India’s arbitration landscape evolves, but needs reforms

While it is on track to becoming a global arbitration hub, more is needed to establish it as a premier destination

On May 11, 2024, the Arbitration Bar of India was officially inaugurated in a ceremony attended by the Minister for External Affairs, S  Jaishankar, and the incumbent Solicitor General of India, Tushar Mehta. The ABI launch is seen as a significant step towards making India a global hub for international arbitration and promoting arbitration as the go-to method for resolving legal disputes.

The ABI is one of numerous recent developments in India’s consistent efforts to promote arbitration and incentivize parties to choose arbitration instead of pursuing court-based litigation. The long pendency and delays in the judicial system—despite recent efforts to increase efficiency—leave parties frustrated due to uncertainty and additional hurdles at the execution phase, even after courts grant substantive relief.

Arbitration offers a welcome respite and a fresh perspective on resolving legal disputes, empowering parties to take control. It is a dispute resolution process arising from a private agreement between parties to refer disputes to a neutral, third-party assessor whose decision is binding and enforceable. Arbitration provides significant advantages over court-based litigation, promising both time and cost efficiency and offering a sense of finality in resolving long-standing disputes.

However, the advent of arbitration in India has met with several challenges. Despite a statutory mandate for minimal interference in the arbitration process and in challenges to arbitral awards, Indian courts have often failed to adhere to this mandate. Recurring instances of interference at the pre-arbitral stage, such as during the appointment of arbitrators, referral of disputes to arbitration, and seeking pre-arbitral interim relief, reduce the efficiency of the arbitral process and undermine the confidence of parties in arbitration. Furthermore, frequent challenges to arbitral awards and the setting aside of awards by courts affect the goal of finality. If courts review and set aside awards based on formal grounds, why would parties opt for arbitration over traditional litigation?

The conflict between the promise and practice of arbitration has led to numerous landmark developments in the law, and India now finds itself at a pivotal juncture. Recent years have seen frequent and seminal reforms in arbitration law. There have been additional safeguards introduced to ensure independent and impartial arbitrators, confidentiality of the arbitral process, and limitation of court interference at the pre-arbitral stages. Institutional arbitration is also on the rise, with specialised arbitral institutions making the arbitral process more streamlined and efficient and adopting innovative technology in the process as well. 
These reforms have also come at a crucial time; promoting arbitration is seen as an important factor in strengthening the goal of increasing the ease of doing business in India. And as EAM Jaishankar said in his speech, even foreign parties should now be looking to arbitrate in India. 

However, to compete with global arbitration powerhouses such as the UK and Singapore, India still needs long-term reforms. Reducing court interference in the arbitral process and in the decisions of arbitral tribunals must be a core priority. For instance, the recent decision of the Supreme Court to set aside the arbitral award in favour of DAEMPL in its dispute with the Delhi Metro Rail Corporation, worth approximately Rs 7,700 crores, under its limited curative jurisdiction underscores this issue. In interfering with an arbitral award issued as far back as 2017, the decision of the Supreme Court illustrates the frequency and manner of judicial interference in arbitral awards, which only goes to hinder the confidence that commercial parties have in arbitrating in India.

While the need for reforms is evident, it is encouraging to note that such reforms are underway in both policy and practice. For instance, the recent expert committee on reforms in arbitration law in India, led by former law secretary Dr T K Viswanathan, recommends several positive changes to the legal landscape of arbitration in India. The report recommends a fixed time period for deciding arbitration reference applications under Section 8 and on appeals against challenges to arbitral awards under Section 37, which will make it more time-efficient. The report also addresses the use of technology in arbitral processes and encourages its adoption (especially to provide for online hearings where possible) in a secure manner. Finally, the report recommends wholesale changes to the issue of fees to arbitrators and to the regulation of procedure, which might draw mixed reactions from arbitration practitioners and arbitrators in the country.

A dedicated bar for arbitration practitioners, such as the ABI, is a clear sign that there is an earnest effort to promote arbitration in India. But in catapulting to a potential future arbitration hub, the commitment towards such reforms needs to be steadfast. 

(The writer is an advocate at the Karnataka High Court, specialising in commercial disputes and arbitration.)