The Role of Arbitration in response to Increasing Foreign Direct Investment In India- Reverence and Lessons from the Dubai International Financial Centre (DIFC)

By Digvijay Dam*

Hon’ble PM Narendra Modi’s vision for the “Make in India” campaign is gaining an impressive momentum in the international fora, which is evident from the fact that India has received around $19.78 billion of foreign investment after the NDA government came into power. However, where there are investments, there are bound to occur some inevitable disputes, which are needed to be resolved in a swift and an amicable way. Here comes the need for a robust arbitration mechanism to deal with such kinds of disputes, as the parties generally tend to avoid litigation in courts. Post the enactment of the Indian Arbitration and the Conciliation Act 1996; India has not been a favorable destination for arbitration, due to a plethora of problems for eg. the issue of enforcement of foreign arbitral awards in India (White Industries Australia Limited v. Republic of India), the issue of interference of the Indian Judiciary in arbitrations seated outside India (Bharat Aluminum v. Kaiser Aluminum Technical Services[1] reconsidering the decision held in Bhatia International v. Bulk Trading S.A & Anr.[2]), the public policy definition for the enforcement of foreign arbitral awards (Phulchand Exports Ltd. v. OOO Patriot[3] and Oil & Natural Gas Corporation Ltd. v. SAW Pipes[4]), checking of the validity of an arbitration agreement when appointing arbitrators (SBP & Co. v. Patel Engineering[5] and Bharat Rasiklal v. Gautam Rasiklal[6]) etc. These few cases seriously highlight the major drawbacks in the Indian arbitration landscape, which seriously affects India’s goodwill to serve as a prime destination for international arbitration. That been said, things are definitely looking bright in the field of arbitration due to the pro liberal approach of the present government, followed by the latest Arbitration and Conciliation Amendment Ordinance 2015, which has namely brought the following notable changes viz. Section 34[7], Section 36[8], addition of Section 31A[9], Section 17[10]etc.

This brings me to a very important issue regarding PM Modi’s home state of Gujarat, wherein he has initiated his dream project which is popularly knows as the “Gujarat International Finance Tec-City or GIFT city”. The main purpose of this city is to provide high quality physical infrastructure (electricity, water, gas, district cooling, roads, telecoms etc.), in order for finance and tech firms to re-locate their operations from Mumbai, Bangalore, Gurgaon etc., where the infrastructure is either inadequate or very expensive, it shall have a Special Economic Zone (SEZ), international education zone, integrated townships, an entertainment zone, hotels, a convention center, stock exchanges etc.[11] This initiative is quite similar to the one existing in the Emirate of Dubai, United Arab Emirates called the Dubai International Financial Centre (DIFC). It’s a financial free zone within Dubai that has its own autonomous and independent judicialDIFC_Arbitration_India_LCIAsystem, based on the common law system. DIFC in particular is considered a popular seat of arbitration in the region due to the presence of arbitration institutions such as the Dubai International Arbitration Centre (DIAC) and the Dubai International Financial Centre-London Court of International Arbitration (DIFC-LCIA) arbitration Centre. The DIFC was established as a separate common law jurisdiction within Dubai and has its own arbitration law (DIFC Arbitration Law No.1 of 2008). The provisions of the Civil Procedure Law of the UAE[12] relating to arbitration does not apply where the seat of arbitration is the DIFC. The DIFC Arbitration Law is based on the UNCITRAL Model Law and the arbitration rules are usually determined by the choice of arbitral institution for eg. like in the DIFC, the institution of the DIFC-LCIA has its rules closely modeled on the rules of the LCIA. The DIFC-LCIA Arbitration Centre is independent of the DIFC courts but recognizes that they exercise a supervisory role over disputes submitted to DIFC-LCIA arbitration. The local courts exercise this supervisory function over disputes submitted to arbitration before institutions outside of the DIFC, such as the DIAC where the DIAC Arbitration Rules of 2007 (DIAC Rules) would apply. The majority of arbitrations in the UAE are still conducted under the DIAC Rules.[13]Its significance is that this amended law provides for the independence and separate funding of the DIFC courts and the DIFC Arbitration Institute, the courts however, continue their existing role as the supervisory courts for arbitration seated in the DIFC.

