A road map to make India a hub of International Arbitration

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Background:

  • The Justice Dispensing System in India has come under great stress for various reasons including huge pendency of cases in various courts; the injustice is particularly egregious in commercial disputes, where cases remain pending for years.

  • In order to ensure speedy resolution of commercial disputes and to facilitate effective conduct of international and domestic arbitrations raised under various agreements, it has been considered necessary to go into various factors to accelerate arbitration mechanism and strengthen the arbitration ecosystem in the country.

  • Arbitration provides an effective and efficient alternative window for dispute resolution. The Government of India has laid emphasis on making Arbitration a preferred mode for settlement of commercial disputes.  For this a high powered committee has been set up in the directions of the Prime Minister of India to prepare a road map to turn India into an international hub of arbitration.

  • The recent report of the Justice B.N. Srikrishna committee, constituted to prepare a road map to make India a hub of international arbitration, has recommended many changes in Indian arbitration law and institutional mechanisms to promote arbitration in India. Its recommendations on bilateral investment treaty (BIT) arbitration assume importance as India is currently battling 20-odd BIT disputes.

Recommendations on BIT

  • The most significant recommendation for the effective management of BIT disputes is the creation of the post of an ‘international law adviser’ (ILA) to advise the government on international legal disputes, particularly BIT disputes, and who will be responsible for the day-to-day management of BIT arbitration.

  • The committee has also suggested for the creation of an ‘Inter-ministerial committee (IMC)’, with officials from the Ministries of Finance, External Affairs and Law. It also recommends hiring external lawyers which have expertise in BITs to boost the government’s legal expertise; creating a designated fund to fight BIT disputes; appointing counsels qualified in BITs to defend India against BIT claims; and boosting the capacity of Central and State governments to better understand the implications of their policy decisions on India’s BIT obligations.

  • It has also suggested measures for resolving BIT disputes; the committee has made some useful interventions such as, the possibility of establishing a BIT appellate mechanism and a multilateral investment court. However, its conclusion that the investor-state dispute settlement (ISDS) mechanism, given in Article 15 of the Indian Model BIT, provides an effective mechanism for settling BIT disputes between an investor and state is problematic for the following reasons-

  • Firstly, Article 15 requires foreign investors to litigate in domestic courts at least for a period of five years. The proceedings end in five years, but if the investor is not happy with the outcome, the investor can initiate a BIT claim provided it is done within 12 months from conclusion of domestic proceedings. The strict limitation periods dilute the effectiveness of the ISDS mechanism.

  • Secondly there are many other jurisdictional limitations given in Article 13 that also limit the usefulness of ISDS.

  • Third, the ISDS mechanism in the Indian Model BIT extends from Articles 13 to article 30 covering issues such as appointment of arbitrators, transparency provisions, enforcement of awards, standard of review, which have a bearing on the efficiency of the ISDS mechanism.

Conclusion:

BIT arbitration has three aspects: jurisdictional (such as definition of investment), substantive (such as provision on expropriation) and procedural (ISDS mechanism). While the commission’s mandate was to focus on BIT arbitration, i.e. on all the three parts, strangely, it narrowed it down to just the procedural aspect. This is even more surprising because the committee had organised a conference earlier this year to brainstorm on topics covering all three aspects mentioned earlier, especially in the context of Indian Model BIT. The committee’s explanation that since issues like expropriation require greater debate, it decided not to make any recommendations on these issues is weak. Despite making some useful suggestions, the committee has squandered a great opportunity to comprehensively push for the recalibration of the Indian BIT regime, which has oscillated from being pro-investor to being pro-state.

Source:TH