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India Aims To Be The World's Newest International Arbitration Hub

| Aug. 09, 2016

India is seeking to become the world’s newest hub international arbitration hub by establishing a new arbitral center in Mumbai. The Mumbai Centre for International Arbitration (MCIA), which begins proceedings this month, will be India’s very first arbitration tribunal. Its supporters hope it will help bring the industry’s best practices to the country. The unveiling of the MCIA underscores the significant growth of India-related arbitration cases in recent years. It also highlights the government’s desire to make India an attractive destination for international arbitration and make it a more compelling destination for business by bringing more reliable adjudication to India’s corporate sector.

Arbitration remains the preferred option for multinational firms conducting business in the country, but India is not the preferred venue to arbitrate claims. The majority of arbitrations currently taking place within India occur on an ad hoc basis. This has resulted in a lack of uniform standards and predictability with respect to the cost-effectiveness, efficiency and outcome of many arbitral proceedings.

These issues have generated serious inconsistencies with global best practices regarding arbitration, eroding the international legal community’s trust and confidence in the current Indian system. It has also been, plainly speaking, bad for business. Many of the most prominent arbitration cases, including those involving multinational giants Deutsche Telekom and Vodaphone, have moved outside of India because of the absence of institutionalized capacity and expertise in the country.

Can India become a more popular arbitration venue?

Indian officials are betting that the MCIA will help change this, and the rules governing the MCIA have been drafted specifically to address these shortcomings. These rules provide for an expedited timeline for inexpensive disputes, mechanisms that cater to multi-party and multi-contract scenarios, the availability of an emergency arbitrator, and a deadline for the tribunal to render its final award, among others. Released in June 2016, the MCIA rules were designed by a committee comprised of leading arbitration practitioners both in India and abroad.

The Indian government is hoping the MCIA will help fill an important need that has been created by India’s recent booming economic growth, occurring at more than 7% by some estimates. The robust rise has resulted in a surge of foreign investment into the country, and with it, the need for access to alternate dispute resolution mechanisms.

The key question is whether these measures will succeed in making India a more popular arbitration venue. The MCIA’s success will depend largely on the willingness of companies operating in India to seek redress in the new tribunal. For both foreign and domestic companies, foreign-seated arbitration centers in Paris, London, Geneva, Hong Kong and Singapore remain the favored locales and have captured a significant share of India-related arbitration cases.

The MCIA’s challenge is whether it can serve as a credible domestic alternative to forums abroad

According to 2013 data, more than 30% of cases arbitrated in Singapore’s tribunal, for example, involved companies from India. The number of Indian firms seeking arbitration has proliferated several hundred percent over the past decade, with multibillion dollar arbitrations like those involving Vodaphone becoming more commonplace. The real challenge for the MCIA is whether it can serve as a credible domestic alternative to these forums abroad.

Indian officials express confidence that the MCIA will be able to compete by conducting arbitration more inexpensively than its foreign counterparts without compromising global standards. They also point to the new, state-of-the art center housing the MCIA in the heart of India’s financial capital as uniquely suited to arbitrate India-related claims. A recent announcement by the London Court of International Arbitration ending its physical presence in India will also help attract more business to the country.

Others, however, have voiced caution, noting that the Indian judiciary’s reputation for intervening in past arbitration settlements may discourage potential parties from arbitrating claims in India. Additionally, even Indian officials acknowledge that the MCIA has a long way to go before it can meaningfully compete with longstanding arbitration centers operating abroad that have garnered sterling reputations for effective arbitration within the international community.

A potential first step toward liberalizing India’s legal sector

Regardless of the ultimate success of the MCIA, industry observers are closely monitoring the unveiling of the MCIA to assess whether it foreshadows a potential first step toward liberalizing India’s legal sector. Indian law currently prohibits foreign law firms from practicing in the country, an issue that has distinguished India from several other jurisdictions in the region, including China, Singapore and South Korea.

Foreign law firms, particularly from the United States, have been eager to enter India’s legal market for years, but have been prevented from doing so by Indian law firms, which do not want to face foreign competition but exercise considerable influence over official policy.

The Modi government has signaled a willingness to open up the Indian legal market consistent with his ongoing campaign to liberalize other sectors of the Indian economy. If the past policies are any indication of future decisions, however, it is unlikely the desired liberalization will happen any time soon. But establishing India as a new hub of commercial international arbitration could be a small, but important, first step toward this end.

For more information on this publication: Belfer Communications Office
For Academic Citation: Desai, Ronak D..“India Aims To Be The World's Newest International Arbitration Hub.” Forbes, August 9, 2016.