 "The trouble with enforcement")
India's cross-border dispute-resolution strategy is fast becoming a thorn in the flesh of an otherwise investment- and business-friendly approach the Narendra Modi government has been trying so hard to promote. The country seems to be losing significant ground in the arena of arbitration sanctity. The recent developments in the Devas-Antrix and NTT DoCoMo-Tata Sons cases have only added to this international scepticism.
Though the changes to the Arbitration and Conciliation Act, 1996, in the past year brought some relief to international businesses, India's international arbitration problems seem to go beyond just the legislative sphere. In fact, the nation's dispute-resolution predicament starts right from the genesis of a potential dispute and goes all the way till its eventual resolution.
The era of bilateral investment treaty (BIT) obligations, and the arbitration clauses therein, have added to these complications. BIT arbitration can be invoked in cases of unfair and inequitable treatment, national favouritism, and unjustifiable expropriation against an international entity.
These could be caused as a result of numerous factors, such as an unfavourable change in the legal regime, retrospective application of laws, arbitrary absorption of investments and delayed domestic litigation. India currently has one of the highest numbers of such disputes pending against it.
The Vodafone and Cairn Energy cases have already become flag-bearing examples of how damaging retrospective legislation can be to international perceptions of business certainty, while the applicability of subsequent policy, however well intended, to pre-existing agreements, such as in the DoCoMo-Tata case, create their own set of contractual complications.
Administrative obstinacy and a tendency of launching criminal investigations against parties arbitrating against the government, such as in the Devas-Antrix case, have further worsened India's arbitration track-record. In the Devas-Antrix case, the government chose not to send its nomination for a three-member panel of arbitrators to the International Chamber of Commerce, but instead chose to challenge the arbitration process before the Supreme Court, which was eventually denied. "If the Indian government is perceived as rushing to the national courts to avoid a commitment in an international treaty to arbitrate, it can adversely affect the confidence of foreign investors," said Tine Abraham, counsel, Trilegal.
According to Abraham, the focus of the arbitration should remain on the substantive issues in a dispute and the government should not be seen as delaying the arbitration.
India's worrisome approach towards international arbitration does not end with the pronouncement of an award. Sections 48 and 57 of the Arbitration Act lay down certain conditions for enforcement of foreign awards under the New York and Geneva conventions. An international award can be refused if it is against the "public policy of India".
According to Tejas Karia, partner, Shardul Amarchand Mangaldas & Co, Indian courts are often called upon to decide the enforceability of foreign arbitration awards on the ground of public policy of India. "Not only the government but also the Indian parties to such awards have taken advantage of policies and laws to circumvent the enforcement of awards," said Karia.
Until recently, there was no express definition of the term "public policy of India". Even after the 2015 amendments to the arbitration statute, the references to phrases such as "contravention with the fundamental policy of Indian law" and "conflict with the most basic notions of morality or justice" have left the topic open to interpretation.
According to Sarosh Zaiwalla, senior partner, Zaiwalla & Co, public policy is an exceptional ground to resist the enforcement of an international arbitration award, which in the UK or Europe would be almost impossible to take under usual circumstances.
"For Indian entities to be not proactive in an arbitration process, but to challenge the validity of an award on public policy defences in Indian courts during enforcement does no good to India's image in the international business community," said Zaiwalla.
Though the nation's international arbitration strategy seems far from perfect, not all seems to be lost. The government has recently invited foreign and Indian law firms to provide credentials of arbitration experts to represent the Union in international arbitrations, in an attempt to start disputes on the right footing.
"Formulating a strategy to handle complex international arbitration would be immensely useful. A policy to deal with these issues, which could be applied, depending upon the facts of each case, would be helpful in ensuring uniformity and certainty," said Karia.
The attempt to restrict the scope of the public policy ground can be seen as a step in the right direction, though its ultimate efficacy will depend on a narrow judicial interpretation in Indian courts.
Earlier this year, the Cabinet approved a revised model BIT to replace the existing bilateral investment agreements in an attempt to streamline investment treaty arbitration. The new treaty limits the grounds for initiating BIT arbitration and excludes pre-investment activities, measures of local governments and taxation-related issues from the purview of arbitration.
The formulation of investor-friendly laws and policies will further the country's efforts to rectify the negative perception of enforceability of international awards in the years to come.
RECENT CASES THAT MIFFED INTERNATIONAL BUSINESSES
NTT DoCoMo - Tata Sons
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NTT DoCoMo had approached the London Court of International Arbitration (LCIA) after Tata Sons failed to acquire the former's 26% stake in the failed joint venture Tata Teleservices
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Devas Multimedia initiated arbitration proceedings in the International Chamber of Commerce (ICC), Paris against Antrix (commercial arm of ISRO) for unilateral termination of contract to lease S-band spectrum
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The ICC rejected Antrix's 'force majeure' defence and adjudicated $672 million in favour of Devas. Antrix has challenged the award on enforcement proceedings initiated by Devas in India
