4 May 2012
Foreign companies wishing to conduct business in India have tended favour international arbitration as a dispute resolution mechanism, mainly due to a widely held perception that Indian Court system is overburdened and severely backlogged.
Although India ratified the 1958 Convention on the Recognition Enforcement of Foreign Arbitral Awards ("New York Convention
") in 1960, it would be reasonable to assume that an arbitral award issued in a New York Convention country would be readily enforceable in India. However, the Indian Arbitration and Conciliation Act 1996 requires the Indian Government to formally notify the New York Convention country for a foreign award to be enforced. Currently, approximately 44 of the 146 New York Convention countries have been officially notified and included in India's Official Gazette.
One substantial omission to India's gazetted countries was the world's second largest economy, China (which includes Hong Kong). On 19th March 2012, the Indian Government announced the expansion of the Official Gazette to include China. Arbitration awards from China or Hong Kong must now be recognised and enforced by Indian courts.
Despite the fact that both Hong Kong and Singapore have excellent infrastructures, strong independent judiciaries, sensible pro-arbitration legislation, and are members of the New York Convention, parties to agreements with an Indian connection have traditionally chosen Singapore as their seat of arbitration in Asia rather than China or Hong Kong largely due to the fact that a Chinese or Hong Kong award was incapable of enforcement in India.
Gazetted several years ago, Singapore has greatly benefited from its inclusion in the Indian Official Gazette. Indeed, the Singapore International Arbitration Centre actively promoted Singapore over Hong Kong as the only viable neutral seat in Asia for an arbitration with an Indian connection. The impact of this development is yet to be felt, but raises the possibility of more parties choosing to arbitrate disputes in Hong Kong, which, with its history of English common law and large community of arbitration practitioners is likely to become an alternative attractive neutral law venue for international businesses wishing to resolve disputes arising out of their Indian investments.
With the addition of China and Hong Kong to India's Official Gazette, any doubts as to the possibility of enforcement in India of Chinese or Hong Kong arbitral awards are substantially clarified. However, the practicality of the enforcement of foreign arbitral awards in India remains fraught with difficulty. As well as adopting both the reciprocal and commercial reservations under the New York Convention, in a 2003 decision the Indian Supreme Court suggested that even foreign awards could be reviewed under an expanded "public policy" ground. A publication issued by the Indian Ministry of Law has sought to limit the impact of the public policy exception but there remains an element of uncertainty which is likely to lengthen the timeframe (and therefore increase the costs) of enforcement proceedings in India.
The inclusion of China and Hong Kong in India's Official Gazette has been attributed to the increase of Sino-Indian trade and whilst its inclusion has been much welcomed by the arbitral community in Mainland China, it is likely that Hong Kong will benefit most as a seat for international arbitrations.
For inquiries related to this Legal Update, please contact David Boyle
, James Rix
, or your usual contacts with our firm.
Learn more about our Hong Kong office
, PRC offices
and International Arbitration