The Illusion Of Progress: Why India Is Not Ready To Be An Arbitration Hub

The desire of India to place itself near the global arbitration hubs has continued to falter under the pressure of inconsistency in policies, lack of efficiency in the administration and general unwillingness to adopt the rapid method of solving disputes. Although Indian arbitration system has been remodeled and promises and commitments are repeatedly given, the system has remained entrenched in a framework that suffers to destroy commercial certainty, trivialize costs and water down the finality that arbitration is expected to deliver. One thing is clear, India in its current form, is not in a position to make an arbitration hub. This article explores the fundamental flaws that make the Indian arbitration lack global credibility.One recent and notable instance of such retrogressive development is the Office Memorandum of the Public Works Department (“PWD”) that, as per a circular of the Ministry of Finance, eliminated the arbitration clause in any further contract. The inclusion of this amendment in the Clause 25 of the General Conditions of Contract, that all disputes should be settled by courts alone is a highly retrogressive policy change. With major international jurisdictions like Singapore and London in the process of enhancing their institutional arbitration regimes, the Indian action of imposing a blanket ban on arbitration in government contracts in project works is a stark indication that arbitration in India is not gaining ground here, it is becoming systematically restricted. In areas such as, infrastructure, energy and construction, where disputes about delays, force majeure, performance failures, and damages are frequent and perplexing, the removal of arbitration gets rid of one of the very limited tools which can help to resolve such an issue effectively and in a cost-effective manner.The situation is made worse by the parent notification, which is the 2024 Finance Ministry directive on which the PWD has unquestioningly relied. In addition to stifling legitimate dispute resolution, the government's arbitrarily capped arbitration in public contracts at disputes under Rs. 10 crore reveals its increasingly backward and counterproductive approach to arbitration policy. Effectively, this crams costly and high-stakes disputes, the disputes that ought most significantly to be settled by arbitration, into an overstressed court system that cannot absorb yet another layer of avoidable litigation. This is a very strong message to the local and foreign investors; complicated business cases in India will not be heard as swift and objective as in global trade.The dilution of arbitral finality, achieved methodically by far over-intervention by the judiciary, is the core of the failure of India to develop into a credible arbitral hub especially under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996. Although the legislative purpose of the amendments, particularly that of 2015 and 2019, was to limit the court intervention and make Indian arbitration consistent with the international best practices, the judicial analysis has thwarted this goal on numerous occasions.Section 34 was conceived as a restrictive supervisory procedure with only very few grounds as incapity, procedural irregularity, violation of public policy, etc. Indian courts have however over time broadened this provision to a de facto review of appeal, in many cases revisiting evidence, interpretation of contract terms and finding of fact of the tribunal of arbitral bodies. Courts have reconsidered the merits of a case by the introduction of notions like 'patent illegality' and their subsequent judicial expansion, on the pretext of overturning errors that can be spotted at a glance on the award. Consequently, arbitration cases, which are supposed to be final and binding in nature, more than not, tend to be just the start of a long process of litigation.Section 37 increases this interventionist trend since it permits an appeal against orders made under Section 34. Rather than acting as an extraordinary remedy, Section 37 has become a second round of substantive review and has pushed enforcement further out of time and increased its costs. Practically, arbitration awards are often perceived by parties as tentative, with years of post-award litigation to come before High Courts and (ultimately) the Supreme Court. This is in sharp contrast to the major arbitration jurisdictions, where judicial oversee is strictly procedural and courts are conscious not to replace their opinion with that of the tribunal.It is not a delay issue but rather a question of institutional credibility. Arbitration flourishes on certainty, predictability and confidence of the enforceability of awards. Courts that regularly overrule the decision of the arbitrators in their efforts to do so in the most common sense, kill party autonomy and destroy trust in the arbitral process as such. Institutions that are internationally respected like Singapore International ...

The Illusion Of Progress: Why India Is Not Ready To Be An Arbitration Hub

Diti Jain

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