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Arbitration delays hit investor mood

Judicial intervention in commercial disputes dampen foreign firms’ enthusiasm, writes Bhadra Sinha.

business Updated: Oct 21, 2007 21:47 IST
Bhadra Sinha

Leading US-based Investment Bank Lehman Brothers, affirmed last week that India remained one of the world’s hottest investment destinations, but while the market and business opportunities beckon, the adjudication of commercial disputes is still a thorn for many investors looking for a system that would make things easier.

Experts say arbitration, involving a friendly third-party to help business disputes, suffers many handicaps in India, dampening foreign investor sentiment somewhat.

The Arbitration and Conciliation Act, 1996, has failed to provide an effective alternative redressal for commercial disputes, because arbitration has become the beginning of a litigation, while elsewhere in the world, it usually marks the end.

“Companies are losing trust in the arbitration process in India. In-house advocates are advising their clients not to insist for an arbitration clause in agreements,” says Dushyan Dave, senior Supreme Court advocate.

Jurists argue that with a two-judge bench decision in 2003, the Supreme Court enlarged the extent to which courts can intervene in arbitration proceedings. This, says Dave, has increased litigation on arbitral awards in the Indian courts. “Several decisions by the courts have truncated Article 16 of the model law evolved by UNCITRAL. As a result judges can now actually enter into an arbitration treaty while deciding on the question of appointing an arbitrator,” adds Dave.

According to another senior advocate, KK Venugopal, the apex court’s judgement in ONGC vs Saw Pipes (renamed Jindal Saw) is seen as antithetical to the very basis of arbitration.

“The judgement has reverted to the old system where every award was liable to be challenged,” he claims.

Venugopal says the law also requires drastic amendments to set it on the right path. The Law Commission had in 2003 said the delays in arbitration proceedings have practically made it similar to the Indian judicial system and an expensive proposition for corporate houses.

“Therefore, the commission had recommended fast track arbitration wherein arbitrators were required to sit for five hours every day. It suggested no adjournments in an arbitration proceeding and daily evidence by the witnesses,” says Venugopal. Usually dates are given two to three months in advance, and time is wasted in recalling proceedings of the previous hearing, he states.

Arbitrators in India are often either retired high court or Supreme Court judges. Not favouring this practice, Venugopal says even retired judges should receive specialized training.

Another senior advocate and member of International Court of Arbitration, Paris, Jagdeep Dhankar adds: “It is not necessary to follow the procedural rules, often adopted by retired judges appointed as arbitrators, in arbitration.” He believes arbitration is suffering a step motherly treatment in India.

Dhankar says arbitration is the most effective method of settlement of international commercial disputes as it offers the parties level playing field, specialized competence and neutral regime. Like the West, arbitrators should be drawn away from the legal fraternity and judiciary, he says.

As in the UK, India could have specialised advocates to take part in the arbitration proceedings. “Lawyers involved in litigation prefer the proceedings during the evening hour or weekends,” Dhankar says.

Realising the need for change,the Law Commission had four years ago advised setting-up of a dedicated arbitration bar. Also, it had suggested a specialized arbitration bench in each high court. The government is yet to act on the recommendations.