CHALLENGES OF ARBITRATION IN INDIA

Although India is not considered a pathologically litigious market, the increase in foreign investment has warranted closer scrutiny of dispute resolution mechanisms to avoid protracted litigation for foreign investors. Recently, there has been a distinct paradigm shift where both foreign and domestic parties have begun favouring arbitration or alternate dispute resolution techniques over litigation, which has in the past been the favoured mode of dispute resolution in India.

Until recently, despite India’s enormous backlog of cases – which is a potent deterrent for potential litigants from filing claims – litigation was the primary recourse for most. Although the process of enforcement of a contract or even of a judgement takes far too long for commercial viability of low value litigation, the number of litigations in India dwarfs the number of arbitral settlements. This is largely due to the fact that parties almost invariably appeal against arbitration awards, resulting in long drawn-out disputes that can last up to 10 years. Thus, duplicative litigation becomes inevitable due to challenges to jurisdiction enforcement rendering the dispute settlement mechanism commercially unviable. In India, although there is a distinct shift toward favouring arbitration as the preferred mechanism for dispute settlement, arbitration has been largely ineffective compared to the legislative intent. India’s principal ADR legislation – the Arbitration and Conciliation Act, 1996 – contains certain ambiguities which have been exploited by losing parties when challenging awards, which has led to a lack of finality of awards. Permitting an arbitral tribunal to use mediation, conciliation or other procedures during the arbitral proceedings to encourage settlement of disputes may prove to be more effective but is rarely exercised in the Indian context.

Oct-Dec 2013 issue

MZM Legal