Pro-Arbitration Regime In India – The Diverging Lanes Of The Policy Makers And The Implementers
During the past last few years, the Government has made considerable efforts to establish India 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...
During the past last few years, the Government has made considerable efforts to establish India 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 said PSUs' to adopt measures which may reverse the efforts of the Government made so far to promote an efficient dispute resolution process and establish India as an arbitration hub.
Many contractors in the construction sector have received proposals from PSUs' including Steel Authority of India Limited (SAIL), to amend the dispute resolution clause in their existing contracts and substitute the "settlement of disputes" clause. The proposed amendment requires arbitration to be replaced by adjudication by Civil Courts for all contracts having value of more than Rs. 1 crore in case of domestic arbitration. Additionally, the proposed amendment states that arbitration will not take place for disputes involving claims of Rs. 10 crores in case of a foreign contractor or in consortium contracts where foreign investor is a member. It is proposed that all such disputes shall be adjudicated under the provisions of Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 and the jurisdiction shall lie strictly with the local courts. Furthermore, the amended clause would give unfettered discretion to the PSUs' to unilaterally appoint an arbitrator -which will inevitably be in the teeth of the judgment of the Hon'ble Supreme Court of India in Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd (2019 SCC OnLineSC 1517)
It is evident from the proposed amendments that PSUs' are preferring to return to civil courts as their preferred mode of dispute resolution. Previously, owing to the fact that there was automatic stay on challenge to an award, and "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 (1996), "public policy" has to be narrowly construed, 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% of the awarded amount. This has led the contractors to seek relief swiftly. Moreover, the average cycle of an arbitration proceeding has now become 18 months (approximately). Resultantly, for the first time, PSUs' have been forced to pay up the damages immediately after the award is rendered, even if the award is challenged under Section 34. Thus, it is not difficult to ascertain why PSUs' are less inclined towards arbitration as mode of resolution.
Inclusion of such unconscionable provisions in the contract is insensate and will not only complicate the disputes, if any, against the PSUs' but will also make all private contractors apprehensive of doing business with the Government entities. Consequently, this would have an impact not just on the ease of doing business in India rankings but also on the economy overall. In the past, the Indian Prime Minister, Mr. Modi has stressed the need for quality arbitration to reduce the burden on courts and make India a preferred destination for arbitration and these amendments proposed by the PSUs' goes against such assertions made by the Government of India.
It is almost idiosyncratic that the policy makers and implementers are opposing each other and making adjudication of disputes through arbitration a fallacy. The Indian Government is apperceptive to the fact that to attract foreign investment 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. Despite the consciousness the current proposal to the existing dispute resolution clauses in various PSU contracts seem thoughtless and short-sighted. 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 only hoped that the PSUs' regain their perceptiveness, and henceforth stop proposing retrogressive amendments to the existing dispute resolution clauses in their contracts, and further refrain from incorporating such changes in their newer contracts.
The authors are Advocates practicing at New Delhi and views are personal.