ALM Properties, Inc.
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Preparing for Prime Time
Over the last decade, the Indian legal industry has witnessed a number of developments in the arbitration arena that have attracted the attention of lawyers and nonlawyers alike. As a result of the liberalization of many sectors, and the significant increase in foreign direct investment, this has important implications for foreign companies investing in India. A 2011 study on arbitration in India by Ernst & Young found that 74 percent of respondents (mainly large corporate and leading law firms) said that an arbitration clause was an essential part of their legal contracts.
Until recently, most Indian arbitration had been ad hoc, and a large number of cases were plagued by inexperienced arbitrators, lack of predictability in costs and fees, and a general absence of case management by the arbitrators. In recognition of this, the government and private institutions have seized the opportunity and increased efforts to promote arbitration and provide viable alternatives. The government hopes to promote India as an international arbitration hub along the lines of Singapore, and the institutions see an opportunity to grow their business.
Among the private institutions, the India branch of the London Court of International Arbitration (LCIA India) launched in April 2009. It introduced India-specific arbitration rules a year later, offering a tried and tested alternative to ad hoc arbitration. It has since labored to promote arbitration in the business and legal communities.
This effort was followed by the opening seven months later of the first arbitration center in the High Court of Delhi, which also coincided with the opening of the Chartered Institute of Arbitrators (CIArb) arbitration center in New Delhi.
The government has recognized the need for an update to the legislative regime and published a consultation paper in 2010 recommending changes to the Arbitration Act. Though the effort included many specific proposals, no real progress has been made. In June 2010 thenlaw and justice minister Veerappa Moily released the National Litigation Policy Document, designed to reduce the average length of proceedings from 15 to three years. The policy recommended the use of arbitration as a cost-effective and expeditious way to resolve disputes.
Several developments in the courts also seem encouraging. A common gripe has been the inclination of Indian courts to interfere in arbitration proceedings. This trend, however, appears to be changing, and courts now seem more cautious about barging in.
Another gripe also heard frequently has been the courts' reluctance to enforce arbitral awards. Critics complain that too often they entertain challenges based on public policy grounds. The model was the Supreme Court of India's 2003 Saw Pipesdecision, a domestic case that seemed to set a new tone for interpreting cases along these lines. The ruling threatened India's reputation as an arbitration-friendly jurisdiction.
In subsequent decisions, Indian high courts appeared to distance themselves from it. And a narrow interpretation of public policy has been applied to the enforcement of foreign awards. For instance, the Delhi High Court dismissed a challenge to the enforcement of an ICC award, holding that it was not contrary to public policy. The court held that public policy for the purposes of section 48 of the Arbitration Act (which provides grounds for refusing enforcement of foreign awards) has a narrow meaning when compared to the same expression under section 34 (which provides grounds for setting aside a domestic award). While the decision is encouraging, it is debatable whether the "patently illegal" aspect of the public policy ground is a thing of the past. Time will tell.
The question of foreign lawyers practicing in India will probably not be resolved in the near future. However, the good news is that in February 2012, the Chennai High Court ruled that although foreign law firms are not generally allowed to practice in India, they are not debarred from coming to India and conducting arbitration proceedings arising out of a contract relating to international commercial arbitration.
The general trend in recent years has been one of positive change, with some setbacks along the way. However, to achieve the dream of making India an international arbitration center, much effort, investment, and political change will be needed.