sunaina Jain, ‘Challenges Of Arbitration In India’ (viamediation & arbitration centre)

< https://viamediationcentre.org/readnews/NDYx/Challenges-of-Arbitration-in-India> accessed 30 January 2021

[4] ibid

[5] ibid

[6] Arbitration Petition No. 1062/2021, High Court of Bombay, India, 22 January 2014

[7] NAFED v Alimenta S.A. (2020) SCC OnLine SC 381 (India)

[8] Dhruv Malik, ‘Pro-enforcement regime for foreign arbitral awards: is India really headed towards it?’ (International Bar Association, 25 November 2020)

< https://www.ibanet.org/Article/NewDetail.aspx?ArticleUid=7CC3CF19-09D7-474C-A2CE-8B8227CD92DE> accessed 3 January 2021