On July 16, 2024, the Expert Committee on drafting institutional arbitral rules for the International Arbitration Centre at GIFT IFSC submitted its report to the Chairperson of the International Financial Services Centres Authority (IFSCA). The Committee, chaired by Dr. M. S. Sahoo, was established following the Finance Minister’s 2022-23 Budget announcement to create an International Arbitration Centre in GIFT City for timely dispute resolution under international jurisprudence. Over seven meetings, the Committee reviewed frameworks of prominent arbitration centres such as SIAC, SICC, HKIAC, LCIA, and DIAC, and consulted international dispute resolution professionals. Key recommendations include adopting global best practices, including technology and third-party funding, allowing foreign lawyers’ representation, and setting up a dedicated judicial framework for IFSC. The report also proposes amendments to the IFSCA Act, the Arbitration and Conciliation Act, and the Mediation Act to enhance party autonomy, expeditious arbitration, and enforceability of awards. The aim is to develop a comprehensive ADR Centre offering arbitration and mediation while accommodating future dispute resolution methods. This initiative aligns with the Government of India’s vision for GIFT IFSC as a global hub of financial and technological services, ensuring a robust mechanism for swift and fair dispute resolution, thereby attracting international businesses and investors. The full report is accessible on the IFSCA website.
INTERNATIONAL FINANCIAL SERVICES CENTRES AUTHORITY
IFSCA
PRESS RELEASE
Report of the Expert Committee for drafting institutional arbitral rules for the proposed International Arbitration Centre at GIFT IFSC submitted to IFSCA
The Expert Committee on drafting institutional arbitral rules for the International Arbitration Centre at GIFT IFSC has submitted its report to the Chairperson, IFSCA on July 16, 2024. The Committee was set up by IFSCA pursuant to the announcement of the the Hon’ble Finance Minister in the Union Budget for FY 2022-23 that “An International Arbitration Centre will be set up in the GIFT City for timely settlement of disputes under international jurisprudence”.
2). The Expert Committee (Committee) under the chairmanship of Dr. M. S. Sahoo, former Chairperson of IBBI with other legal experts in the field of Alternative Dispute Redressal (ADR) mechanism was set up to draft the institutional arbitral rules for the proposed International Arbitration Centre at GIFT IFSC and to suggest regulatory design, legal framework including rules and procedures for the proposed dispute resolution center. The Arbitration Centre in IFSC would be based on international jurisprudence focusing on dispute redressal in a speedy and cost-effective manner.
3). The Committee had deliberations over seven meetings and examined the regulatory and institutional frameworks of well-established institutions such as Singapore International Arbitration Centre (SIAC), Singapore International Commercial Court (SICC), Hong Kong International Arbitration Centre (HKIAC), the London Court of International Arbitration (LCIA), and Dubai International Arbitration Centre (DIAC) among others. It also engaged with international dispute resolution professionals and representatives from dispute resolution centres to take their feedback and accordingly suggest design for an effective and competitive Alternative Dispute Resolution Centre (ADRC) at the GIFT-IFSC.
4). The recommendations of the committee inter-alia include:
(i) Emulating the international best practices from major jurisdictions, such as use of technology, third party funding, representation by foreign lawyers, etc;
(ii) Regulatory architecture for the ADRC, wherein amendments are proposed under IFSCA Act, 2019; Arbitration and Conciliation Act, 1996 and the Mediation Act, 2023 to provide choice of governing law for the parties, recognizing third party funding, dedicated bench for hearing the appeals and application for arbitration seated at IFSC, etc;
(iii) Institutional framework for ADRC wherein committee has recommended legal structure, administrative structure, governing framework for ADRC, etc.; and
(iv) A judicial framework for the IFSC wherein a dedicated court structure in various phases has been recommended.
