India: India And Japan: Reflections On Dispute Resolution*

Last Updated: 17 May 2018

Article by Shardul Amarchand Mangaldas & Co and Nagashima Ohno & Tsunematsu LLP

1. Introduction

India and Japan are among the largest Asian economies. They are, in many respects, natural trading partners. Indeed, in 2011, the two countries signed the India-Japan Comprehensive Economic Partnership Agreement ('CEPA'), which is a free trade agreement aiming to promote and protect cross-border trade and investment between the two countries. Since CEPA entered into force, trade and investment flows between India and Japan have increased manifold: recent statistics show that, in the financial year 2016-17, bilateral trade between the two countries stood at USD 13.61 billion, whereas Japanese foreign direct investment in India stood at USD 4.7 billion.[1] These numbers are predicted to rise further in the future.

With the increase in trade and investment flows between the two countries, it is not surprising that there has also been a rise in disputes involving Japanese and Indian entities. The year 2017 saw a slew of such arbitrations and other related proceedings. This article discusses two such arbitrations: the dispute between Japan's NTT Docomo ('Docomo') and India's Tata Sons Limited ('Tata'); and the on-going investment treaty arbitration between Japan's Nissan Motor Corporation ('Nissan') and Government of India ('GoI'). In doing so, the article also highlights some of the recent statutory amendments to arbitration law in India and protections available under CEPA, and draws comparisons with arbitration law in Japan.

2. Tata/Docomo Arbitration

On 25 March 2009, Japan's telecom operator Docomo entered into a Shareholder Agreement ('SHA') with Tata and Tata Teleservices Ltd. ('TTSL') for purchasing 26.5% shares in TTSL at a consideration of USD 2.7 billion. Under the SHA, Docomo was provided with an exit option if TTSL failed to satisfy certain key performance indicators. Upon initiation of the exit process, Tata had to find a buyer for Docomo's shares in TTSL at the Sale Price. The Sale Price was defined as either: (a) the fair value of the shares as on 31 March 2014; or (b) 50% of the purchase price, whichever is higher.

In 2014, Docomo exercised its put option, since TTSL was unable to demonstrate its compliance with key performance indicators. However, Tata could not find a suitable third party buyer for the shares at the Sale Price.  Tata also alleged that it was prevented by the Reserve Bank of India ('RBI') from buying back the shares (whose value had fallen) at assured returns, in light of India's Foreign Exchange Management Regulations ('FEMA Regulations'). Ultimately, on 3 January 2015, Docomo submitted the dispute to arbitration under the rules of the London Court of International Arbitration ('LCIA').

The LCIA tribunal issued the final award on 22 June 2016 (the 'Award'). The tribunal held that the aforementioned clause of the SHA was intended to provide 'stop loss' downward protection to Docomo. If Tata was unable to find a third party buyer, it would have to buy the shares at 50% of the purchase price. The tribunal did not consider FEMA Regulations as an impediment to the performance of the contractual obligations. It found that Tata could have complied with its obligations under the SHA without seeking a special permission from RBI, by, for example, identifying a third party buyer resident outside India to purchase the shares. Consequently, the tribunal went on to award approximately USD 1.7 billion in damages to Docomo.

In July 2016, Docomo commenced proceedings before the Delhi High Court in order to enforce the Award in India.[2]  After raising initial objections in the proceedings, Tata agreed to voluntarily comply with the Award and accordingly, consent terms were agreed between the parties. However, matters were complicated when RBI sought to join the proceedings. Specifically, RBI raised an objection to the transfer of the monies that Tata had been ordered to pay Docomo. The Court found that RBI had no standing under Section 48 of the Arbitration and Conciliation Act, 1996 ('Act'), as it was not a party to the underlying arbitration agreement. Further, the Court held that because the Award was in the form of damages, as opposed to a direction to buy shares at a certain price, RBI in any event had no basis to object to the enforcement of the Award.

Consequently, the Award was declared to be enforceable in India and the parties were held to be bound by the consent terms.

3. Nissan/GoI

It has been reported recently that the Japanese automaker, Nissan, has commenced a claim against India under the CEPA. Nissan claims that it is owed around USD 770 million in unpaid investment incentives promised to it by the State Government of Tamil Nadu.  According to reports in Indian media, a full arbitral tribunal has been constituted under the UNCITRAL Rules comprising of Jean Kalicki (chair), Kaj Hober and former Chief Justice of India Jagdish Singh Khehar.

As this is a confidential arbitration, very little is known about the arguments that both parties have advanced. However, interestingly, on 4 December 2017, the Tamil Nadu Government filed a petition with the Madras High Court, asking the Court to issue an anti-arbitration injunction.  Following a hearing on 7 December 2017, the Court passed an order on the same day, directing Nissan to file its opposition to the Tamil Nadu Government's application by 20 December 2017. The High Court has not yet issued a final ruling on this matter.

It appears that immediately after the Tamil Nadu Government approached the Madras High Court, Nissan sought an urgent order of interim measures from the arbitral tribunal, to prevent India (and its organs including Tamil Nadu) from restraining the arbitration. Media reports suggest that Nissan's application for an urgent interim measure was successful and the tribunal ordered India and its constituent organs including the Tamil Nadu Government to 'take all necessary steps to seek a temporary stay of the Madras Court proceedings including vacating the hearing on 7 December 2017'.

