Worldwide: India Arbitration Update

As both government and business in India continue to encourage Japanese investors to participate in the country's growth story, this newsletter contains a high-level update regarding various arbitration related developments.

For clients currently engaged, or looking to do business, in India, there are complex legal and regulatory frameworks, dispute resolution and management considerations. This month's newsletter will cover the following topics:

  • Courts' refusal to intervene in ongoing or potential foreign-seated arbitrations;
  • Award enforcement challenges faced by foreign counterparties;
  • India's re-negotiation of its Bilateral Investment Treaties (BITs); and
  • The launch of the Mumbai Centre for International Arbitration (MCIA).

Courts' refusal to intervene in arbitrations

Challenges to enforcement of foreign awards in Indian courts

India initiates re-negotiation of Bilateral Investment Treaties (BITs) based on Model BIT

India's first centre for international arbitration launched in Mumbai

Contacts

Courts' refusal to intervene in arbitrations

Over the last few years, the Indian judiciary has shown a reluctance to intervene in situations where the parties have agreed on foreign-seated arbitrations applying foreign arbitral procedural law. This trend is an encouraging one for foreign counterparties, given the real concern that Indian courts were quick to exercise supervisory jurisdiction over foreign-seated arbitrations, simply because one of the counterparties was Indian or the substantive contractual agreement was governed by Indian law.1

The trend towards a more arbitration-friendly India began with the September 2012 decision in BALCO/Kaiser Aluminium ("BALCO I")2 and can be further illustrated by the following:

  • In 2015, a division bench of the Delhi High Court overruled a single judge of the same court and refused to grant an anti-arbitration injunction to the local partner of McDonald's, Mr. Vikram Bakshi. Mr. Bakshi was seeking to halt the proceedings of a London Court of International Arbitration (LCIA) arbitration initiated by McDonald's in connection with a dispute concerning its right to acquire Mr. Bakshi's share in the joint venture. Notably, the division bench clarified that Mr. Bakshi's argument of London being a forum non conveniens (on the basis that the dispute involved Indian parties and that Indian law governed the joint venture agreement) would not hold good. The Supreme Court has since upheld this judgment.3
  • In Eitzen Bulk4, the Supreme Court upheld the proposition that choosing a juridical seat of arbitration in a particular country has the effect of choosing that country's law as applicable to the proceedings, such that an express choice would not be necessary. The contract contained an arbitration clause providing for arbitration in London and English law to apply. The Court therefore concluded that that where parties choose a seat of arbitration outside India with the substantive dispute to be governed by the law of a foreign country, a party may not be able to have the award set aside under the Indian arbitration law.
  • In Videocon Industries5 and Cairn India Limited6, the division bench of the Delhi High Court set aside two anti-arbitration injunctions granted by lower Indian courts for arbitrations seated in Kuala Lumpur. The dispute was in relation to a Production Sharing Contract, which contained a clause providing that the governing law was Indian law and the law of the arbitration agreement was English law. The bench stated that the Indian courts did not have inherent jurisdiction to entertain the injunctions simply on the basis that the substantive law of the contract was Indian law.

Challenges to enforcement of foreign awards in Indian courts

While the reluctance of courts to intervene in ongoing or potential offshore arbitrations will lend a significant degree of comfort to investors, concerns remain around the enforcement of arbitral awards in the Indian courts.

India is a signatory to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention"), and its arbitration law provides for enforcement of awards from other New York Convention countries. However, the Indian arbitration law provides for a number of grounds under which parties may oppose an application for enforcement of a foreign award, the most contentious of which has been the "public policy" provision.

The Indian courts have adopted a broad interpretation of this exception, including if it is contrary to: (a) fundamental policy of Indian law; or (b) the interest of India; or (c) justice or morality, or (d) in addition, if it is patently illegal.7 Furthermore, as part of this enforcement process, Indian courts have been known to investigate the merits of the case.

