International Arbitration Centre At GIFT City: A Varied Approach?

A. Introduction

• With the development of Gujarat International Finance Tec-City ('GIFT City'), India has its first International Financial Services Centre ('GIFT – IFSC'). The GIFT – IFSC aims at providing services related to capital markets, insurance, banking asset management, alternative investment funds, aircraft and ship leasing, and ancillary services. However, for IFSC to be an attractive destination for providing financial product i.e., a bundle of contractual rights and obligations, there needs to be a robust mechanism to ensure contract enforcement viz. resolution of disputes arising from the associated contract in a swift, fair and professional manner. To further this objective, a proposal was made in the Union Budget of 2022-23 to set up an International Arbitration Centre ('IAC') in the GIFT City for timely settlement of disputes under international jurisdiction.
• In light of the foregoing, the International Financial Services Authority ('IFSCA') constituted an Expert Committee to draft the Institutional Arbitral Rules for the IAC at GIFT City and other incidental matters. Pursuant to its constitution, the Expert Committee has submitted a comprehensive report dated 16^th July 2024¹, suggesting various reforms, inter alia, in the Regulatory, Institutional and Judicial Framework.
• The Expert Committee observed that most of the successful financial centres across the globe, to maintain their relevance in the market, have a tailor-made dispute resolution process as most of the entities now a days prefer alternate dispute resolution ('ADR') mechanisms over the traditional judicial process, which in contrast to the ADR mechanisms is more expensive and time consuming amongst other factors such as applicability of local laws.
• At the outset, the Expert Committee was of the opinion and suggested that a standalone arbitration centre may not be adequate to meet the needs of varying entities, who may want to exercise other options such as mediation to resolve their disputes. The Expert Committee thus, submitted a proposal for an 'Alternative Dispute Resolution Centre' ('ADRC'), instead of a standalone IAC.
• Expert Committee's approach
• The Expert Committee observed that similar institutions across the globe have incorporated various practices which are in line with its users' needs and requirements and that there is a conscious effort to develop pro ADR practices such as judicial, legislative and administrative support to ensure smooth functioning. The Expert Committee referred to a report titled '2021 International Arbitration Survey: Adapting arbitration to a changing world', published by Queen Mary University of London and White & Case LLP², wherein the following attributes were identified:

• Cost – The cost of dispute resolution process is a paramount consideration for all the parties involved. The parties are willing to waive certain elements which would reduce the cost. Further, parties prefer other cost reduction practices such as provisions for an electronic ecosystem i.e., virtual hearing, e-filing etc.
• Speed – Another major consideration for parties is efficiency of dispute resolution process, for instance a fixed timeline, summary procedure in certain situations, etc.
• Impartiality – The existence of neutral arbitrators, mediators and other resolution professionals help in maintaining the trust of parties in dispute resolution process.
• Finality of Outcome – Merely getting a favourable award is not sufficient and there should be sufficient laws in place to enforce such an award, otherwise, it will be nothing but a 'paper decree'.
• Confidentiality – The parties using such resolution processes are usually large companies, which are very conscious about the confidentiality of the information shared during the proceedings. This demands for secured measures such as secure email addresses, data encryption etc.
• Procedural Flexibility, Clarity and Transparency – In cases of international commercial arbitrations, there is a need to accommodate all the parties from around the world and therefore, there is a preference for tailor made procedure to cater to different needs in multi-party ADR.
  • Although, all the aforesaid factors were not considered by the Expert Committee while making its suggestions, the same were recommended to the government for consideration during drafting of apposite policies, rules and regulations.

6. The Expert Committee further opined that IAC should be frictionless with the Indian law while inculcating the best practices from across the globe in terms of technology, rules and procedure. For this purpose, the Expert Committee took into consideration, the regulatory and institutional framework of already established and successful institutions such as likes of International Chamber of Commerce ('ICC'), Singapore International Arbitration Centre ('SIAC'), the London Court of International Arbitration ('LCIA'), as well as Indian arbitration centres such DIAC, MCIA, Hyderabad - IAMC and upon discussions with the industry leaders and experts, formulated the following guiding principles for the purpose of ADRC:

• Party autonomy being the foundation for any successful institution, the parties to dispute at ADRC shall have unrestricted freedom to choose the governing law and the resolution professional to resolve the dispute;
• ADRC should include different methods of dispute resolution to accommodate the needs of every party. The Expert Committee suggested dispute resolution services like arbitration and mediation and also a hybrid model of the aforesaid for resolution of all kinds of disputes amongst parties like private-private, government – government, domestic and foreign etc.;
• ADRC shall adopt global standards of resolving international commercial disputes including the autonomy to modify its rules and procedures to keep up with the dynamic environment and user demands; and
• The ADRC should be technologically well equipped in order to increase the efficiency and effectiveness of the dispute resolution process.

