India Special Report: Hard court battle
8 June 2009
India needs to enhance its arbitration offerings and overhaul its courts’ processes to give its backlog of cases any chance of closure before the year 3000, says Kian Ganz
A trip to the neo-Gothic Bombay High Court is an entertaining experience that should be on every visiting lawyer’s travel itinerary. Once past the sandbagged machine gun emplacements outside, loosen your tie and spend a few hours wandering about open-air corridors between throngs of locals, hundreds of offices with unfathomable purposes and court rooms filled beyond bursting point.
Also spare a thought for the unfortunate litigants, who will most likely not find the experience as enjoyable.
The running joke in India goes that, if you litigate here, your sons and daughters will inherit your dispute.
According to a client memo from Amarchand & Mangaldas & Suresh A Shroff & Co, the huge backlog in the Indian courts means that resolving disputes could take between five and 15 years. Or longer. It is hardly what one would call swift justice.
But a little more than a month ago the London Court of International Arbitration (LCIA) opened in Delhi, smelling an opportunity. While it is not the first international arbitration body to enter India, hopes are high that it will be a successful alternative to settling disputes if it plays its cards and gets its message right.
Long road to justice
Stephenson Harwood litigation and arbitration partner Kamal Shah jokes that he would definitely advise clients to go through the Indian courts if their strategy was to “delay the whole process and make sure the other side never gets a judgment”.
“If it’s simply a money claim it takes an endless period of time, and a negotiated settlement is always better,” argues Mumbai litigation partner MP Bharucha of Bharucha & Partners.
Unsurprisingly, out of the Indian cases that go to court, the overwhelming majority get settled, relates Khaitan & Co litigation partner Chakrapani Misra.
Taking cases to court and then settling them is not the most effective use of court time and is one explanation for the backlog, which approaches 30 million cases. More than 50,000 of these linger in the Supreme Court, the figure having increased by more than 10,000 in the past two years alone.
By some estimates, clearing the backlog at the present rate would take more than a century.
Arbitration is, of course, an alternative route. The dispute resolution mechanism has a long lineage in India, although its recent history is less proud.
Arbitration finds parallels in India’s age-old Panchayat system of settling disputes in villages. This was first codified in the Bengal Regulations in 1772, while the latest statute formalising Indian arbitration processes was the much-lauded Arbitration and Conciliation Act 1996.
The majority of arbitrations in India now take place as ad hoc arbitrations with arbitrators and rules agreed between the parties.
Essex Court Chambers’ Ian Hunter QC is currently sitting as an arbitrator on a large domestic arbitration in Mumbai, which was taken out of the Indian courts after the parties were both fed up with the progress. “I don’t remember a case better argued,” he says about his current ad hoc arbitration.
Then again, with three highly experienced English QCs presiding over proceedings, it is no wonder that top advocacy is required. And presumably deep pockets to pay for it all.
“Most of the [ad hoc] arbitrators here on the scene are ex-judges, who fortunately or otherwise carry a lot of baggage,” Gujarat-based independent litigator Devan Parikh relates, in a paradigm of understatement.
Khaitan’s Misra argues that ad hoc arbitration is certainly popular, but in terms of effectiveness it is 50-50. He believes the system needs to be improved to make arbitration more popular.
It is not just a problem of marketing, but the costs also need to be driven down.
“Until now many arbitrators who sit in on ad hoc arbitrations are very old, retired judges who are still bogged down by the system they were used to,” says Norton Rose arbitration associate Sherina Petit. “The whole system is fraught with delays.”
“They don’t know how to control the process,” complains another arbitrator less charitably. “They see it as making more money for their pensions.”
On top of that comes a lack of oversight, adds Bharucha. “In an ad hoc arbitration,” he says, “if a party is bloody-minded, he doesn’t appoint his nominee, and then you wait a fair amount of time in trying to appoint the arbitrators.”
