Bridging Borders - India's Legal Framework For Alternative Dispute Resolution In International Commerce
Author: LawSphereX
Category: Arbitration & ADR
Published:
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BRIDGING BORDERS: INDIA'S
LEGAL FRAMEWORK
FOR ALTERNATIVE DISPUTE RESOLUTION IN INTERNATIONAL COMMERCE Ms. Nitika Bagaria, is an Advocate practicing at the Bombay High Court. She graduated from Government Law College, Mumbai (Mumbai University) in 2020 (B.L.S. LL.B.) and is an incoming candidate of the Masters of Law Program 2024 at London School of Economics & Political Science
ABSTRACT
This article examines India’s evolving legal framework for Alternative Dispute Resolution (ADR) in the context of international commerce, highlighting its significance amid increasing cross-border transactions. It analyzes the historical development of ADR mechanisms, focusing on arbitration, mediation, and conciliation, and discusses key legislative milestones, including the Arbitration and Conciliation Act, 1996 and the recent Mediation Act, 2023. By comparing India’s ADR landscape with international standards, the article underscores the importance of these frameworks in facilitating effective dispute resolution. It also addresses the challenges faced, such as procedural delays and enforcement issues, while also highlighting the emergence of online dispute resolution methods post- COVID-19 as a transformative shift in the ADR ecosystem.
Ultimately, the article posits that while significant progress has been made, continued development is essential for positioning India as a prominent hub for international dispute resolution with respect to both international commercial arbitration and mediation. Keywords: Arbitration, mediation, international commercial disputes, international transactions, online dispute resolution
Introduction
The advent of international business, investments and trade has brought about a rise in crossborder transactions. International transactions encompass a wide range of activities, including cross-border trade, foreign investments, joint ventures and other international trade contracts and treaties. These transactions often involve parties from different jurisdictions, each with its own set of laws, practices and customs, different legal systems, differing business standards, practices and modes. These transactions involve a complex legal framework, right from structuring the transaction to execution thereof and in certain cases, dispute resolution for disagreements arising due to breaches, non-performance, differing interpretations of clauses, regulatory issues and the like.
In this context, Alternate Dispute Resolution (“ADR”) has emerged as a crucial and efficient mechanism for resolving conflicts effectively in international transactions. In India, ADR has gained significant traction as a means of resolving disputes in international transactions conducted by governments and private parties. International Framework for ADR vis-à-vis Indian laws The United Nations Commission on International Trade Law (“UNCITRAL”) Model Law on International Commercial Arbitration was adopted in 1985 containing 36 Articles. The Model Law was aimed to create uniformity for arbitration related statutes, enacted by Member countries and has enabled the participating nations to consider the said law while enacting legislation pertaining to domestic arbitration, in order to have uniformity across various jurisdictions.
India is a party to the New York Convention, which has facilitated the enforcement of foreign arbitration awards in India and ensured the global enforceability of international commercial arbitral awards rendered in India. While litigation has been prevalent in India since time immemorial, the concepts and practice of ADR have picked up over the past few decades, driven by factors such as globalisation of Indian businesses, increased cross-border trade, and the need for efficient, cost-effective and speedy dispute resolution mechanisms. Along with the existing legislative framework in India, ADR law has continued to expand and develop with the assistance of judicial interpretation1. 1 Amal K. Ganguli, New trend in the law of arbitration in India, Journal of the Indian Law Institute, https://www. jstor. org/stable/10.
2307/26826641 (Accessed last on 18 July 2024) ADR in India typically entails arbitration, conciliation, mediation and Lok Adalats2 as governed by the Code of Civil Procedure, 1908 (“CPC”), specifically by Section 89 thereof. Various other modes of ADR such as good offices, negotiations and judicial intervention have also gained traction. However, of all these modes, arbitration has been the mostly widely used and accepted. Indian legislation governing Arbitration Arbitration in India dates back to 1899, when the first legislation3 on arbitration was enacted and applied solely to the presidency towns of Calcutta, Bombay and Madras, as they stood then. Thereafter, the same was replaced with the Arbitration Act, 1940, which was based largely on the English Arbitration Act of 1934.
The Arbitration Act, 1940 dealt only with domestic arbitrations while the enforcement of foreign awards was dealt with by the Arbitration (Protocol and Convention) Act, 1937 for Geneva Convention Awards and the Foreign Awards (Recognition and Enforcement) Act, 1961 for the New York Convention Awards. Globalisation and liberalisation of the Indian economy initiated in 1991-1992 had created a suitable ecosystem for facilitating entry of foreign investments in India, and there was a need to make comprehensive changes in domestic laws to make them at par with other countries. However, the then prevalent provisions of arbitration laws were not commensurate to the same.
