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Indian reforms under scrutiny at GAR Live Mumbai

08 July 2019

Indian reforms under scrutiny at GAR Live Mumbai

The Gateway to India, Mumbai

A panel at the inaugural GAR Live Mumbai considered proposed reforms to India’s arbitration law, including controversial provisions for a regulatory body with the power to grade institutions and new qualification requirements for arbitrators.  

The 2018 Arbitration and Conciliation (Amendment) Bill was passed by the lower house of the Indian Parliament in August, but has yet to be passed by the upper house or to receive the assent of the country’s president.

However, those reforms have proved controversial. In February, Debevoise & Plimpton partner Lord Goldsmith QC called on the Indian government to delay the amendments, warning that they could “set back the cause of Indian arbitration” by a generation.

One of the moderators of the GAR Live session, Indian advocate Percival Billimoria, said he had been “saddened” by the reforms. The government had embarked on a mission to make India a hub for international arbitration, but certain provisions in the new bill meant that this looked like a “distant dream”.

A regulatory body?

Billimoria expressed concern over the proposed creation of the “Arbitration Council of India” (ACI), a government-led body with a widely defined mandate. In addition to a role grading arbitration institutions and arbitrators, its role could also include a mandate to regulate arbitration in the country.  

Shardul Amarchand Mangaldas partner Tejas Karia, who was part of the committee set up by India’s Law Commission to prepare a report on which the 2018 amendments are based, says that the idea of a government body was purely to promote arbitration, especially institutional arbitration, in India.

“The original name for the body was ‘Arbitration Promotion Council of India’, but in the text of the bill the word ‘promotion’ was dropped,” he said. 

As there are a number of institutions in India, all with different rules, the committee had wanted to formulate a set of model rules to be used in Indian-seated arbitration, Karia said.

Instead, the bill has sought to create a body with a remit to regulate arbitration. He said this threatens party autonomy in Indian-seated arbitrations, which is crucial to the success of arbitration, and reflected a desire of the government to “regulate the arbitration process”.   

“This is quite different from how it was presented in our report. We need to rethink it before the bill is presented before both houses of Parliament,” Karia said. 

Asked whether the creation of the ACI could benefit institutional arbitration in India, Anand Desai of DSK Legal in Mumbai said this was a vexed question, as often the government sees itself in opposition to those in the private sector. The government’s attempts to create a regulatory body showed that “trust has not been built adequately” between the government and the private sector.

Desai was not convinced that a regulatory body is needed to govern a private process. “Arbitration is a dispute resolution mechanism chosen by the parties. It doesn’t need to be regulated.”

He said it was also unclear how the ACI could meaningfully promote an institution, beyond organising events and “generally spreading the word”. He pointed to Singapore as a “golden example” of how government support can help to promote an institution and a country as a seat of arbitration, but said its success was also down to the courts in the city-state.  

“Most people have chosen Singapore as a seat because they feel that judges and courts understand the process. Many people feel that it is not the case in India.”

Will institutions make the grade?

The other moderator of the session, senior advocate Shyam Divan, said that there was a provision in the new bill that allowed the ACI to “grade” arbitral institutions. Was there any precedent for this? And was it a good idea?

Shreyas Jayasimha of Aarna Law in Bangalore said that although he wasn’t aware of any precedent for this measure, he felt that grading was “natural”, but this must be based on “performance, not prescription”.  

“We are all asked frequently which institutions our clients should go to. To assess as peers, the competence and integrity of the institutions we use is part of our profession. Whether the ACI will be able to perform this role effectively, time will tell.”

Jayasimha said he had “dim hopes” of any serious amendment to the bill, and said it was unlikely that a better iteration of the ACI would appear overnight.

“We therefore need to work with the ACI as constituted and encourage them to take a more diminished role and allow performance to count over prescription.”

Considering the motivation behind the grading system, Billimoria said that the reform committee noted that there are at least 34 institutions in India, in contrast to other jurisdictions where there are “prime institutions”, such as the LCIA in London or SIAC in Singapore.

These Indian institutions are non-profit organisations, so the ACI cannot come in and merge them all to create a primary institution, he said.  “The thought was that grading and accreditation would make some insufficient institutions to fall by the wayside.” However, the grading proposal has since “acquired a life of its own.”

Limiting the pool

Another provision in the bill which has caused concern is in schedule 8: a requirement that any arbitrator in an Indian-seated arbitration should be qualified as an Indian advocate with 10 years of practice experience.

Karia said there was a lack of clarity in the bill about whether foreign nationals can act as an arbitrator in any Indian-seated proceeding, or whether the provision will only apply when you are accrediting that arbitrator. He said it was possible that a foreign national could therefore sit as a party-nominated arbitrator on a three-member tribunal.

He also said that it would be possible for regional governments in India to amend this schedule.

The provision also precludes experts, such as surgeons and engineers, from sitting as arbitrators in India. Karia said those experts have been doing an excellent job, particularly in certain domestic arbitrations of a technical nature.  

“There is no jurisdiction anywhere in the world which puts a restriction on who can sit as an arbitrator. It should be the parties, or the institutions, that decide.”

Divan agreed that there were a number of institutions in the commodities sector where the arbitrators were “outstanding” but in all likelihood would not meet the criteria contained in schedule 8 – would this schedule survive judicial challenge?

He said there was “no need for this restriction”, particularly in Indian society where there is a respect for those who have performed well in their field or industry. He called for judicial scrutiny of schedule 8 “sooner rather than later”.

Billimoria weighed in to say that the single biggest hurdle to making India an arbitral hub was the availability of “trained, good arbitrators.” 

He said that the reform committee had acknowledged this fact, but decided that an accreditation process of arbitrators wasn’t necessary as external bodies such as the Chartered Institute for Arbitrators were already performing this role.

Although schedule 8 of the act was “completely contradictory and the wrong way to do this”, the objective was correct, he said.

A step in the right direction nonetheless?

Divan wondered if the bill, despite its criticisms, could help to improve the “larger arbitration ecology” in India and provide a blueprint for the jurisdiction to progress.

Jayasimha said that although the bill was “an opportunity largely lost”, he said it was heartening that arbitration was being taken seriously by the country’s government, even if the solutions were imperfect.

For Karia, it was wrong to think that India as a whole could become an arbitral hub rather than a particular city. For that to happen, all of the high courts in India needed to be given the power to recognise an award handed down by any successful institution.

“Why can’t an institution doing well in Delhi and Mumbai be recognised by other high courts in other jurisdictions?”

If the goal was to improve institutional arbitration, then why couldn’t the government provide the world-class hearing facilities that India needs to progress? Karia said that the reform committee’s report originally included a “Maxwell House-style proposal” where the government provides the necessary infrastructure for an institution to thrive, but so far that proposal has faced legal challenges in the courts.   

However, Billimoria said that ultimately you should not rely on the government to lend a helping hand. “On the one hand, courts shouldn’t interfere with the arbitral process but the government should?” he asked. Although it was true that Maxwell House was subsidised in part by the Singaporean government, the LCIA showed that it was possible to be successful without this support.

“We don’t need a government body. Hearts and minds are in the right place. We know where we want to go, but the pathways are ridden with contradictions.”

GAR Live Mumbai was held on 15 June at the Trident Hotel, Nariman Point. The event was sponsored by Reed Smith, Cyril Amarchand Mangaldas, Kachwaha & Partners, Aarna Law, White & Case, Lex Arbitri, Burford Capital, Essex Court Chambers, and KPMG. Supporting organisations included the Mumbai Centre for International Arbitration and SIAC.

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