Lawyers back moves to develop Indian arbitration but courts show little sign of easing grip on disputes

For arbitration lawyers in India, the April ruling from the country's Supreme Court must have felt depressingly familiar. In a dispute with a railway concessionaire, Tantia Construction, the Indian Government failed to convince the court that the parties' arbitration clause prevented India's high courts and Supreme Court from hearing the case.

Court interference is the big cliche of arbitration in India. Judges consistently rule themselves competent to step into arbitrated disputes, which are overwhelmingly conducted ad hoc, with rules set by the parties and no institutional oversight. This even applies to international proceedings, since a quirk in India's Arbitration and Conciliation Act means all arbitration on Indian soil is treated as if it were domestic.

The result is that Indian arbitration can share the worst aspects of litigation: a sluggish, stop-start affair subject to the whims of the court.

The London Court of International Arbitration (LCIA) wants to change that. Through its Delhi arm, LCIA India, launched in 2009, the LCIA aims to create a strong institution that will to banish the courts' scepticism about the process – and relieve their itch to interfere.

Even if the courts persist in hampering arbitration, hearings could still be heard overseas: unlike its parent, whose rules have London as a default seat, LCIA India's rules makes no such provision. Parties can choose to arbitrate overseas under the institution's care, although even then court interference is still possible if enforcement is sought in India.

Nicholas Peacock (pictured) of Herbert Smith's Singapore arm says he is advising clients with business in India to consider including an LCIA India arbitration clause. "Of course, it's a chicken-and-egg situation for LCIA India in that it doesn't have a track record, and that has to be disclosed to clients," he says.

So far, LCIA India has had just two cases referred to it. The outcome of the first, a dispute between an Indian technology company and the local subsidiary of an international company, is expected soon. LCIA India registrar Ajay Thomas says he hopes to be administering 50 new cases a year in India by 2013.

It is unclear so far how many of the cross-border contracts negotiated since LCIA India's launch refer to the institution in arbitration clauses, since not enough disputes have arisen under those contracts. To persuade local parties to include LCIA India in arbitration clauses in their contracts with foreign businesses, it will need to effect a culture change.

Thomas is leading the institution on a public-relations offensive, meeting law firms face-to-face and organising conferences, debates and seminars. "We want to show people that arbitration is a sexy business – that it's no longer the poor cousin of litigation," says Thomas.


Home advantage

The growing commercial influence of Indian parties puts them in a strong position to force international business partners into arbitrating on Indian soil. But only if the Indian companies want to arbitrate there. With the previous lack of a credible local institution, standard practice has been to go to Singapore, London, Paris or other established arbitration centres.

The key to success might be closer to home, however. "There is a huge domestic market that is currently using ad hoc arbitration," says Herbert Smith's Peacock. "If LCIA India can tap into that, it will not only be a good book of business but also will do a great service to arbitration in India."

Opposition to LCIA India is strong from some quarters. The institution is the target of a Delhi High Court action by the Association of Indian Lawyers, a group that opposes foreign lawyers' entry into India. It claims the use of the words 'London Court' misleads Indian parties into thinking LCIA India is an extension of the UK's courts. Thomas says he has yet to receive papers from the court or the plaintiffs.

While Justice Minister Veerappa Moily is a dependable champion of arbitration, the message hasn't got through to the finance ministry. This year's budget introduces a 10.3% tax on legal services, without the exemption for arbitration that many had hoped for.

"Then there's the enforcement issue – that's at the forefront of everyone's mind," says Peacock. India is a party to the New York Convention, which should mean that awards rendered in any signatory country are enforceable in any other. But the Supreme Court of India will only enforce awards rendered in countries that have been noted as signatories in the official Gazette of India. That excludes 95 jurisdictions, including China and Canada.

Even for the 47 recognised jurisdictions, enforcement is not guaranteed. International lawyers are still haunted by the decisions in Oil & Natural Gas Corporation Ltd v Saw Pipes Ltd [2003] and Venture Global Engineering Ltd v Satyam Computer Services Ltd [2008], in which the Supreme Court quashed foreign awards on vague public policy grounds.

While enforcement is usually achieved in the end, such challenges typically take five to seven years, and that drives up costs.

Foreign lawyers are still prevented from practising arbitration in India, but there is no shortage of local arbitration talent. Among the key players in a budding arbitration Bar are Hiroo Advani of Advani & Co, Sumeet Kachwaha of Kachwaha & Partners and Ciccu Mukhopadhaya of Amarchand & Mangaldas & Suresh A Shroff & Co.

For now, LCIA India is taking the long view. Thomas joined the organisation from the Singapore International Arbitration Centre, now Asia's most-preferred arbitration seat, according to a 2010 White & Case study. "It took Singapore 15 long years to be where it is today – maybe more," he says.

This article first appeared in The Asian Lawyer, a US affiliate title of Legal Week.