Accordingly, the Arbitration and Conciliation Act, 19964 was enacted, based on the UNCITRAL Model Law, making the ADR law in India relatively consonant with the position existing in other jurisdictions as far as arbitration is concerned. This said Act comprehensively covers various procedural aspects of international and domestic arbitration and conciliation, aiming to reduce court intervention in ADR and providing speedy and amicable disposal of disputes. Further, it provides for enforcement of domestic and international arbitral awards as decrees. With an increase in the usage of such mechanisms came various teething issues of interpretation, delays in procedural aspects, high costs and court interference at the stage of enforcement of awards.
To deal with the same, the arbitration regime in India has been amended 2 Lok Adalats are forums where disputes/cases pending in the court of law or at pre-litigation stage are settled/ compromised amicably by the assistance of institutions set up to assist the Courts. These institutions are authorised to pass their decision by way of an award, which is deemed to be a decree of a civil court. Such award is final and binding on parties and cannot be challenged by way of an appeal. See Lok Adalat, https://nalsa. gov. in/lok-adalat.
3 Indian Arbitration Act, 1899.
4 Part II thereof deals with ‘Enforcement of Certain Foreign Awards’.
time and again, to enact the Arbitration and Conciliation (Amendment) Act 20155, the Arbitration and Conciliation (Amendment) Act, 20196 and most recently, the Arbitration and Conciliation (Amendment) Act, 2021. While independent centres such as the Mumbai Centre for International Arbitration (MCIA), Delhi International Arbitration Centre (DIAC) and Hyderabad Arbitration Centre (HCA) have independently existed in India and promoted institutional arbitration, no central legislation was passed in India with respect to the same or for the setting up of a national level body for the promotion thereof.
The India International Arbitration Centre Act, 20197 (“IICA Act”), for the first time, provides for the establishment of an institution known as the India International Arbitration Centre (“IIAC”)8, which shall be an independent and autonomous body for institutional arbitration, both domestic and international. The IIAC has been set up with the intention of providing facilities and administrative assistance for conciliation, mediation and arbitral proceedings, maintaining panels of accredited arbitrators, conciliators and mediators, both at a national and international level, and also to provide for various specialists such as surveyors and investigators required during such proceedings. The IIAC has also been entrusted with the setting up of a Chamber of Arbitration in India, akin to various centres and chambers across the globe.
Such a Chamber shall be nationally diversified, to bring reputable arbitrators from across different jurisdictions and sectors to assist international disputants and their Indian counterparties. This would go a long way in providing high-quality dispute resolution services in India. In furtherance of this, to bring ADR in India at par with international standards, the Indian government has also passed the India International Arbitration Centre (Conduct of Arbitration Proceedings) Regulations, 20239 (“IICA Regulations”). These Regulations are akin to the Rules set out by Singapore International Arbitration Centre and International Chamber of Commerce, thus, providing further impetus to international arbitration. Additionally, these Regulations bring within their ambit emergency awards, by defining an ‘emergency arbitrator’ and providing for the appointment thereof.
The IICA Regulations also support international 5 On the basis of the recommendations of the Report of Law Commission of India released its 246th report in August 2014. 6 On the basis of the recommendations of the Report of the Committee headed by Hon’ble Justice B. N. Srikrishna (Retd. , Supreme Court of India).
7 https://www.indiacode.nic.in/bitstream/123456789/11413/1/A2019-17.pdf
8 https://indiaiac.org/arbitration/about_center
9 https://indiaiac.org/user/pdf/IIAC-(Conduct-of-Arbitration-Proceedings)-Regulations-2023-(Draft).pdf
arbitration by recognising the concept of time zone differences in electronic communication between the parties and / or the Tribunal. The IIAC, in the long run, has the potential of bringing India at par with international arbitration hubs. While the judicial framework for the same has been laid down, it remains to be seen how effective the mechanism will be. Over the years, ADR law, largely being arbitration, in India has continued to evolve, with the intention of adapting and improving the applicability of the law and international standards to the Indian regime. Courts have developed, by way of judicial review and interpretation, essential aspects of international commercial arbitration law on aspects of foreign seated arbitrations and enforcement of foreign decrees, interim relief in emergency arbitrations, and so on.