Another concern on the growing list is scheduling. “There are only a handful of good judges that people would like to appoint as arbitrators,” says Bharucha. Although still faster than litigation, it can therefore often take six months or longer to find a mutually convenient date in half a dozen packed diaries.
The Satyam effect
But there is a shadow that looms larger.
“I see India and there is huge good will, a huge talent base, and I don’t see it as an anti-arbitration jurisdiction as such,” muses Norton Rose head of international arbitration Joseph Tirado. “But it does have a problem with court interference. As things stand, with all due respect, it doesn’t make India an attractive place to arbitrate.”
He is talking about the infamous Satyam case, Venture Global Engineering v Satyam Computer Services, which pulled the rug out right from under arbitration’s feet.
With Satyam looming large on everyone’s minds, the LCIA launched in Delhi on 18 April 2009 - although it still lacks premises and needs to thrash out its detailed offering. One attendee says that, in contrast to the buzz in the run-up to its opening, responses after the event were “kind of damning”.
And judging by the International Court of Arbitration (ICC) experience, which opened in India eight years ago to much excitement, it will be an uphill struggle.
Lawyers interviewed for this article are united in their view that the ICC has had limited visibility in India. Reasons suggested included “costly”, “bureaucratic”, an “old boys’ network” and, simply, that it was too French.
Nevertheless, international arbitrators and general counsel are generally united over the benefits of proven international institutions such as the ICC or the LCIA. “They wouldn’t let an arbitration go to sleep,” says Essex Court’s Hunter.
The LCIA has the buy-in of many top lawyers in the country, including Luthra & Luthra managing partner Rajiv Luthra, who is one of the Delhi chapter’s directors. “The LCIA should certainly be very credible,” he says, but adds that in order to succeed it will need to build up that credibility in the local market carefully.
The biggest challenge will lie in soothing the Indian lawyers’ psychological fear factor about the costs associated with institutional arbitrations. The LCIA charges a £2,500 non-refundable deposit, for example, before an arbitration even commences. While the LCIA claims that its own costs are dwarfed by those of lawyers and arbitrators, that argument might not wash in India.
“To appeal to the local market, the costs have to be pitched just right,” claims Petit at Norton Rose.
Sources suggest that discussions as to local pricing are still ongoing at the LCIA, although the debate is currently swinging against a special reduced rate regime for India.
Most lawyers nevertheless remain hopeful about the role arbitration and the LCIA will play in India once the Satyam problem is overturned or legislated away. “We’re all expecting the majority of our work to be coming from India,” confirms Tirado.
But most disputes lawyers agree that arbitration will never be the silver bullet.
“If India really wants to be a global economy and wants to be a superpower,” argues Stephenson Harwood’s Shah, “it needs to reform its civil justice system. You’re not going to get every foreign investment dispute resolved by arbitration.”
The path to reform of the bench is fraught. It will have to consist of a united push from all fronts, including India’s states and chief justices, who wield enormous power over their respective courts. It is also likely to require the government to raise judges’ salaries and buy heavily into change.
These are a lot of variables in a political system as complex as India’s.
For once, the fear is that, by the time they align, many court cases will have finished.
At the beginning of 2008 the Supreme Court of India made the infamous Venture Global Engineering v Satyam Computers Services decision. In Satyam, as it is known in arbitration circles, the court reinterpreted the Arbitration and Conciliation Act 1996 and gave itself the power to set aside awards made in foreign arbitrations if they were “in conflict with the public policy of India”.
Of course, one of the main draws of arbitration is final closure of disputes outside the courts. In any arbitration with an Indian party, this is now in doubt.
Bharucha & Partners litigation partner MP Bharucha calls the decision “unconscionable”.
The case, affirmed in subsequent judgments, applies to Indian ad hoc arbitrations as well as international arbitrations, such as those conducted under the auspices of the LCIA.
Kian Ganz is the editor of Indian legal news portal LegallyIndia.com