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Bleeding By Arbitration

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The legal world has, like every other, an ever changing flavour of the month. One that has endured is called Alternative Dispute Resolution. This means that if you had your butt kicked and need help, or if you want to kick butt, you don’t go to court: your go to a private dispenser of justice. Considering that the courts in India are frequently all that lies between you and your utter and irredeemable descent into anarchy, should you be paying the slightest attention to the idea that justice needs privatising? The answer is a lot more complicated than the question.

So back to first principles: what is the case for using arbitration to settle disputes? If you ask a lawyer, you will hear variations of some of the following. It is cheaper because you don’t pay court fees; it is quicker because you get frequent dates of hearing at convenient times; you will; get better results because you can pick the right and relevant expert as an arbitrator; and finally, it’s simpler because formal court procedures and you don’t get stuck with a lot of procedural stuff. That is an impressive list. It’s also largely balderdash in the desi context!

Why sayeth I? I am going to put my client’s money where my mouth is with five examples, all culled from my own law practice so each is true (if only because you can’t make this stuff up!). In arbitration under Indian law between a Telecom PSU and a service provider featuring a Rs 300-crore claim, we had one Supreme Court judge as arbitrator. Each party spentabout 30 lakh in fees but we had 60 sittings over half a decade and then the arbitrator died. It took all of 15 years to see the end of this one, in which time I went from being thebastavakeel(the bag carrier!) to the managing partner of a law firm! Here’s another case. In a Rs 20-crore arbitration under Indian law between a leading real estate developer and the owner of a commercial plot of land, we had three judges as arbitrators. Seven years and 40 hearings on, each party has spent Rs 20 lakh in costs, one judge becameincreasingly deaf and resigned and the saga continues.

For my domestic arbitration case, I take you to a wildly exaggerated Rs 250-crore claim between an Indian and a European joint venture partner pertaining to a company with a capital of some 3 Crores!Over six years, the three judges had 103 sittings to get to the final arguments before award stage. At this point, they allowed an amendment which increased the claim to 450 Crores and the witness statement procedure started again. In this period, the arbitrators have accepted 1.5 Crores in fees and the client is the poorer by some 7 Crores in total litigation cost with no result in sight.

As opposed to this, let me cite two international arbitrations. Ina Rs. 15 Crore claim between an Indian Internet company and a PE Fund under ICC rules, the Sri Lankan arbitrator decided the case in five months, taking eight continuous days to record all evidence and hear arguments. It cost the client Rs. One Crore but it recovered its claim within the year. Here’s another. Between an Indian and aBritish JV partners where Rs 50 Crores was demanded in compensation for breach of contract, a senior British lawyer acted as the arbitrator under UNICITRAL rulesand decided the case in 17 months holding only three sittings! It cost each party about 50 lakhs.

The question that shakes us by the scruff of the neck is this: what makes arbitrations in India so difficult and tardy? After 33 years of law practices, I put it down to the 5 Great Paradigms of Desi Arbitration. Behold the tedium to disclose what everybody already knows!

First up are the Wages of Buffalo Jurisprudence. You will find the foundation of this domestic school of jurisprudence explained in my book “Bullshit Quotient”. In essence, it means that if you wish to assert control over the village buffalo, you must grab it and take it home before the legal conflict begins. In any legal conflict, your first task is to go grab the property, withhold payment of what you owe, unreasonably invoke a bank guarantee if you have one, trespass into the disputed property and so forth. The main trick is to anticipate and pre-empt the opposition. Naturally, when this happens, the other guy goes to court and then you get yourself a first rate war for stay orders from which appeals lie and then appeals lie from appeals. By the time the warriors have stabilised the “interim situation”, some years have passed. This is when the parties heave a sigh, admit they can’t change the reality on the ground and start the arbitration. Shorn of the embellishments, the point is this: since our legal system works best for the guy who exhibits bad faith, arbitration is doomed to delay.