5). The report of the Expert Committee can be accessed on the IFSCA website at https://shorturl.at/CExX9
July 16, 2024
Gift City, Gandhinagar
EXECUTIVE SUMMARY OF THE REPORT
1. Gujarat International Finance Tec-City (GIFT City) houses India’s maiden International Financial Services Centre (GIFT-IFSC). The GIFT-IFSC provides services related to capital markets, insurance, banking, asset management, alternative investment funds, aircraft and ship leasing, and ancillary services. The Government of India has a clear vision and plan for the GIFT-IFSC. The Indian Finance Minister articulated:1 “Government’s vision for GIFT-IFSC transcends much beyond the realm of traditional finance and ventures into the realm of thought leadership. We envision it as the true embodiment of Atmanirbhar Bharat, a hub of ingenuity and innovation.” The Prime Minister of India reiterated the government’s commitment to take the GIFT City beyond traditional finance and ventures: “We want to make GIFT City the Global Nerve Center of New Age Global Financial and Technology Services”, he said as he expressed confidence that the products and services provided by GIFT City will help solve the challenges facing the world and the stakeholders will have a huge role to play.2
2. A financial product is a bundle of contractual rights and obligations. The quality of the product depends on the quality of the institutions that ensure contract enforcement, including the resolution of disputes arising from the associated contracts. That is why a financial product in one market/ jurisdiction differs from a similar product in another market/ jurisdiction, unlike physical products which are more or less uniform across geographies. A market is preferred where the institutions for contract enforcement and dispute resolution are better, which is a key parameter of competition among international financial services centres (IFSCs). Some market segments like the trading of securities have institutionalised processes that generate contracts online and enforce them automatically, minimising contract failures and disputes.
3. Yet, it is extremely important for an IFSC to have a robust mechanism for dispute resolution to assure businesses and investors that their disputes will be resolved swiftly, fairly, and professionally if any of their transactions end up in dispute. Most global financial centres provide tailor-made dispute resolution services to maintain their attractiveness. Globally, there is a marked preference for alternative dispute resolution over traditional resolution by the judiciary. Indians are increasingly opting for the resolution of their disputes at ADR institutions outside India. Catering to Indian disputants has become a top priority for such institutions as they constitute the leading foreign users of their services. A recent landmark judgment of the Supreme Court of India has given its seal of approval to Indian parties opting for a foreign seat of arbitration.3 The global market for alternative dispute resolution services is estimated at USD 14.50 billion by 2030.
4. As reiterated in the vision, IFSC is not just a financial centre; it is to be a hub of ingenuity and innovation. India has a huge natural hinterland as well an abundance of competent professionals, and a flourishing commercial jurisprudence, which has the potential to support efficient and cost-effective alternative dispute resolution services. In recognition of this potential, the need, and vision, the Union Budget for 2022-23 proposed: “An International Arbitration Centre will be set up in the GIFT City for timely settlement of disputes under international jurisprudence.”4 Accordingly, the International Financial Services Centres Authority (IFSCA) constituted an Expert Committee comprising legal luminaries and market experts to draft institutional arbitral rules for the proposed International Arbitration Centre (IAC) at GIFT City and matters incidental thereto, including suggesting a roadmap for making it a hub for alternative dispute resolution for international financial and commercial disputes and recommending a regulatory and legal framework for the proposed dispute resolution centre.
5. There are several international arbitration centres in the world. There are also arbitration centres in India under Indian statutes, though they are yet to reach the scale seen internationally. Replication of either model may not be entirely suitable for IAC in the GIFT City. The IAC should gel well with the relevant Indian statutes while emulating the global best practices in terms of technology as well as rules and procedures. Further, the provision for a standalone arbitration centre may not be adequate to meet the varying needs of the users, who may like to have various options for dispute resolution, including mediation. Therefore, the Committee has proposed a framework for an effective and comprehensive Alternative Dispute Resolution Centre (ADRC).
6. The Expert Committee studied the regulatory and institutional frameworks of well-established institutions such as Singapore International Arbitration Centre (SIAC), Singapore International Commercial Court (SICC), Hong Kong International Arbitration Centre (HKIAC), the London Court of International Arbitration (LCIA), and Dubai International Arbitration Centre (DIAC) among others. It engaged with international dispute resolution professionals and representatives from dispute resolution centres to understand the design features of an effective and competitive ADRC at the GIFT-IFSC. These helped the Committee to lay down the following guiding principles for the design of the ADRC:
- Party autonomy is the foundation of a successful ADRC. The parties to the dispute at GIFT City ADRC shall have unfettered freedom of the choice of the law and dispute resolution professional for the resolution of their disputes;
- The ADRC shall provide comprehensive alternative dispute resolution services to meet the diverse needs of the parties to the disputes. It shall provide traditional alternative dispute resolution services like arbitration and mediation, but also any hybrid of them and emerging alternatives, online, off-line and assisted online, for all kinds of commercial, financial, and other disputes, between/ among parties like private-private, government-private, and government-government, domestic and foreign;
- The ADRC shall adopt the global standards of resolving international commercial disputes, including its autonomy to modify its rules and procedures with ease to keep up with the fast-changing times and user demands in dispute resolution; and
- The institution shall be fully equipped to harness and integrate evolving technologies to enhance the efficiency and effectiveness of the dispute resolution process at ADRC.
