Embracing arbitration

Indian companies should end their love affair with the country’s courts, argues Paul Mitchard QC

India’s eye-catching economic growth bears testament to the strong performance of its companies, particularly those that have ventured onto the international stage. But as history foretells, such expansion will almost certainly result in a rise in the number of commercial disputes between Indian companies and their foreign counterparts.

In my opinion, in almost all cases, Indian companies contracting with a non-Indian counterparty should adopt international arbitration as their dispute resolution method of choice. There are reportedly around 30 million cases pending across all levels of the Indian court system, by some accounts the largest backlog of cases in the world. Furthermore, it has been estimated that it takes anywhere between seven and 10 years on average for a judgment to be issued by a court of first instance in India. This means that even an Indian company, which may have significantly greater bargaining power than its foreign counterparty and may see advantages in having its disputes resolved by the Indian courts, should think carefully before insisting upon doing so. Even Indian businesses that believe they will only ever be the defendant in any lawsuit, and might therefore be expected to benefit from delays, may not relish the prospect of being caught up in interminable litigation.

Commentators within India and outside it frequently point to well-publicized scandals that have called the impartiality of the judiciary into question. Regardless of the veracity of such reports, it remains a perception among many international businesses that litigants in India’s courts are exposed to the risk of biased judgments. For this reason, it is highly unlikely that a foreign party seeking to contract with an Indian company would, if it has any bargaining power, agree to the Indian courts as the forum for resolving its disputes. For their part, Indian companies are often wary of litigating in the courts of the counterparty’s home jurisdiction, fearing bias in the opposite direction. A hearing before the courts of a neutral jurisdiction may still raise concerns, not least because of the absence of any sense of involvement in the dispute resolution process. What international arbitration offers to such parties is a neutral forum for resolving any disputes without one party receiving a “home-field advantage”.