Decoding the Mediation Act, 2023 & comparative analysis vis-à-vis arbitration legislation Previously, mediation in India was limited to references under Section 89 of the CPC or under special legislations such as The Companies Act, 201310, Consumer Protection Act, 201911 or The Commercial Courts Act, 2015 (as amended in 2018)12. India is also a signatory of the Singapore Convention on Mediation, 2019 (formally known as the United Nations Convention on International Settlement Agreements Resulting from Mediation), which reinforces the need for a comprehensive mediation law and cross-border enforcement of settlement agreements resulting from international mediation. The latest development in ADR in India is the passing of the Mediation Act, 2023.
This Act provides a judicial framework for mediation, for the first time, analogous to law set out in respect of domestic and international arbitration. The Arbitration and Conciliation Act and the Mediation Act are similar in principal, in terms of the nature of both legislations which provide alternatives for traditional litigation. However, the two differ in terms of procedural aspects, the role of third-party facilitators, outcomes and enforceability of awards. Further, a wider
10 Section 442 thereof provides for a Mediation and Conciliation Panel.
11 Section 37 thereof prescribes that the District Commission may direct the parties to settlement by mediation. Further, Chapter V provides for the establishment of mediation cells at various levels.
12 Section 12A thereof provides for mandatory pre-institution mediation.
range of disputes can be referred to mediation as compared to arbitration, thus increasing the scope thereof. This Act seeks to solve several problems that have hampered the growth of mediation as an effective mechanism for dispute resolution, such as the same not being formalised or structured and the lack of express recognition and mode of enforcement of the settlement arrived at between parties by mediation. One of the objectives of this Act is to make online mediation an acceptable and cost effective process13. Mediation as a mode of voluntary conflict resolution primarily prioritises maintaining business relationships and providing for suitable solutions to disputes between parties who wish to continue their business relations. In cases of mediation, the parties reach a settlement on their own terms, merely with the assistance of the mediator.
Contrary to arbitration or litigation, an award or order is not imposed upon the parties. Thus, the likelihood of the same being challenged and leading to further disputes and litigation is lowered. While defining a Mediator, the Act provides that a person of any nationality may be appointed as a mediator, subject to the qualifications set out therein14. It further provides that a mediator of any foreign nationality shall possess such qualifications, experience and accreditations as may be specified. Thus, the concept of an ‘international mediator’ has been introduced, which is likely to bring about expertise from across the globe. Specialists from the respective fields concerning the contract and dispute arising thereof may be voluntary appointed by the parties, with the intention of amicably reaching a resolution.
However, it is to be noted that the Act does not specifically provide any guiding principles regarding the appointment of a Mediator, as has been set out in the arbitration legislation15. Mediators are also permitted to determine the language to be used in the mediation process, with the consent of the parties, providing further flexibility to the process. The Act shall apply to mediations where all parties habitually reside in or are incorporated in or having their place of business in India, thus covering domestic mediation. In a welcome move, the Act provides a definition of ‘international mediation’ as mediation undertaken
13 Mediation Act, 2023 - https://images.assettype.com/barandbench/2023-09/9f558979-c9be-49f6-bfa2-
7f987336d04f/Mediation_Act_2023_notification.pdf.
14 Section 3 (i) of Mediation Act, 2023.
15 See Fifth Schedule of Arbitration & Conciliation Act, 1996.
therein relating to a commercial dispute arising out of a legal relationship, contract or otherwise, under any applicable Indian laws16. Further, at least one of the parties to such a dispute shall be an individual residing outside of India or a business carried out outside India. Thus, the Act has specifically been made applicable to international mediations where at least one party is a foreign party, and where the subject matter of mediation relates to a commercial dispute. Such international mediation shall be conducted in India. Further, the Act shall apply where where one of the parties is the Central/State Government or any entity/body controlled or owned by such Government, thus paving the way for international disputes involving the Government as a party.
The legislation provides that any reference in any agreement containing a mediation clause shall constitute a mediation agreement if the same is in writing and the reference is such as to make the mediation clause a part of the agreement17. A mediation agreement with respect to international mediation shall mean an agreement for resolution in matters of commercial disputes18, where ‘commercial dispute’ shall have the meaning prescribed under the Commercial Courts Act, 201519. The Act offers resolution of disputes by the process of ‘online mediation’20, which may be conducted at any stage of mediation under the Act. For this, the parties are required to provide their written consent and may be conducted by use of electronic form, computer networks, secure chat rooms or conferencing by video or audio mode or both.