7. The Committee has recommended a framework for the ADRC that provides arbitration and mediation to start with but has the flexibility to accommodate other forms of alternate dispute resolution mechanisms, including the forms that may evolve in the times to come. The specific recommendations of the Committee are discussed below.
8. Statutory Framework
8.1 The International Financial Services Centre Authority Act, 2019 is an umbrella legislation that enables the use of Indian statutes with certain modifications to the activities and entities in the GIFT-IFSC. This is also the typical approach with most other international financial centres. The Committee, therefore, proposes using four extant legislations, namely, the International Financial Services Centre Authority Act of 2019, the Arbitration and Conciliation Act of 1996, the Mediation Act of 2023, and the Special Economic Zones Act of 2005, with minimum changes, to develop and support the ADRC. These changes will be introduced through an amendment to the IFSCA Act, inserting the Third Schedule that amends the other three enactments only to the extent they apply to arbitrations seated at IFSC and other ADR mechanisms having a place of resolution at IFSC. [Para no. 4.9] A draft bill to amend these legislations is in Annexure III.
8.2 The extant statutes envisage the Arbitration Council of India (ACI) and Mediation Council of India (MCI) for developing and regulating arbitration and mediation in the country. Every regulation made by ACI, however, may not be equally helpful for arbitration in mainland India as well as for the ADRC in the GIFT City. In that case, carve-outs from or amendments to such regulations would be necessary to meet the needs of the ADRC in the GIFT City, just as amendments to the Arbitration and Conciliation Act are now proposed. In the alternative, the MCI may make two sets of regulations- one for mediation in mainland India, and the other for the ADRC in the GIFT City. This may not be practical, particularly when such regulations require prior approval of the Central Government. The Committee, therefore, proposes modification of statutes to enable IFSCA, which is practically an international regulator and closer to the ADRC, to discharge the duties and functions of the ACI and MCI in relation to the ADRC in the GIFT City. This may not be burdensome as the Committee envisages a relatively lighter role for ACI and MCI in relation to the ADRC. [Para no 4.10.2 – 4.10.4].
8.3 The law needs to unambiguously allow Indian parties the choice of governing law for dispute resolution through arbitration. For example, if an international corporation decides to set up its aircraft leasing at GIFT City and it wishes to enter into long-term, high-value aircraft leases with companies all over the world, including India, it should not be restricted in the choice of law and courts for enforcement for its contracts. The Committee, therefore, proposes to allow the parties, Indian or foreign, to a contract to opt for IFSC as a seat for arbitration, and if they do so, they would have the option to choose foreign or Indian governing law – law of contract, law of arbitration and jurisdiction. This needs to be explicitly provided in the Arbitration Act to avoid possible challenges on the grounds of public policy envisaged under the Indian Contract Act. [Para no 4.11.5 – 4.11.19]. A similar amendment is not required in the Mediation Act, since mediation is not an adjudicatory mechanism and the place of mediation does not hamper party autonomy.
8.4 ADRC envisages the resolution of disputes emanating from contracts executed anywhere in the world under laws of any jurisdiction among the parties from any nation. In such cases, arbitration acquires true international character, and therefore arbitrations seated at GIFT City should be considered as ‘international commercial arbitration’ under the Arbitration and Conciliation Act, 1996. The Committee proposes an amendment to the Act to this effect. This shall automatically ensure that any court assistance required to bring these arbitrations to fruition shall be provided by the High Court. [Para no 4.11.2 – 4.11.4] A similar amendment is proposed in the Mediation Act of 2023 to ensure mediation-related disputes from GIFT City are referred to the High Court. [Para no. 4.13.2]
8.5 The law should provide for an expeditious arbitration process as well as the enforcement of awards. To expedite the process, parties may have a choice to have document-only arbitration. Further, the ADRC may have standard operating procedures that provide for timelines for each step of the arbitration process. Failure to adhere to timelines should attract financial disincentives for professionals. [Para no 4.11.20 – 4.11.21] The parties should be discouraged from resorting to multiple rounds of judicial challenges and/or refusing to enforce arbitral awards, with or without a court order. To minimise judicial challenges, an application to set aside an arbitral award should be filed within 21 days from receipt of the award. The Court should dispose of applications to set aside arbitral awards and appeals within 90 days from the submission of all written pleadings. Adequate case management systems should ensure adherence to timelines for the submission of written pleadings and avoid unnecessary extensions of time. Further, a second appeal can be preferred to the Supreme Court of India only by way of special leave petitions. [Para no. 4.11.22 to 4.11.25]
