[Economy] Arbitration Act: Foreign Investment disputes

SubscribeZ-Miscellaneous

  1. What is Arbitration?
  2. Arbitration Act
  3. Why in News?
  4. Implication of SC Judgment

What is Arbitration?

  • For smooth functioning of business and industry, Quick decision of any commercial dispute is necessary.
  • Internationally, it is accepted that normally commercial disputes should be solved through arbitration and not through normal judicial system
  • An arbitrator is basically a private judge appointed with consent of both the parties.
  • Object of arbitration is settlement of dispute in an quick, convenient, inexpensive and private manner so that they do not become the subject of future litigation between the parties.

Arbitration Act

  • Indian Parliament made Arbitration Act in 1996.
  • It deals with Arbitration process.
  • Suppose American company and Indian company made some business deal and then had some dispute. Both of them went for Arbitration in America and the American arbitrator gave an orderIndian company is guilty and it should transfer its Ahmedabad’s factory to that American company”.
  • This order is called “Foreign Award”.
  • Now to implement or enforce this award, The American company has to send a copy of this judgement to the concerned Indian court in Ahmedabad and that Indian court will pass an order that “Indian Company shall transfer the ownership of Ahmedabad’s factory to that America Company before xyz date”.
  • One advantage of foreign award, according to foreign parties, is that Indian courts come into picture only at the time of implementation of award.
  • And the Indian courts can refuse to implement the award only on limited grounds.

Why in News?

  • 10-years ago, Supreme Court had given a ruling that Indian companies can approach Indian courts against unfavorable awards by foreign arbitration panels.
  • But in Sept.2012,  Supreme Court said in a judgement that if an Indian investor chooses to go for arbitration with a foreign company abroad, Indian courts would have no jurisdiction to interfere with the arbitration award unless provided under law.

Implication of SC Judgment

  • Foreign companies have so far found it extremely difficult to get foreign arbitration awards against their Indian partners enforced through Indian courts because courts would stay the award saying they have the jurisdiction to do so.
  • But now Supreme court has said that Indian courts have no business to interfere with such foreign judgments, hence It’ll create a more investor-friendly atmosphere for foreign companies intending to set up shop in India.

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