4. Recent changes in the Indian arbitration regime

With the enactment of the Arbitration and Conciliation (Amendment) Act, 2015 ('Amendment Act'), sweeping changes have been made to the Indian arbitration regime. The amendments were intended to accomplish expeditious and effective resolution of disputes by arbitration. They are also aimed at making India a major centre for international commercial arbitration. 

For the purposes of this article, it is not possible to do a comprehensive survey of these amendments. In brief, some of the noteworthy changes introduced to facilitate foreign seated arbitrations include:

  • Amendment to Section 2(2) of the Act, which clarifies that interim reliefs can be sought from an Indian Court even when seat of the arbitration is located outside India.
  • Amendment to Section 48 of the Act, which has the effect of narrowing the scope of judicial intervention in enforcement of foreign awards in India. In particular, an explanation has been added to clarify that, at the time of deciding whether an award should be enforced, Courts must refrain from reviewing the merits of the dispute. 
  • Substitution of definition of 'Court' in Section 2(1)(e) of the Act, which means that any application relating to an international commercial arbitration must be made directly to a High Court, as opposed to a District Court.

Aside from the above, in 2016, the Mumbai Centre for International Arbitration ('MCIA') was launched.  The MCIA, which is headquartered in Mumbai, is not the first arbitration institution in India; however, it is arguably the most sophisticated of all Indian institutions, with advanced arbitration rules, an experienced secretariat and a highly qualified council. It also has fully equipped hearing rooms, which is a rarity in the Indian context.

5. Recent developments in Japan

Japanese Arbitration Act enacted in 2003 adopts the UNCITRAL Model Law (1985) regime.  Although Japan has not attracted as many cases as the other popular jurisdictions in Asia such as Singapore or Hong Kong, Japanese Government and business community are gradually recognizing the importance of promoting arbitration seated in Japan. The 'Basic Policy on Economic and Fiscal Management and Reform 2017' announced by the Japanese Government on 9 June 2017 states that 'the government will ... develop a foundation to activate international arbitration'. Inter-ministerial conferences among relevant ministries aiming at promoting international arbitration in Japan have been held since September 2017. Among others, the Government is now seriously considering establishment of new facility for international arbitration in Tokyo, similar to the Maxwell Chambers in Singapore.

On the judicial side, there were two important judgments recently regarding the setting aside of an arbitral award.

  • Judgment of Supreme Court, 2016 (Kyo) 43, 12 December 2017

Supreme Court of Japan reversed an Osaka High Court decision which had set aside an arbitral award on the basis that the arbitrator failed to perform his duty to continuously disclose the circumstances of potential conflict of interests. The Supreme Court held that arbitrators owed a continuous duty to disclose such circumstances, but such duty only arose in cases where the arbitrator became actually aware of such circumstances, or could have become aware with reasonable research.

  • Judgment of Tokyo High Court, 2016 (Ra) 497, 19 August 2016

Tokyo High Court dismissed a setting-aside application made on the basis of an alleged breach of public policy of Japan. The plaintiff argued that the arbitrator's interpretation of the agreement violated the EU competition law and therefore violated the public policy of Japan. The Court held that the EU competition law did not constitute the Japanese public policy. Further, the Court made it clear that even if the arbitrator misinterpreted any substantive laws or mandatory laws of Japan, that shall not necessarily constitute a breach of Japanese public policy.

These two cases clearly show the Japanese Courts' reluctance to intervene in arbitrations or in enforcement of arbitration awards.

6. Conclusion

Japanese Prime Minister Shinzo Abe recently pledged an investment worth USD 35 billion in India's public and private sectors. The bilateral economic and trade relations between the two countries are bound to accelerate in coming years. That will naturally lead to more disputes as well. It is therefore important for investors to protect their investments in the respective territories, by providing robust dispute resolution mechanisms. With the amendments to the Indian Arbitration Act, both countries now have advanced and sophisticated arbitration laws. Japanese courts have been known for their pro-arbitration approach, a reputation that Indian courts did not enjoy until recently. However, Indian courts – especially the higher judiciary – have increasingly started enforcing arbitration agreements and arbitration awards. In addition, investors in both countries should be aware that under CEPA they have several important substantive and procedural protections. In particular, CEPA allows investors of both countries to bring claims against the host state for treaty violations directly to international arbitration, without first litigation in the local courts or involving their own government on their behalf.

*Authored by Rishab Gupta and Arjun Doshi, Shardul Amarchand Mangaldas & Co along with Tadashi Yamamoto and Hiroki Aoki, Nagashima Ohno & Tsunematsu Singapore LLP.

[2] O.M.P.(EFA)(COMM.) No. 7 of 2016 & IA Nos. 14897 of 2016, 2585 of 2017, decision dated 28 April 2017, available at

This article was authored by:

Dr. Rishab Gupta,

Partner, (Shardul Amarchand Mangaldas & Co)
Contact details: Express Towers, 24th Floor, Nariman Point, Mumbai 400 021, India
Tel: +91 22 4933 5555
Mob: +91 9821780313

Arjun Doshi, Associate, (Shardul Amarchand Mangaldas & Co)
Contact details: Express Towers, 24th Floor, Nariman Point, Mumbai 400 021, India
Tel: +91 22 4933 5555
Mob: +91 8433901888

Hiroki Aoki, Partner, (Nagashima Ohno & Tsunematsu LLP)

Tadashi Yamamoto, Counsel. (Nagashima Ohno & Tsunematsu LLP)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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