The Arbitration and Conciliation (Amendment) Act, 2019 is the most recent amendment to the Indian Arbitration and Conciliation Act, 1996 and it was enacted with the aim of making India a global arbitration centre. Schedule 8’s prohibition on foreigners serving as arbitrators, on the other hand, sets back the cause of Indian arbitration. This blog analyses the implications of excluding foreign professionals from acting as arbitrators, and its impact on Indian-seated Arbitrations. Schedule 8 (enacted under Section 43J) specifies an arbitrator’s qualifications and experience, stating that “An individual shall not be eligible to be an arbitrator” unless at least one of these requirements is met. There are no qualifications listed that account for the qualifications of international lawyers or practitioners, out of a total of nine.
The exclusion of foreign professionals is motivated by a protection desire to create more work for Indian lawyers and arbitrators. India’s Law Minister, Ravi Shankar Prasad, acknowledged this, saying, “India does not allow imperialism in the field of arbitration.” The best scenario will be for Indian arbitrators to be sought all over the world.” However, this “appears to bar international lawyers” from serving as arbitrators in India. The filtering of arbitrators based on their nationality suggests a lack of party autonomy, which makes arbitral awards difficult to implement outside of India. These ramifications bolster India’s status as a “non-friendly” arbitration jurisdiction.
PARTY AUTONOMY
Party autonomy is one of the cornerstones of international arbitration and one of the key factors influencing parties’ decision to resolve their disputes by arbitration. Parties may exert control over the conflict settlement process by naming arbitrators of their own choice. It is a crucial decision since some disputes involve expert arbitrators who specialize in specific aspects of the dispute. Because of their level of specialization, these arbitrators might be limited to a few countries. This is accounted for in Section 11(1) of the Act, which requires the parties to appoint arbitrators of any nationality. However, since international practitioners are not permitted to serve as arbitrators in Indian-seated arbitrations, parties would be limited to the skill set and abilities of Indian arbitrators, who may or may not have the technical expertise available.
In addition, if the parties do not agree to name an arbitrator or if there is a dispute over who should be appointed, the court will do so. To restrict the role of the courts in such cases, Section 11(3A) was enacted, allowing the Supreme Court to nominate arbitral agencies, which may only name arbitrators that meet the requirements of Schedule 8. Schedule 8 threatens to eliminate international arbitrators’ participation in Indian-seated arbitrations in this way.
Due to the restriction on party autonomy, the arbitrator(s) would have to be of the same nationality as one of the parties, which could impose prejudice. It is important to remember that, while neutral nationality does not guarantee impartiality or freedom, it is an important practice to observe. Moreover, several of the leading domestic arbitral organizations, such as the Mumbai Centre for International Arbitration, the Delhi International Arbitration Centre, and the International Centre for Alternative Dispute Resolution, have provisions that provide for neutral nationality of the arbitrators.
ENFORCEABILITY OF FOREIGN ARBITRAL AWARDS
A foreign party and an Indian party are normally involved in international commercial arbitration in India. The absence of international arbitrators would raise questions about the arbitral proceedings’ impartiality and independence. Foreign parties may claim that there is an implicit prejudice based on nationality, which could result in frequent challenges to arbitral awards made by Indian tribunals. Indian parties will also be at a disadvantage in this situation, as it will be more difficult to argue that an Indian arbitrator is biased against them. This would make enforcing awards much more difficult, especially for Indian parties seeking to impose international awards.
Parties seek to prevent unnecessary litigation during arbitral proceedings, and Indian tribunal awards, due to the possibility of a viable legal challenge, can often result in this. This will make the whole arbitration procedure tedious and costly. As a result, parties will deliberately seek to avoid using India as a seat for arbitration in order to save time and money.
The value of award enforceability is further emphasized by leading arbitration centres, such as London, which have solidified their positions on the basis of unusual challenges to the awards made by their tribunals. Just six awards awarded by the London Court of International Arbitration (LCIA) were contested in 2017. The low incidence of appeals is due to the neutrality and impartiality of arbitral proceedings. India must take into account these characteristics in order to become a leading arbitration centre, which cannot be accomplished by limiting parties to Indian arbitrators.
CONCLUSION
Although the amendment aims to make India a leading arbitration centre, the protectionist approach used to achieve this would have the opposite impact. Although the Law Minister believes that India is able to compete with the world’s leading centres for international arbitration, many international practitioners believe that as a result of the 2019 Amendment, the number of international arbitrations in India will fall. Excluding international experts from serving as arbitrators is a risky step that could backfire.
This article is written by Shobhit Porwal, 4th year student at Institute of Law, Nirma University pursuing B.Com LLB(Hons.).
