Government of India Proposes New Arbitration Institution

Prime Minister Boris Johnson recently visited Gujarat International Fin-Tec City (GIFT City) on 21 April as part of this two-day visit to India.

It is a truth universally acknowledged that flourishing centres of trade and commerce benefit greatly from being efficient centres for resolving disputes. Contracts underpin trade and commerce. The effectiveness with which a party to a contract can have its contractual rights enforced acts as a barometer of a jurisdiction’s performance in an ease of doing business assessment.

To fortify the arbitration ecosystem in GIFT City (Gujarat International Fin-Tec City) and as further proof of the Government of India’s intent of developing India as an arbitration hub, there was a headline-grabbing announcement by the GOI in Budget 2022-2023 that an international arbitration centre will be set up in GIFT City. While details of the new centre are awaited, the GOI will do well to give serious consideration to the following factors when structuring the centre and formulating its arbitration rules:

• Quality of pool of arbitrators;
• Robust yet business-friendly and flexible rules of arbitration;
• Transparency and integrity in the appointment of arbitrators;
• Cost predictability;
• Efficient administration of arbitral process;
• Scrutiny of arbitral awards;
• Deployment of technology and digital solutions to inject greater efficiency in the arbitral process;
• Neutrality of the seat;
• Rule of law;
• Court support;
• State support; and
• Availability of third-party funding.

The Government of India has long recognised the importance of promoting international commercial arbitration and institutional arbitration in India. To that end, the GOI formed the High-Level Committee under the chairmanship of Justice B. N. Srikrishna (Retd.), which was tasked with providing recommendations on how to promote arbitration in India and suggesting measures for institutionalisation of arbitration in India and improving arbitration mechanisms in India.

The High-Level Committee submitted its report in July 2017. It contained a robust set of recommendations to further various facets of arbitration in India, many of which were low-hanging fruits that required legislative amendments to the Arbitration and Conciliation Act, 1996 (“ACA”). These were subsequently carried out by the GOI.

The report’s more ambitious recommendations of creating specialist arbitration bar and courts, promoting institutional arbitration, and resurrecting the near-defunct International Centre for Alternative Dispute Resolution require sustained effort and expending greater political capital. These remain work-in-progress. There will be every reason for optimism here if arbitration practitioners, the community of arbitrators, the GOI, and other stakeholders collaborate and persevere in efforts to build the building blocks for further reform of arbitration in India.

GIFT City

GIFT City has been established as a Multi Services Special Economic Zone under the Special Economic Zone Act, 2005 (“SEZA”). It comprises approximately 886 acres of land. The jewel in GIFT City is the International Financial Services Centre (“IFSC”). The GOI hopes that the IFSC will host financial services transactions that are at present effected outside India by overseas financial institutions and overseas branches/ subsidiaries of Indian financial institutions.

To facilitate ease of doing business in IFSC, a unified regulatory authority – the IFSC Authority – for banking, insurance, capital markets, and funds has been established. This is expected to make more efficient regulatory approvals for establishment of business units in the IFSC, with units and investors being eligible for tax benefits, exemptions under the Companies Act, 2013, and subsidies from the Government of Gujarat.

Under the provisions of the SEZA, in the absence of any court in the state of Gujarat having been designated to adjudicate civil disputes arising in GIFT City, all such disputes are mandatorily required to be referred to arbitration, which are required to be conducted under the provisions of the ACA.

To instil confidence in the business community regarding settlement of disputes arising out of trade and commerce in GIFT City, Gujarat International Finance Tec-City Company Limited and GIFT SEZ Limited entered into a Memorandum of Understanding with the Singapore International Arbitration Centre (“SIAC”) in 2016. Following from that, SIAC established a representative office in the IFSC in 2017, which was in addition to the other representative office it had already opened in Mumbai in 2013.

The mission of SIAC’s representative office in the IFSC was to promote SIAC as a leading international arbitration institution and ride the wave of increased participation by international and domestic businesses in the IFSC and the growing popularity amongst Indian businesses to have their disputes resolved in accordance with the SIAC arbitration rules. The aspiration was that companies setting up in GIFT City will incorporate the SIAC model clause into contracts with arbitration being administered in Singapore. Access to SIAC’s dispute resolution services was expected to support GIFT City’s ambition to encourage businesses to undertake large international financial transactions from the IFSC, thereby allowing the IFSC to develop into a global financial hub along the lines of Singapore, Hong Kong, Dubai, London, and New York.

Establishing a successful arbitration institution requires a long gestation period. The question of whether an institution has earned the confidence of the business community is answered depending on whether end users of arbitration – businesses – elect having their future disputes resolved in accordance with the arbitration rules of that institution.

Further details of the new arbitration institution will be discussed in detail as soon as they are made available by the GOI.