Avoiding, settling or winning disputes post-investment

By Daniel H Sharma and Benjamin Parameswaran, DLA Piper
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Since the start of the liberalization of the Indian economy in 1991, thousands of Indo-European cooperations have been concluded. Most of these have taken place in India, but over the past five years Indian companies have increasingly invested in Europe.

In business cooperations, as in any marriage, there are good and bad days and if conflicts cannot be resolved, partners sometimes separate.

Value of mediation

Most contracts in Indo-European transactions provide for the resolution of disputes. Usually a period of informal negotiation or conciliation is to take place prior to arbitration or litigation.

Daniel H Sharma Partner DLA Piper
Daniel H Sharma
Partner
DLA Piper

However mediation, which is regularly used in the US and is gaining popularity in Europe, is yet to make its mark on the Indo-European corporate world. In most cases the parties to a dispute consider arbitration (or litigation) as the immediate next step if informal negotiations fail.

Using a mediator to resolve a dispute between an Indian and European party has great potential, as disputes often may be the result of a misunderstanding of the business culture or mentality of the opposite party. It is vital to use a mediator who knows both worlds.

If the parties can identify and manage their differing understanding of the issues at stake, chances are they can also agree on a modus operandi to continue their business relationship.

Arbitration in disputes

Parties resort to litigation or arbitration when they cannot resolve their conflict amicably. Although litigation is the traditional way to decide a dispute, it is well known that involving the courts frequently leads to delays.

Courts in India and also in parts of Europe are known to take their time and sometimes a first instance decision in 10 or 15 years is the rule rather than the exception. This also accounts for the use of provocative terms such as “the Italian or Belgian torpedo” to describe situations where one party uses a court to hinder or delay parallel dispute resolution proceedings (the European Court of Justice’s West Tankers decision has triggered substantial criticism in that respect). Thus, recommending arbitration in the Indo-European context has become and continues to be the industry standard, but an effective arbitration clause plays a key role.

The arbitration clause

Both India’s Arbitration and Conciliation Act, 1996, and arbitration laws in many European jurisdictions are based on the UNCITRAL Model Law, so arbitration agreements should, in principle, follow an international standard.

Benjamin Parameswaran Partner DLA Piper
Benjamin Parameswaran
Partner
DLA Piper

However, Indian courts are known to have interpreted the law in a less than arbitration-friendly manner. The main issue in this regard revolves around the applicability of Part I of the Arbitration Act, which deals with domestic arbitrations. In Bhatia Internbational v Bulk Trading (2002) and Venture Global Engineering v Satyam Computer Services (2008), the Supreme Court held that Part I of the act was applicable in international scenarios. These decisions, which have had to be followed by lower courts, increase, for example, the possibility of a court preventing the enforcement of an international arbitral award.

However, the recent Supreme Court decision in Videocon Industries Ltd v Union of India, might have set a more realistic benchmark to deal with Part I issues. In this decision the court stated that the agreement on a foreign venue and the applicability of a foreign law to an arbitration agreement may automatically mean that Part I of the Arbitration and Conciliation Act is excluded.

It remains to be seen how the courts will perceive this decision in the coming months. For the time being, Indian legal experts continue to recommend the specific exclusion of Part I in contractual arbitration clauses.

The seat of arbitration

Another important issue in relation to Indo-European arbitrations is the seat of arbitration. Although India has ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the government has notified only a limited list of countries as convention countries. Hence, non-Indian parties should note that if an award needs to be enforced in India, the seat of arbitration should be in a notified country.

As such, merely applying the model arbitration clause of a leading international arbitration institution might not be sufficient.

Daniel H Sharma, a partner in the litigation and regulatory group in Brussels and Frankfurt, and Benjamin Parameswaran, a partner in the corporate/M&A group who is based in Hamburg, jointly head DLA Piper’s India group for continental Europe. DLA Piper is the world’s largest legal practice with more than 4,200 lawyers in 76 offices across 30 countries. From its offices in Asia, Australia, Europe, the Middle East and the United States and through its partner firms in Africa and South America, DLA Piper provides a full range of legal services to local, regional and international businesses.

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