7. Therefore, in view of the aforesaid considerations and guidelines, the Expert Committee has suggested changes to the extant laws as well as Institutional and Judicial Framework, which are discussed hereinafter.
8. Proposed amendments to the extant laws
9. Before suggesting amendments to the extant laws, the Expert Committee deliberated upon method of incorporating the said amendments, that is to say, (i) whether the said amendment should be incorporated by way of a dedicated chapter in International Financial Services Centres Authorities Act, 2019 ('IFSCA Act') or (ii) whether the amendments should be directly introduced into the pertinent Sections/sub-sections of each relevant statute. The Expert Committee however, after much deliberation concluded that the amendments should be incorporated in the IFSCA Act since "it facilitates consolidating all amendments to pertinent laws in a single location. This ensures a cohesive framework, minimising disruption by comprehensively addressing IFSC-related issues through a single amendment."
10. Amendment under the IFSCA Act
    • Inclusion of definition for 'ADR mechanisms' – The Expert Committee recommended that since the IFSCA Act does not confer any authority on the IFSCA to establish and govern ADR services within IFSC, definition for 'alternative dispute resolution mechanism' and 'alternative dispute resolution enactment' be included in the relevant provision of the Act³. The term 'alternative dispute resolution mechanism' would encompass process of negotiation, neutral evaluation, mediation, conciliation, arbitration, and any hybrid of the ADR; and the latter proposed definition would encapsulate the laws governing the ADR mechanism in India, since the same are not consolidated in a single legislation⁴.
    • Power to regulate and foster development of ADR mechanism – It was recommended to include a new clause in Section 12(2)⁵ of IFSCA Act, to expand the IFSCA's power to regulate and foster development of ADR mechanism for promoting, governing and regulating ADRC.
    • Inclusion of a new Chapter – IIIA titled 'Alternative Dispute Resolution mechanism' – The Expert Committee further recommended introduction of a new Chapter – IIIA, which would deal with functions of IFSCA⁶ and cast an obligation upon it to promote and regulate ADR mechanism within IFSC. A clarificatory provision⁷ is also suggested clarifying that said ADR proceedings under this Act must be aligned with extant Indian laws⁸.
    • Power to make regulations qua ADR proceedings - Amendment suggested to Section 28⁹ conferring powers on IFSCA to make regulations qua ADR proceedings having seat or venue at IFSC; insertion of a new Section 33A which would deal with amendments to enactments under Third Schedule of the Act¹⁰ or in the alternative amendment to Section 31 of the Act, which would empower the Central Government to modify other legislations in respect of IFSC.
11. Suggested amendments under the Arbitration and Conciliation Act, 1996
    • Amendment to definition of 'Court' – In order to bring certainty with respect to the Court having jurisdiction qua arbitrations seated at IFSC and further, to streamline the procedures for such arbitrations, the Expert Committee recommended re-defining the term 'Court'¹¹ under the Arbitration and Conciliation Act, 1996 ('Arbitration Act') to stipulate that for arbitration seated at IFSC, the designated 'Court' will be a bench of a Hon'ble High Court having territorial jurisdiction, as appointed by its Hon'ble Chief Justice.
    • Arbitration at IFSC to be classified as 'international commercial arbitration' – The Expert Committee opined that since the arbitrations at IFSC may not neatly fit into the category of foreign arbitration but rather fall under either domestic or international commercial arbitration, the definition of international commercial arbitration be amended by insertion of a new sub-clause, to include units setup in the IFSC within its scope. Additionally, inclusion of a non-obstante clause has been suggested, clarifying that the regulations and provisions applicable to international commercial arbitration are also relevant to arbitrations seated at the IFSC.
    • Enhancing the Choice of Governing Law for Parties bringing disputes to IFSC – The Committee proposed introducing a provision which would allow units established in the IFSC to be explicitly classified under international commercial arbitration, enabling parties to opt for a governing law that aligns with international standards rather than being strictly bound by Indian laws. In furtherance to aforesaid, the Committee also proposed introducing an explanatory provision to Section 28 to legalise contracts specifying foreign governing laws.
    • Streamlining challenge and appeal to award through "Documents-only" procedure – To enhance party autonomy and expedite the dispute resolution process, the Committee recommended amendments to Sections 34 and 36 of the Arbitration Act, which would allow parties to opt for a "documents-only" procedure when challenging or seeking a stay of an arbitral award. For this purpose, Committee recommended defining "documents-only" proceedings, in the Arbitration Act, to mean proceedings where the entire case is adjudicated solely on basis of written submissions and documentary evidence, without the necessity of oral arguments or hearings.
    • Reduction of period for filing objections under Section 34 – The Expert Committee recommended reduction of the 120 days period for filing an application to set aside an arbitral award¹² (i.e., 90 days + additional 30-day grace period), to a total of 42 days. Parties to a dispute seated at the IFSC will have 21 days to file the application and further, 21 days' time may be granted by the Court if the applicant/party demonstrates sufficient cause for the delay.
      • The Committee also recommended a mandate, in the form of a non-obstante clause, requiring disposal of aforesaid applications within 90 days from the date of submission of all written pleadings. In cases of unreasonable delays by a party, preventing Court from meeting the 90 days' deadline, the Court would be empowered to impose exemplary costs.