The DIFC’s Arbitration Law coupled with the DIFC’s common law court system provides parties with greater certainty as to how issues such as removal of arbitrators, provisional measures and annulment will be dealt with, should the need for court intervention arise. It is also important under Article 16 of the DIFC- LCIA rules that the parties selecting the arbitration should clearly specify that they are to be governed by the DIFC law in their arbitration agreement, rather than just referring to Dubai. Similarly, under Article 24 of the DIFC Court Law, the DIFC courts are a part of the UAE for the purpose of the New York Convention and therefore an award from a DIFC seated arbitration is treated as an award made by a Contracting State.[14] Subsequently, Article 42(2) of the DIFC Court Law states that the judgments, orders and awards issued and ratified by the DIFC courts may be enforced outside the DIFC in accordance with Article 7 of the Judicial Authority Law. Thus, by doing a comparative analysis between the courts in Dubai and India. We come across the fact that prior to the establishment of the DIFC court system, they too were ambivalent about arbitration and thus were reluctant to adopt international best practices in the enforcement of foreign arbitral awards as evident from the case of Bechtel v. Civil Aviation Authority.[15] [16] Therefore in view of the analyzed model, it can be clearly understood that replicating a similar model of the DIFC in the GIFT City, can help in developing an exclusive arbitration mechanism in India. The Government of Gujarat should legislate on passing a bill, wherein the proposed GIFT city in Gandhinagar should have a separate court system and an independent arbitration mechanism, having a dedicated jurisdiction to practice international commercial arbitration in India. To achieve the same, it could also take the help and collaborate with the already established institutional arbitration centres like the LCIA London, LCIA India, Indian Council of Arbitration (ICA) etc. in laying the foundation to conduct international arbitration by adopting international best practices.

Perhaps, the arduous objective of establishing India as an arbitration hub can only be realized by creating a dedicated infrastructure in the GIFT city to handle the complex arbitrations. PM Modi should exhaust all possible resources to create the GIFT city as a prime destination to conduct arbitration in the Asian market along with its counterparts in Singapore and Dubai, and for this the Government has to establish a special court system within the GIFT city to enforce the arbitral award granted by them, while the Indian High Courts and the Supreme Court shall only exercise supervisory jurisdiction and act only in such exceptional circumstances, where there is an inevitable threat to India’s sovereignty or is fundamentally against the Constitution of India.

Thus, the Indian government should take cues and lessons from the Government of the Emirate of Dubai to establish an independent legal system running parallel to the Indian judicial system, through the adoption of international best practices and taking the UNCITRAL guidelines as its grundnorm.

* (Currently a candidate for the degree of B.Sc, LL.B (Hons.) at the Gujarat National Law University (GNLU), Digvijay is simultaneously holding the portfolio of a Student Research Associate (SRA) at the same university. He was previously engaged as a Judicial Intern (Clerk) at the Hon’ble Gauhati High Court, Legal Intern at the Ministry of Commerce and Industry and the Ministry of Women and Child Development, Government of India, New Delhi. He can be reached at Digvijayaal95@gmail.com.)

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[1] Civil Appeal No. 7019 of 2005.
[2] (2002) 4 SCC 105.
[3] (2011) 10 SCC 300.
[4] (2003) 5 SCC 705.
[5] (2005) 8 SCC 618.
[6] (2011) INSC 746.
[7] Relating to grounds for challenge of an arbitral award, to restrict the term ‘Public Policy of India” (as a ground for challenging the award) by explaining that only where making of award was induced or affected by fraud or corruption, or it is in contravention with the fundamental policy of Indian Law or is in conflict with the most basic notions of morality or justice, the award shall be treated as against the Public Policy of India.
[8] To the effect that mere filing of an application for challenging the award would not automatically stay execution of the award. Award can only be stayed where the Court passed any specific order on an application filed by the party.
[9] Providing comprehensive provisions for costs regime. It is applicable both to arbitration as well as related litigation in Court. It’s meant to prevent frivolous and meritless litigation/arbitration.
[10] Empowers the Arbitral tribunal to grant all kinds of interim measures, which an ordinary civil court is empowered to grant, under Section 9 and such order shall be ‘enforceable in the same manner as if it is an order of Court’.
[11] GIFT Gujarat official website.
[12] Federal Law No. (11) of the 1992 as amended.
[13] ‘Arbitration procedures and practice in United Arab Emirates: overview’ available at http://uk.practicallaw.com/6-502-3220 (Last accessed at 17th January, 2016).
[14] ‘Re-launch of the DIFC-LCIA Arbitration Centre’ available at https://www.ashurst.com/publication-item.aspx?id_Content=12676 (Last accessed on 17th January, 2016).
[15] 300 F.Supp.2d 112 (2004).
[16] ‘Launch of the new DIFC/LCIA arbitration centre’ available at http://www.allenovery.com/publications/en-gb/Pages/Launch-of-the-new-DIFC-LCIA-arbitration-centre.aspx (Last accessed on 17th January, 2016).
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