Arbitral Matters With Reference To Financial Limitations

INTRODUCTION

One of the primary reasons for the ever-growing attraction for arbitration as a preferred means for dispute resolution is the freedom it provides to the parties engaging within it to decide its particulars in terms of pace and procedure, to determine the rules and limitations within which they may set themselves to play when a dispute arises. While mediation too is an ADR mechanism utilized for similar benefits, it would be an overshoot to estimate its capacity in terms of providing for a concrete resolution of commercial disputes- which forms a substantial part of the reason for the criticism of the recent office memorandum of The Ministry of Finance stipulating compulsory commercial mediation, which allows as a norm to restrict the use of arbitration when the value of the dispute is less than ten crores in contracts of domestic procurement by the Government or its various agencies. This move is especially contradictory to the State’s previous initiatives which are aimed at empowering the development of India as the new international arbitration hub.

MIXED SIGNALS AND LOSS OF INVESTMENT OPPORTUNITIES

India ratified the New York Convention in 1960, being one of the first few to do so. Despite being early, it has lagged behind countries like Singapore in creating robust arbitration mechanisms owing to issues ranging from a lack of appropriate clarity in amendments, proper laws, and adequate institutions to incessant judicial interventions in resolving corporate conflicts. The issue of hesitation of investors to participate in developing the Indian arbitration hub is amplified by the fact that India has yet to renegotiate terminated BITs with various countries. Moreover, if one is to learn from examples, the world’s most significant arbitration institutions including SIAC, ICC, and LCIA are free from government control. Thus, India must move towards minimal government interference in arbitration matters if it is to establish itself as an international arbitration centre. This, however, as can be seen, is not the case.

What is glaringly perplexing is the guideline stating that “Arbitration as a method of dispute resolution should not be routinely or automatically included in procurement contracts/ tenders, especially in large contracts.” This is directly in conflict with the same government’s efforts in 2019 to pass the New Delhi International Arbitration Centre Bill which seeks to establish NDIAC as an institution of national importance wherein arbitration, mediation, and conciliation proceedings would be conducted. Such confounding, visibly conflicting policies not only cause confusion in understanding the vision of the government but also have the capacity to hamper economic growth, affecting the Indian markets adversely.

Moreover, cases like the White Industries case have been projected to undermine the certainty of the enforcement regime which might temporarily play into the hands of the Government. While it did shift the government’s perspective from pressing investor-friendly policies to a regime favouring the host state’s regulatory powers, it ultimately did little to influence the framing of arbitration-focused policies dealing with easing the process of enforcement of awards in India. Coupling the same with the recent notification, the hesitation of the investors to enter into agreements in Indian markets is not unfounded. Such a situation would adversely affect Indian industries looking to expand internationally, and international companies looking to explore and collaborate to enter the Indian markets.

Therefore, these guidelines disproportionately affect India’s economic landscape, discouraging the use of arbitration in resolving commercial disputes and deterring international businesses from entering Indian markets. The uncertainty created by these policies, coupled with India’s inconsistent enforcement regime, raises legitimate concerns for investors seeking predictability in dispute resolution. 

CONCLUSION

The recent financial limitations imposed on arbitration, particularly in domestic procurement disputes below ten crores, reveal a contradictory approach by the Indian government. While efforts like the establishment of the NDIAC aim to position India as a global arbitration hub, restrictive policies undermine this ambition. Such conflicting stances not only deter foreign and domestic investors but also erode confidence in India’s commitment to fostering a robust and reliable arbitration ecosystem.  To realize its potential as an international arbitration centre, India must prioritize consistency and clarity in its arbitration policies. Measures such as reducing government interference, renegotiating terminated BITs, and ensuring the efficient enforcement of arbitral awards are essential. Without a unified and investor-friendly framework, India risks losing valuable economic opportunities, stalling its international reputation, and adversely affecting its industries’ growth and global integration.

This article is authored by Sanskruti Makwana. She was among the Top 40 performer in the ADR Quiz Competition organized by Lets Learn Law.