Recognising this as a problem, in 2015, the Indian Arbitration Act was amended to reflect the fact that the "patent illegality" test would not be applicable to awards arising from international commercial arbitrations. The amendment also clarified that "the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute."

Meanwhile, however, counterparties continue to rely on grounds in the Indian arbitration law to challenge foreign awards. Recent reports indicate that an Indian party has challenged a Japanese company's application to enforce an LCIA award in courts in London and Delhi on grounds of, inter alia, the award being against the law and policy of India.8 It remains to be seen whether the amended "public policy" provisions will be tested in the courts, and foreign investors will undoubtedly be keeping a close eye on developments.

India initiates re-negotiation of Bilateral Investment Treaties (BITs) based on Model BIT

In the background of an increasing number of Bilateral Investment Treaty (BIT) based challenges by foreign investors, the Government of India has started re-negotiations with a number of partner countries.

The re-negotiations are based on the Model BIT which was approved by the Cabinet late last year. Overall, the changes are expected to make it harder for foreign investors to bring claims against the government for policy decisions that have a negative commercial impact on foreign investments. It has been reported that India's major global partners have shown resistance to some of the proposed provisions of the new-look BIT, including the requirement for investors to exhaust local redressal remedies before resorting to arbitration. The absence from the Model BIT of traditionally understood concepts of "fair and equitable treatment" and "most favoured nation" has also been reported to be a cause for concern.9

India's first centre for international arbitration launched in Mumbai

The Mumbai Centre for International Arbitration (MCIA), an independent arbitral institution aiming to be India's premier forum for commercial dispute resolution, was launched on 8 October 2016.

In the inaugural address, Chief Minister of Maharashtra province (of which Mumbai is the capital), Mr. Devendra Fadnavis noted that 30% of the cases in each of the LCIA and the Singapore International Arbitration Centre involved Indian businesses. It was announced that the Maharashtra Government will be requesting state-owned companies and entities to have an inbuilt clause in their contracts worth more than Rs.5 crore (approximately USD 750,000/JPY 78 million) that makes it mandatory to take their arbitration cases to MCIA.. 10 A copy of the MCIA Rules can be found here.

The MCIA is governed by a 17-member Council, which includes Herbert Smith Freehills London partner Nicholas Peacock, the head of the firm's India arbitration practice.

Footnotes

 1 Bhatia International vs. Bulk Trading S.A.,(2002) 4 SCC 105

2 In BALCO I, the Supreme Court overruled Bhatia International and held that Part I of the Arbitration and Conciliation Act, 1996 – which confers courts with the powers to grant interim relief and set aside arbitral awards – only applies to arbitrations seated in India. Awards arising out of foreign seated arbitrations are subject to the jurisdiction of the Indian courts only when they are sought to be enforced in India under Part II of the Act. Bharat Aluminium Co vs. Kaiser Aluminium Technical Services, (2012) 9 SCC 552

3 http://www.livemint.com/Companies/cB7Zt3pzS2Qfh8VcOxJCsJ/McDonalds-case-SC-dismisses-Vikram-Bakshi-plea-arbitratio.html

4 Eitzen Bulk A/S and others vs. Ashapura Minechem Limited and others, Case numbers 5131-5133 of 2016, Supreme Court of India.

5 Videocon Industries Limited vs. Union of India; FAO 450/2015.

6 Cairn India Limited and others vs. Union of India, FAO (OS) 519/2015.

7 ONGC Limited vs. Saw Pipes Limited, (2003) 5 SCC 705

8 http://www.bloombergquint.com/business/2016/10/07/docomo-moves-us-court-to-enforce-london-courts-award-against-tatas

9 http://www.business-standard.com/article/economy-policy/india-stumbles-on-bilateral-treaty-talks-116091301091_1.html; http://www.livemint.com/Politics/WbAZSTb9Vf8VUjvOREghmI/India-to-operationalize-BIPA-with-Canada.html

10 http://www.livemint.com/Politics/fCQ5hnLtdpXKyzxiaH945I/Devendra-Fadnavis-inaugurates-Indias-first-international-ar.html

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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