Pro-Arbitration Regime In India

Pro-Arbitration Regime In India

The diverging lanes of the policymakers and the implementers

During the past few years, the Government of India has made considerable efforts to establish the country as a hub of arbitration in Asia.

Some of the multifarious steps taken include establishing an autonomous Arbitration Council of India; implementing amendments to the Arbitration and Conciliation Act; establishing government-backed international arbitration institutions for speedy adjudication and conducting research to take steps in establishing India as a pro-arbitration forum for foreign investors.

Recently, a slew of awards against the Public Sector Undertakings (PSUs) have led the PSUs to adopt measures, which may reverse the efforts of the government to promote an efficient dispute resolution process.

Several contractors in the construction sector have received proposals from the PSUs. The Steel Authority of India Limited (SAIL) was asked to amend the dispute resolution clause in its existing contracts and substitute the 'settlement of disputes' clause. The proposed amendment required arbitration to be replaced by adjudication by the civil courts for all contracts having a value of more than Rs.1 crore in the case of domestic arbitration.

Additionally, the proposed amendment stated that arbitration would not take place for disputes involving claims of Rs.10 crores in the case of a foreign contractor or in consortium contracts where a foreign investor was a member. It suggested that all such disputes would be adjudicated under the provisions of the Commercial Courts, the Commercial Division and the Commercial Appellate Division of High Courts Act, 2015. And the jurisdiction would lie strictly with the local courts.

Furthermore, the amended clause would give unfettered discretion to the PSUs to unilaterally appoint an arbitrator, which would inevitably be in the teeth of the judgment of the Hon'ble Supreme Court of India in the Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd (2019 SCC OnLineSC 1517).

It is evident from the proposed amendments that the PSUs prefer returning to the civil courts as their preferred mode of dispute resolution. Previously, owing to the fact that there was an automatic stay on the challenge to an award, and the 'public policy' was granted a broader interpretation as a ground of challenge, contractors remained ill-fated in acquiring their dues interminably.

Eventually, with the amendment to Section 34 of the Arbitration Act, the 'public policy' has to be narrowly construed. It is coupled with the fact that an automatic stay is not granted on challenge anymore and is subject to a deposit, which can be up to 100 percent of the awarded amount. This has led the contractors to seek relief swiftly.

Moreover, the average cycle of an arbitration proceeding has now become approximately 18 months. Resultantly, for the first time, the PSUs have been forced to pay up the damages immediately after the award is rendered, even if it is challenged under Section 34. Thus, it is not difficult to ascertain why the PSUs are less inclined towards arbitration as a mode of resolution.

The inclusion of such unconscionable provisions in the contract is insensate and will not only complicate the disputes against the PSUs but will also make private contractors apprehensive of doing business with government entities. As a result, this would have an impact not just on the ease of doing business in India rankings, but also on the overall economy.

The Indian Prime Minister, Mr. Narendra Modi had earlier stressed the need for quality arbitration to reduce the burden on the courts and make India a preferred destination for arbitration. However, the amendments proposed by the PSUs go against such assertions made by the government.

It is almost idiosyncratic that the policy-makers and implementers are opposing each other and making adjudication of disputes through arbitration a fallacy. The government is, however, aware of the fact that to attract foreign investments and propel growth, it will have to emblematize itself as a place where private players are able to seek efficient and effective adjudication in a timely manner.

But despite the consciousness, the current proposal to the existing dispute resolution clauses in various PSU contracts seems thoughtless and shortsighted. Thus, it is baffling to imagine that various PSUs are oblivious to the fact that such a change would have a severe impact on the ease of doing business rankings and would give mixed signals to foreign investors and domestic investors.

It is hoped that the PSUs regain their perceptiveness, and henceforth stop proposing retrogressive amendments to the existing dispute resolution clauses in their contracts. They should further refrain from incorporating such changes in their newer contracts.

(The authors are advocates practicing in New Delhi. The views expressed here are personal).