    • No right to appeal under Section 37 – The Committee proposed removal of appeal process under Section 37(1)(c) of the Arbitration Act. Under the proposed amendments, parties dissatisfied with a Court order passed under Section 34 of the Arbitration Act would have the option to seek recourse by filing a Special Leave Petition (SLP) before the Supreme Court under Article 136 of the Constitution of India.
    • Balancing disclosure and confidentiality requirements for permitting Third Party Funders in IFSC – The Expert Committee observed that confidentiality is integral to arbitration proceedings, however, mandatory observation of confidentiality under Section 42A has made it challenging for parties to engage third-party funders ('TPF'). This comes in light of the fact that while appreciating the International Best Practices, the Committee has suggested promotion of TPF. TPF refers to an "...arrangement by an entity (the "funder/third-party funder") that is not a party to a dispute, to provide funds or other material support to a disputing party in exchange for returns, depending on the outcome of the dispute. The return can be: (a) a multiple of the funding; (b) a percentage of the proceeds; (c) a fixed amount; or (d) a combination of all of the above."¹³
      • In view of aforesaid and considering the practices of other financial centres such as Singapore, Hong Kong and Dubai allowing TPF, the Committee proposed a proviso to Section 42A allowing the disclosure of information to third-party funders under specific conditions. This disclosure must comply with rules, regulations, or laws prescribed for its governance.
    • Conferring powers to IFSCA for regulation of arbitration seated at IFSC - The Committee observed that given the specialised and unique requirements of the IFSC, it is not practical to have a single authority [i.e., Arbitration Council of India ('ACI')] regulating ADR services for IFSC as well; and thus, it is recommended that arbitration proceedings at IFSC shall be exempt from any rules and/or guidelines issued by the ACI.
12. Amendments under Meditation Act, 2023
    • The Committee proposed insertion of a proviso to definition of 'Court' to ensure that mediation-related disputes at IFSC are referred to the bench of Hon'ble High Court specifically constituted for handling cases from the IFSC.
    • Further, it has recommended for mediators practicing at the IFSC to have distinct guidelines and qualifications from those specified by the Mediation Council of India to effectively cater to international, financial, and commercial mediation requirements.
    • The Committee recommended modifying the definition of 'mediator' and 'specified' under clauses (i) and (y) of Section 3, respectively, to exempt registration of mediator with the MCI and exclude regulations made by the MCI from the purview of mediations at the IFSC.
    • Section 41¹⁴ of the Mediation Act should be modified to clarify that the mediation service providers at the IFSC are not mandated to accredit mediators or maintain a panel of mediators.
13. Institutional Framework for ADRC at IFSC
14. The Expert Committee recommended that the ADRC be incorporated as a not-for-profit company¹⁵ as is the structure for any other similar Centre for avoiding conflict of interest. It suggested that ADRC's shareholding shall be guided by the principles of no conflict of interest, prevention of concentration of shareholding and representation through other institutions. It further suggested that subscription of ADRC's shares shall only be available to institutions and not individuals, which may as well be capped at 5%.
15. The ADRC shall be an autonomous body having its own governing rules and regulations for procedure. Further, the process of amending the rules and regulations should be easy and minimalistic. It further suggested that ADRC should disincentivise any frivolous challenge to the proceedings or causing delay in resolution process, by imposing penalties.
16. Judicial framework for ADRC at IFSC
17. For ADR mechanism under the ADRC, to be successful and of eminence, Expert Committee suggested a phased transition of Court process. In the initial phase, right after constitution of ADRC, a dedicated bench of the Hon'ble Gujarat High Court shall be designated for entertaining matter related to ADRC. In the second phase, a separate bench of the Hon'ble High Court be established for all IFSCs in India, which shall be named as 'IFSC International Court' having all the powers of that of a High Court barring writ and criminal jurisdiction. In the last and final phase, international judges be permitted to sit in IFSC International Court. The inspiration for the same has been drawn from judicial structures in Singapore and Dubai. In addition to the aforesaid, separate rules may be formulated for High Court for IFSC Courts, which would allow the International High Court to have exclusive designated officers such as Registrars and bailiffs to ensure effective execution of awards/judgments. The Committee further suggested case management process. Lastly, as discussed in the Statutory framework section, the Committee has suggested removal of appeal under Section 37(1)(c) of the Arbitration Act to ensure cost effectiveness and speedy resolution.
18. Grading of Arbitrators
19. The panel debated the implementation of a system for grading arbitrators to maintain a high standard of competence and conduct. While most members opposed this idea, the Chairperson highlighted that similar grading mechanisms exist in the insolvency sector to ensure professional standards.
20. Analysis
21. Having set out the recommendations of the Expert Committee, it would be relevant to discuss the impact of some of the said recommendations positive or otherwise on the ADR scenario in India.