Next up is the Indian Arbitrator Paradigm. In our low trust society, no one settles for less than a high court judge as an arbitrator, frequently three. That’s thrice the cost and thrice the logistic complexity. It does not help that these judges are trapped in the code of civil procedure mind set, meaning that the reasons that delay court proceedings also delay arbitrations. These judges are retired which means that they are on a leisurely (and lucrative) time-pass. The revenue stream is too attractive not to perpetuate, and the mind is too vanprastha oriented not to priorities family affairs and vacations over work. Indian judges’ start arbitration work after the Constitution of India thinks they are too old to administer justice! Given the years these things go on, you could be addressing a Teflon mind to which nothing sticks. Heavens help you if you find yourself confronting a Rogue Arbitrator, meaning not necessarily someone corrupt but someone with a great sense of self-worth, a natural tendencyto consider everyone else a fool and a mind that is slip sliding away. Indian law make him hard to remove and besides, the judiciary may not be too sympathetic to an attack on someone so accomplished in his declining years. Basically, he can go on forever, till death do you part.

Third, there is the Indian lawyer paradigm. There are no specialist arbitration lawyers in India, meaning guys who won’t do something else even if they could. What the code of civil procedure does not protract, the priority given to court work does. Arbitration hearings are structured after court hours, on weekends, during vacations, after vacations. Variable fee structures are always a disincentive to quick disposal of cases. Since it is not the karmic burden of a defence lawyer to help the plaintiff, 50 per cent of the bar is always obstructive anyway so perhaps we should demand no more.

That takes us to Paradigm Four: Indian legal costs. Indian High Court arbitrators charge in the ball park of Rs. 25,000 to 50,000 per sitting and sittings don’t lasts longer than 2 hrs. Given the retired status of the arbitrators, 25% of the time is spent in the tea-pakora-cookie breaks and another 25% in tedious renditions of hamarezamanemein stories. In that one hour, you have to find a way to achieve any result at all. I will tarry on the sense of entitlement. Everyone in the game demands luxury hotels, quality meals and first class facilities. If it’s an outstation visit, you can add super luxury suites, business class tickets and exotic Islay malts. The lawyers are no cheaper so you end up with a burn rate of 2 lakhs for a local brief, three times as much if the arbitration is out of station. The same guys will argue a case all day in a court without air conditioning and then eat a crappy dal fry with roti in the lawyer’s canteen on the normal working day. 

This brings us finally to the last of them: the Indian courts paradigm. It could be skulduggery - in which we as a nation so dearly love to believe - or it could be just a deteriorated mind but the quality of many arbitration awards is deeply suspect. So while we all want courts not to interfere with arbitration awards in theory, I for one am delighted that Indian courts are happy to do so because truly, arbitrators do some very strange things. Year after year, the scope of challenge to arbitration awards is widening as courts look at weirder and weirder awards. The upshot is that protracted arbitration hearings are followed by protracted court procedures. As often as not, the arbitration award is upturned meaning that you can now crank the circus up all over again.

Where does that leave the incomprehensible idea that arbitrations work because they are cheaper and quicker? As a manic nationalist, it brings me no pleasure to say this but yes, arbitrations work on foreign shores. We have seen that foreign arbitrations are not cheap in rupee terms but they are quick. This is the best there is by way of alternative dispute resolution. The logistics are good (few hearings), Indian courts cannot by law interfere and enforcement is painless if enforced abroad. An arbitration award against a resident Indian is of course another kettle of aging sushi suffering a power cut in a Jaisalmer summer.

The upshot of this is that if arbitrate you must, write a clause that takes you out of India. You can rely on Indian law – our law of contracts is okay – but you can’t have the arbitration in India using domestic retired judges. You also cannot run arbitration if there is no strong arbitration secretariat with clear rules overseeing the procedural side of things. For my money though, my firm doesn’t recommend inserting arbitration clauses in domestic contracts at all on the principle that the exotic buffet spreads and the single malts after the hearing are just fun and games on the way to a review of the entire arbitration by a court. For all its failings, it just makes sense to cut to the chase and go to court in the first place.

(The author is managing partner of the Gurgaon-based corporate law firm N South. He is the author of “Winning Legal Wars” and “Bullshit Quotient: Decoding India’s corporate, social and legal Fine Print”. He can be contacted at [email protected]).