8.6 Disputes tend to hamper liquidity available for businesses. Third-party funding of arbitrations has emerged to address this. Such funding is permissible under the laws in India if it is not provided by the professional engaged in dispute resolution. However, the Arbitration and Conciliation Act of 1996 discourages it by disallowing the sharing of updates concerning the arbitration with the third-party funder. The Committee, therefore, recommends that third-party funding in GIFT City may be expressly permitted through subordinate legislation to align with practices in established financial centres like Singapore, Hong Kong, and Dubai. Adequate rules, standard operating procedures, and guidance notes for arbitrations ensuring proper disclosure of such arrangements, avoiding conflict of interest situations, and overcoming barriers of privilege and security for cost orders are also recommended. [Para no 4.11.26 and 4.14.6]
8.7 The Committee had in-depth deliberation for and against accreditation and grading of ADR professionals which is part of the terms of reference of the Committee. The majority felt that such a practice is dated and hampers party autonomy. Accordingly, the provisions relating to accreditation and de-accreditation in the Arbitration and Conciliation Act and the Mediation Act shall be deleted. [Para no 4.11.27- 4.11.28] and [Para no. 4.13.3]
8.8 The Special Economic Zones Act, 2005 provides for dispute resolution in SEZs. This Act applies to the GIFT City which is a SEZ. Since a dedicated and comprehensive ADRC is being proposed for dispute resolution in the GIFT City, the provisions relating to dispute resolution under the SEZ Act shall not apply to dispute resolution in the GIFT City. [Para no. 4.12]
8.9 At present, GIFT City has an IFSC. Over time, the country may have many IFSCs. The statutory framework now proposed should apply to ADRCs located in IFSCs, existing or that may come up in the future.
8.10 The laws may be amended to enable the development of an ADR ecosystem that facilitates institutional service providers to provide ADR services at the ADRC in the GIFT City.
9. ADRC Structure
9.1 Usually, the market on its own does not come up with such institutions as ADRC. The authorities cajole and incentivise the market to promote ADRC and they support the ADRC in all possible manners in the initial days to demonstrate their commitment to the institution and build the trust of stakeholders. For example, the Government, in association with the trade associations and professional bodies, commenced major ADR institutions in the United Kingdom and Singapore but released them from its shadow soon after to operate autonomously. The Committee, therefore, recommends that the Government and the IFSCA promote the setting up of the ADRC and facilitate its operations in the initial days, including financial support preferably by way of grants. They must not influence the working of the ADRC to build the right perception that the ADRC is truly autonomous and professionally run.
9.2 The Committee recommends that the ADRC shall be established as a section 8 company (not-for-profit) under the Companies Act, 2013. [Para no 5.2.1- 5.2.5] It is the typical structure adopted by all international institutions providing ADR services to avoid conflict of interests. The shareholding of ADRC shall be governed by the following guiding principles: (a) No conflict of interest, (b) Prevention of undue concentration of shareholding, and (c) Fair representation through representative institutions. The shares of the ADRC shall be available for subscription only to institutions and not individuals. The holding of an institution, along with persons acting in concert, maybe pegged at 5%. [Para no 5.3.1- 5.3.4]
9.3 The ADRC’s governance structure will include a Board of Directors responsible for corporate governance and regulatory compliance, an International Advisory Council comprising 10-15 global experts providing strategic guidance, an Executive Council offering procedural counsel to the Secretariat, and a Secretariat managing day-to-day operations, headed by a CEO. [Para no 5.4.3- 5.4.12]
9.4 The ADRC shall be autonomous with its own self-regulating institutional rules of procedure. It shall amend its rules and issue guidance notes for practitioners on its own from time to time like any other international ADRC. The process of amending the Rules of ADRC should be minimalistic so that they can keep up with evolving international trends. The institutional rules of the ADRC shall include aspects such as a robust case management system, expedited timelines, foreign representation, use of technology, multi-lingual awards, and foreign industry experts among others. They should allow for ease of day-to-day operations and fast decisions on any technical issues faced by administrative staff. They should disincentivise frivolous challenges to proceedings through measures such as the imposition of penalties and disincentives for neutrals engaging in behaviour that induces delays. A draft of the rules proposed for arbitration proceedings and mediation meetings is provided in this Report. [Annexures IV and V]
10. Court system for GIFT-ADRC
10.1 For ADR users to derive actual value from arbitration and mediation, enforcement of awards and mediation settlement agreements need to be fast-tracked. The Committee recommends a three-phase transition of the court system for the ADRC. In Phase I, immediately with the constitution of ADRC, a bench of the Gujarat High Court shall be designated for matters arising out of the ADRC in the GIFT City. This does not require any statutory change. In Phase II, a separate High Court shall be established for all IFSCs in India. This High Court shall be named IFSC International Court and shall have all powers of a High Court other than the writ and criminal jurisdiction. This Court shall act as the court of first instance and the court of appeal for all ADR matters arising from IFSCs. In Phase III, international judges may be allowed to sit in the IFSC International Court. This is the prevalent practice in Singapore and Dubai. Many retired Indian judges are already providing their services abroad to ease the interpretation of Indian law. Phase II and Phase III may require amendments to the Constitution of India. Countries like Singapore and Dubai have amended their respective constitutions to allow international judges.
