LCIA India: the dawn of a new era for arbitration in India?

In April 2009, the London Court of International Arbitration (LCIA) announced plans to set up an LCIA centre in India (LCIA India). Following the establishment of its joint venture with the Dubai International Financial Centre (DIFC) in 2008, LCIA India will be only the second LCIA centre to be set up outside London in the institution's 116 year history.

As the Indian economy continues to grow and as India plays an increasingly prominent role in the world economy, it is inevitable that the number of commercial disputes involving Indian parties will increase. However, due mainly to the delays that exist in the Indian court system (which is estimated to have a backlog of 30 million cases) and the absence of a truly international arbitral institution based in India, foreign investors have traditionally insisted on offshore arbitration to resolve disputes with Indian counterparties.

It is hoped that the establishment of LCIA India will provide an important dispute resolution alternative for parties to India-related commercial transactions, as well as for parties to wholly domestic transactions, and will help to raise India's standing as a venue for international arbitration.

Among the leading international arbitral institutions, the LCIA has long been one of the most popular fora for India-related disputes, as is evident from the fact that more than seven percent of the disputes filed under the Rules of the LCIA in each of 2007 and 2008 involved Indian parties. This popularity and reputation should immediately afford LCIA India credibility and stature in the country's arbitration landscape. In particular, the procedural experience and, it is to be hoped, predictability of LCIA India-administered arbitrations should offer an attractive, institutional 'on-the-ground' alternative to the vast majority of arbitrations in India which are currently brought ad hoc (and which are particularly prone to delays and excessive judicial intervention). For instance, if one party fails to appoint an arbitrator in an Indian ad hoc arbitration, it can take a year or more for the courts to appoint an arbitrator (not least because the courts are often encouraged by the resisting party to embark on an enquiry into the merits at this stage).

Adaptations to suit Indian conditions

LCIA India is expected to become fully operational later this year, and further details about its rules, constitution and operation are due to be published soon. At the launch event of LCIA India, the Chair of the LCIA's Board, Peter Leaver QC and the Director General, Adrian Winstanley confirmed that interested parties could expect "the announcement of the promulgation of LCIA India rules, one or more papers on the correlation of these and the Indian Arbitration Act, and an informative LCIA India website."

For arbitrations to be administered by LCIA India, contracting parties will need to agree to insert LCIA India arbitration clauses in their contracts, or agree to use the centre after disputes have arisen.

The challenge of judicial intervention

India, undoubtedly, has a number of the key features that are necessary for arbitration to flourish at a domestic and international level. It is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The Indian Arbitration and Conciliation Act 1996 (the Act) provides a progressive legislative framework for the conduct of arbitration in the country based on the UNCITRAL Model Law and was enacted by the Indian Parliament with the avowed objective of creating a pro-arbitration legal regime in the country.

However, much of the effectiveness of an arbitral seat depends upon the willingness of the local, supervisory courts to support the arbitral process. It is an essential requirement that the arbitral award be considered to be final and binding (except in narrowly defined special circumstances generally relating to "due process" and similar issues) and be respected and enforced by the courts of the jurisdiction where the arbitration takes place. In this respect, and as discussed in greater detail here and here, a number of recent judgments of the Indian Supreme Court have affected the attractiveness of India as an arbitration venue.

To reduce the scope for intervention by the Indian courts, the practice has been to advise foreign investors arbitrating offshore with Indian parties to exclude the application of Part I of the Act (which confers significant powers on the Indian courts to order interim measures, appoint and replace arbitrators and hear challenges to arbitral awards) in their arbitration agreements. However, it is doubtful whether parties can validly exclude Part I of the Act in cases where the place of arbitration is India. Further guidance on this issue is expected to be provided in LCIA India's paper that will address how it expects its arbitration rules to correlate with the provisions of the Act.

Conclusion

The LCIA's decision to set up a centre in India reflects its long-term commitment to the development of arbitration in India, and its confidence in the country continuing its development as a substantial market for arbitration services. This represents a significant step forward in increasing foreign investors' confidence and familiarity with arbitration in India. It should also provide a timely boost for domestic institutional arbitration in India.

It will remain to be seen how different LCIA India arbitration will look from current India-seated arbitration; for example, whether access to the LCIA's list of arbitrators will cause Indian parties to depart from the almost universal appointment of retired judges as arbitrators (and whether, if it does, the resulting awards will survive scrutiny by the Indian courts on challenge/enforcement actions).

The cost of LCIA India arbitration will also be crucial, especially as it seeks to persuade commercial parties to move away from ad hoc arbitration for domestic disputes.

For now, commercial parties and their advisers will await the further development of LCIA India with interest, and with much desire for the venture to thrive and for institutional arbitration in India (of all kinds) to benefit as a result.