22. With respect to recommendation qua creation of a separate Bench within the Hon'ble Gujarat High Court specifically dedicated to dealing with issues arising out of the GIFT City ADRCs, the same would result in an expeditious process and certainty with respect to conclusion of Court proceedings. This would also help the ADRC to come up with a robust structure to address the international commercial and financial disputes originating therefrom. Although there is an apprehension that the number of litigations before the Hon'ble High Court of Gujarat as well as the expenditure incurred in setting up an entirely new Bench may increase; however, these are initial challenges which would be streamlined with passage of time.
23. With respect to proposal of allowing TPF, the same is already a prominent practice across the world and given that the Hon'ble Supreme Court in Bar Council of India v. A.K. Balaji¹⁶, has observed that there "appears to be no restriction on third parties (non-lawyers) funding the litigation and getting repaid after the outcome of the litigation", the same is also not in contradiction to Indian laws. Therefore, being a cost – effective method, TPF may turn out to be an effective tool in judicial process and is a welcome step. Further, various entities such as shipping companies entering into international contracts and joint ventures with Indian and foreign parties stand to benefit from TPF. Also, in addition to alleviating the financial burden of litigation, the TPF also frees up resources of the company, allowing them to be redirected in a correct direction.
24. With respect to the suggestion of reduction of limitation under Section 34 of the Arbitration Act to a total of 42 days (21 days + 21 days grace period), it would be apposite to note that in an international commercial arbitration, there is no deadline per se for passing an arbitral award¹⁷ that is to say that the same is not time bound for the reason that such a dispute encompasses different jurisdiction and there are bound to be certain procedural delays given the sheer volume of documents, logistical delays, correspondences between the parties across world, approval process etc. Thus, in view of such circumstances, even though the amendment seeks to reduce timeline for resolution of disputes arising from IFSC, the same may be a little too less. Therefore, the Expert Committee may reconsider the same and enhance the limitation period to some reasonable period. However, given the overall purpose, the suggestion of reducing the limitation is a welcome step in preventing delays in arbitration proceedings.
25. With respect to removal of the appeal under Section 37 of the Arbitration Act, though the same would be beneficial in the sense that under Section 37 of the Act, the challenge can be laid on very limited grounds and the Courts are in any manner of speaking extremely circumspect in entertaining such appeals. However, there are certain cases, for instance, Delhi Metro Rail Corporation Ltd. v. Airport Metro Express Pvt. Ltd.¹⁸, wherein the matter was up for consideration in appeals until the decision in the last leg i.e., a curative petition, wherein the Hon'ble Supreme Court overturned the award upon considering the issue on merits. Therefore, in such a situation the appeal under Section 37 of Arbitration Act is a substantial recourse for the aggrieved parties. Recently, the Ministry of Finance issued an Office Memorandum dated 03^rd June 2024 suggesting that in disputes of value above Rs. 10 Crores, the arbitration may be exercised after due consideration. On similar lines, it is suggested that the appeal under Section 37 may not be made available for disputes with a value of less than a particular amount as may be specified, however, for disputes exceeding the said value, the appeal provision may be kept available to parties given the complexity of such disputes.
26. With respect to modifying the definition of mediators and their essential qualifying criteria, the Committee has rightly observed that given the distinct nature of IFSC, there is a demand for services of commercial and financial mediators from diverse global backgrounds. This is in addition to the fact that Mediation being a completely voluntary and a party governed process, the parties in any event have the liberty to decide the mediator of their choice. Therefore, appointment of mediators which specifically meet the needs of the parties at ADRC is a step further in the right direction.
27. Conclusion
28. Though the Committee was constituted for drafting the Arbitral Rules for proposed IAC, however, the Committee in its wisdom has taken a holistic approach and suggested a more expansive institution i.e., ADRC.
29. The Expert Committee in its report has comprehensively dealt with all the changes required in the existing laws as well introduction of new things to ensure that ADRC is at par with other Centres across the globe. The Committee recognised the fact that replication of any existing model may not be suitable for IAC/ADRC in the GIFT City and therefore, it has drawn its inspiration from different facets of various successful centres such as ICC, LCIA, DIAC and SIAC. In addition to the same, the Committee also consulted various worldwide recognised professionals engaged in this field. However, it would be relevant to note that though all these successful foreign institutions, provide a guiding factor, the same may not neatly fit in the Indian scenario and that the process or functioning of similar Indian Centres such as India International Arbitration Centre could also have been considered while proposing amendments.
30. Further, limiting the said suggestions only to IFSC at GIFT City may not be a holistic approach and result only in the development of a particular region whereas other cities such as Mumbai and Delhi already have well established ADR centres and infrastructure, being the Indian hubs of economic and financial matters. Therefore, the suggestions being in consonance with the idea of promoting India as an attractive destination for alternate dispute resolution, similar suggestions should be made to promote the already established centres and in effect promoting the entire country and placing India as an attractive and conducive destination and international hub for Arbitrations.