10.2 To expedite the enforcement of arbitral awards passed in an arbitration having the seat at an IFSC, the Committee recommends developing Special High Court Rules for IFSC Courts. These Rules should allow the International IFSC Court to have exclusively designated officers such as registrars and bailiffs to ensure the effective execution of awards and judgments. The need for detailed case management rules and provisions for cost for the delay in statutes is emphasised. [Para no 6.4.15- 6.5.11]
10.3 The majority agreed that the number of appeals against arbitration awards should be reduced to provide a competitive advantage to the ADRC. Therefore, parties may file an application to set aside arbitral awards, however, if they’re dissatisfied with the order, they may approach the Supreme Court under Article 136 (Special Leave Petition) rather than filing an appeal. [Para no 4.11.25]
11. Alternate Dispute Resolution Professionals
11.1 The majority (except the Chairman of this Committee, Dr. Sahoo) held the view that the ADRC shall not have any system of accreditation and de-accreditation of professionals who may provide services at the ADRC. To this extent, provisions in the Arbitration Act and the Mediation Act shall not apply to the alternate dispute resolution professionals in GIFT-ADRC. The ADRC, however, shall have a database of available neutrals for instances where parties themselves request the appointment of a neutral. [Para no 5.6.1- 5.6.7]
11.2 Dr. Sahoo has submitted a different view annexed to this report arguing for a system that allows an individual, who meets a threshold level of ability and conduct, to practise a profession, and debars him from practising whenever he fails to meet the norms. [Para no 5.6.5 & Annexure I ]
11.3 The GIFT-ADRC shall have a code of ethics to which all dispute resolution professionals must adhere. The professionals providing their services to the ADRC shall be required to sign a declaration stating that they shall abide by the code of ethics while providing services in the ADRC. [Para no 5.5.7]
12. Roadmap
12.1 The Committee suggests that the work relating to the setting up of ADRC should be initiated by IFSCA, while parallelly trying to achieve the statutory amendments recommended in this Report. This will include establishing the secretariat and inviting experts to the international advisory committee and executive committee, and facilities for online dispute resolution to ensure easy access to ADRC. Key steps and way forward are elaborated in this Report. [Para no. 7.1 to 7.8] This should be accompanied by taking the High Court of Gujarat in confidence to set up a separate bench of the High Court for all ADR matters arising out of GIFT City.
12.2 After setting up the ADRC, its facilities should be marketed and promoted through roadshows, social media campaigns, workshops, conferences, and seminars in India and internationally to build a brand identity and gain visibility among its target user base. International personalities of eminence in the field of dispute resolution must be engaged to enhance ADRC’s global visibility while attracting foreign investors and strengthening the overall reputation of the Centre among its international counterparts. [Para no 7.8.1]. International businessmen and professionals may be invited to GIFT City to witness the capabilities and potential of ADRC first-hand and they should become ambassadors of the ADRC. [Para no 7.3 – 7.6]
12.3 A real-time centralised database should be instituted that captures data on ongoing matters, tracks progress and provides information on engaged dispute resolution professionals and case management officers. This public database can help facilitate easy access to crucial information, reducing delays, and ensuring accountability. [Para no 7.9.1] A Standing Committee should be constituted for GIFT-ADRC which regularly evaluates data relating to processes and outcomes to draw lessons and suggest evidence-based changes to the legal and regulatory framework governing the ADRC. [Para no 7.7.1 – 7.7.3]
12.4 Visa and work pass facilitation should also be streamlined for foreign dispute resolution professionals. [Para no 7.12.1 – 7.7.3] The registration procedure for foreign lawyers and law firms in IFSC may be restructured and streamlined like other established jurisdictions like Singapore and Hong Kong to allow foreign practitioners to represent their clients in arbitrations and, if necessary, court proceedings arising out of ADRs at the IFSC International Court. Concessional policies and avoidance of double taxation should also be facilitated to attract foreign dispute resolution professionals. [Para no 7.10.1 – 7.11.4]