The Act makes it essential to maintain confidentiality at all times during the mediation process, and empowers the mediator to take such necessary steps as deemed fit for this purpose. The Act also seeks to adopt the concept of institutional mediation, and to this end, provides for the setting up a Mediation Council of India. The Council shall, as per the provisions therein, endeavour to promote and develop international mediation in India and shall regulate professional activities of mediators. Further, for this purpose, the Act also lays down the definition of and duties of a ‘mediation service provider’21.
16 Section 3 (g) of Mediation Act, 2023.
17 Section 4 (4) of Mediation Act, 2023.
18 Section 4 (6) of Mediation Act, 2023.
19 Section 2 (1)(c), Pg. 3, https://www.indiacode.nic.in/bitstream/123456789/2156/1/a2016-04.pdf
20 Section 30 of Mediation Act, 2023.
21 Sections 40 to 42 of Mediation Act, 2023.
Akin to the Arbitration & Conciliation Act, the mediation legislation has introduced welldefined timelines at every stage of the proceeding. The Act does not provide for interim relief to the parties during the pendency of mediation proceedings, while the same is specifically provided for in cases of arbitration where both, the arbitrator and the court, are empowered to provide such relief. Further, in line with arbitral awards, the Act has sought to enforce agreements resulting from mediation as final, binding and enforceable in the same manner as court judgments. While this addresses the large lacuna of the non-binding nature of mediation, it remains to see whether it will add procedural hurdles and delays in terms of execution of such agreements.
However, it is essential to note that mediation thus far has served as a voluntary process which cannot be coercively imposed upon the parties attempting to settle their disputes. Thus, while recognising the voluntary nature of the procedure, this Act attempts to provide a safeguard for preventing an indefinite and unproductive endeavour of mediation, making the settlement agreements binding, entirely based on autonomy of the parties. In a departure from the clear procedure set out in the arbitration legislation, international mediations where the mediation proceedings are not conducted in India are not covered under the ambit of the Act. Resultantly, international mediation settlement agreements executed outside India are not specifically included in this category of being enforceable and binding in India, unlike the law laid down for international arbitration.
The same may be limiting in nature. Thus, it remains to be seen whether, in the future, such proceedings and agreements will be brought into the sphere of this law, keeping in mind enforceability and execution related issues. As of now, applicability of the Act is limited to mediation proceedings conducted within the territorial jurisdiction of Indian Courts. Once the procedure and practice of international mediation is established in India, it would also be fruitful to extend the same to include mediation settlement agreements executed in foreign jurisdictions, along the lines of foreign arbitral awards. While the Act cannot be said to be absolutely robust in terms of international commercial mediation at par with the set up for international commercial arbitration, it is definitely a starting point to bring about a long term shift in the otherwise limited scope of commercial ADR.
The Mediation Act signifies a positive step towards fostering the culture of voluntary settlements in India, through institutional means, by an online mode or as community mediation. While applying to a broad spectrum of matters, the legislation focuses on party autonomy and is likely to provide an impetus to resolving international commercial disputes involving foreign entities by means of mediation. This provides an avenue for resolving conflicts between parties voluntarily, without any form of adjudication or judicial intervention. However, as demonstrated above, it seems that the Mediation Act has selectively adopted procedures and processes from the Arbitration & Conciliation Act, however, the same is not free from its shortcomings. This may lead to ambiguity between the 2 practices and potential variance in approach.
The legislation and area of practice are still developing and will require to evolve with necessary demands. Charting the Course: India's Future as an ADR Powerhouse Over the years, India has developed and established its position as an international arbitration hub given its pro-arbitration stance. Not only arbitration, but even other modes of ADR such as mediation and conciliation are now being actively promoted for resolving disputes arising out of international business contracts and have gained paramountcy. With the rise in cross-border transactions and in the aftermath of the Covid-19 pandemic, online dispute resolution modes are being developed in India, shifting focus from traditional dispute resolution mechanisms to a more streamlined, digital-first approach.
This is not only a more efficient way of resolving conflicts, but will also be extremely accessible, cost and timeeffective. With the development of online dispute resolution, there will be consequential growth in the use of technology in dispute resolution, with better digital communication infrastructure, artificial intelligence, case management, amongst other changes. In the realm of international transactions, the use of ADR methods is becoming increasingly prevalent. The complexities and costs associated with traditional litigation make ADR a lucrative option for parties involved in cross-border transactions and disputes. As international transactions continue to expand, the importance of ADR in ensuring a harmonious global business environment cannot be overstated, especially keeping in mind aspects such as confidentiality and preservation of valuable business relationships.
While the sphere of ADR in India vis-à-vis international disputes has continued to grow and evolve over the years, there is still a long way to go before the same becomes seamless, positioning India as a hub for international trade and commerce.