Footnotes

1. Available at: International Financial Services Centres Authority (ifsca.gov.in)

2. Available at: LON0320037-QMUL-International-Arbitration-Survey-2021_19_WEB.pdf

3. i.e., Section 3 of the IFSCA Act, which prescribes the definition of various terms used under the Act.

4. i.e., arbitrations are governed by the Arbitration and Conciliation Act, 1996 and mediation is governed by the newly enacted Mediation Act, 2023.

5. Section 12(2) of the IFSCA Act prescribes the functions to be performed by the IFSCA such as regulation of financial products, financial services and financial institutions in IFSC; and making recommendation to Central Government what other financial products, services and institutions can be permitted in IFSC by the Central Government.

6. Section 13A

7. Section 13B

8. i.e., the Arbitration Act and Conciliation Act, 1996, Mediation Act, 2023 and any other law which governs ADR mechanisms.

9. Section 28 of the IFSCA Act refers to the power of the IFSCA to make rules and regulations to carry out the provisions of this Act.

10. Third Schedule of the IFSCA Act will amend the other enactments to the extent they apply to arbitrations seated at IFSC and other ADR mechanism having a place of resolution at IFSC.

11. Section 2(1)(e) of the Arbitration Act provides the definition of the term 'court'.

12. Section 34 of the Arbitration Act.

13. The concept of TPF has been dealt with by the Expert Committee in its report under the heading no. 3.10. under the Chapter – International Best Practices

14. Section 41 of the Mediation Act specifies the functions of mediation service providers

15. Under Section 8 of the Companies Act, 2013

16. (2018) 5 SCC 379

17. Section 29A of the Arbitration Act.

18. 2024 SCC OnLine SC 522

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