Insights into Editorial: A BIT of critique

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Insights into Editorial: A BIT of critique


 

Background:

Justice Dispensing System in India has come under great stress for various reasons including huge pendency of cases in various courts. The injustice is particularly egregious in commercial disputes, where cases remain pending for years. Accordingly, arbitration provides an effective and efficient alternative window for dispute resolution.

 The Government of India has laid emphasis on making Arbitration a preferred mode for settlement of commercial disputes.  Several legislative and administrative initiatives have been taken on arbitration which aim at minimizing court intervention, bring down costs, fix timelines for expeditious disposal, and ensure neutrality of arbitrator and enforcement of awards. The Arbitration and Conciliation (Amendment) Act, 2015 envisages

  • quick enforcement of contracts,
  • easy recovery of monetary claims,
  • reduce the pendency of cases in courts and
  • Hasten the process of dispute resolution through arbitration, so as to encourage foreign investment by projecting India as an investor friendly country having a sound legal framework and ease of doing business in India.       

 In order to ensure speedy resolution of commercial disputes and to facilitate effective conduct of international and domestic arbitrations rose under various agreements, it has been considered necessary to go into various factors to accelerate arbitration mechanism and strengthen the arbitration ecosystem in the country.  It is also important to examine specific issues and roadmap required to make India a robust centre for international and domestic arbitration. With the above end in view, the Government has decided to constitute a High Level Committee (HLC) in the Ministry of Law and Justice.

Key recommendations of B.N.SriKrishna report:

The Committee has divided its Report in three parts.

  • The First part is devoted to suggest measures to improve the overall quality and performance of arbitral institutions in India and to promote the standing of the country as preferred seat of arbitration. The Committee in this context have inter alia recommended –
    • Setting up an Autonomous Body, styled the Arbitration Promotion Council of India (APCI), having representatives from all stakeholders for grading arbitral institutions in India.
    • The APCI may inter alia recognize professional institutes providing for accreditation of arbitrators
    • The APCI may hold training workshops and interact with law firms and law schools to train advocates with interest in arbitration and with a goal to create a specialist arbitration bar comprising of advocates dedicated to the field.
    • Creation of a specialist Arbitration Bench to deal with such Commercial disputes, in the domain of the Courts.
    • Changes have been suggested in various provisions of the 2015 Amendments in the Arbitration and Conciliation Act with a view to make arbitration speedier and more efficacious and incorporate international best practices.
    • The Committee are also of the opinion that the National Litigation Policy (NLP) must

Promote arbitration in Government Contracts.

 

  • The Committee in Part II of the Report reviewed the working of ICADR(International Centre for Alternate Dispute Resolution) working under the aegis of the Ministry of Law and Justice, Department of Legal Affairs. The Institution was set up with the objective of promoting ADR methods and providing requisite facilities for the same.
    • The Committee has preferred for declaring the ICADR as an Institution of national importance and takeover of the Institution by a statute.
    • The Committee is of the view that a revamped ICADR has the potential be a globally competitive institution.

 

  • As regards the role of arbitrations in matters involving the Union of India, including bilateral investment treaties (BIT) arbitrations, the Committee in Part III of the Report has inter alia   
    • recommended for creation of the post of an ‘International Law Adviser’ (ILA) who shall advise the Government and coordinate dispute resolution strategy for the Government in disputes arising out of its international law obligations, particularly disputes arising out of BITs.
    • The Committee has emphasized that ILA may be consulted by the Department of Economic Affairs (DEA), at the time of negotiating and entering into BITs.

 

Introduction:

The recent report of the Justice B.N. Srikrishna committee, constituted to prepare a road map to make India a hub of international arbitration, has recommended many changes in Indian arbitration law and institutional mechanisms to promote arbitration in India. Its recommendations on bilateral investment treaty (BIT) arbitration assume importance as India is currently battling 20-odd BIT disputes. These recommendations are largely on the issue of managing and resolving BIT disputes.

 

  1. Recommendations on Dispute management

For better management of BIT disputes,

  • The committee recommends the creation of an inter-ministerial committee (IMC), with officials from the
    • Ministries of Finance,
    • External Affairs and
    • Law ministry
  • It also recommends hiring external lawyers having expertise in BITs to
    • boost the government’s legal expertise;
    • creating a designated fund to fight BIT disputes;
    • appointing counsels qualified in BITs to defend India against BIT claims; and
    • Boosting the capacity of Central and State governments to better understand the implications of their policy decisions on India’s BIT obligations.
  • The most significant recommendation is the creation of the post of an ‘international law adviser’ (ILA) to advise the government on international legal disputes, particularly BIT disputes, and who will be responsible for the day-to-day management of BIT arbitration.

How will these recommendations amount to duplicating the existing arrangement?

The intent of augmenting the government’s expertise on BITs and designating a single authority to deal with all BIT arbitrations is laudable. However, this recommendation will amount to duplicating the existing arrangement to offer advice on international law, including BITs, to the government.

  • The Legal and Treaties (L&T) division of the External Affairs Ministry is mandated to offer legal advice to the government on all international law matters including BIT arbitrations.
  • Instead of creating a new office — which will only intensify the turf wars between ministries, and deepen red tape — the L&T division should be strengthened.
    • This division could be made the designated authority to deal with all BIT arbitrations and thus act as the coordinator of the proposed IMC.
    • Furthermore, the IMC should have a member from the Commerce Ministry as well. This ministry while dealing with India’s trade agreements — that also cover investment protection — works in tandem with the Finance Ministry. Thus it is only prudent that both be a part of an IMC on BIT dispute management.

 

  1. Recommendations on Dispute resolution

In resolving BIT disputes, the committee has made some useful interventions such as mentioning the possibility of establishing a BIT appellate mechanism and a multilateral investment court. However, its conclusion that the investor-state dispute settlement (ISDS) mechanism, given in Article 15 of the Indian Model BIT, provides an effective mechanism for settling BIT disputes between an investor and state is problematic for the following reasons.

  • First, Article 15 requires foreign investors to litigate in domestic courts at least for a period of five years. Such strict limitation periods dilute the effectiveness of the ISDS mechanism.
  • Second, there are many other jurisdictional limitations given in Article 13 that also limit the usefulness of ISDS.
  • Third, the ISDS mechanism in the Indian Model BIT covering issues such as appointment of arbitrators, transparency provisions, enforcement of awards, standard of review, which have a bearing on the efficiency of the ISDS mechanism.

The report is silent on all these critical issues.

Conclusion

BIT arbitration has three aspects: jurisdictional (such as definition of investment), substantive (such as provision on expropriation) and procedural (ISDS mechanism). While the commission’s mandate was to focus on BIT arbitration, i.e. on all the three parts, strangely, it narrowed it down to just the procedural aspect. The committee’s explanation that since issues like expropriation require greater debate, it decided not to make any recommendations on these issues is weak. Despite making some useful suggestions, the committee has squandered a great opportunity to comprehensively push for the recalibration of the Indian BIT regime, which has oscillated from being pro-investor to being pro-state.