TAG: GS 3: ECONOMY
THE CONTEXT: An expert panel established to draft rules for an international arbitration centre at GIFT City has recommended significant changes to arbitration and mediation laws.
EXPLANATION:
- These recommendations aim to facilitate swifter out-of-court dispute resolution in India’s first International Financial Services Centre (IFSC).
Proposed Changes to Arbitration Laws
- One key recommendation is to impose a 21-day time limit for filing an appeal against an arbitral award.
- The Arbitration and Conciliation Act currently allows for a 90-day window for such appeals.
- Reducing this period is intended to prevent backlogs and expedite the dispute resolution process.
- The panel suggested that appeals against an arbitral award to the Supreme Court should be limited to Special Leave Petitions (SLPs).
- This would deter parties from frequently filing appeals, thus preventing cases from being prolonged in the courts.
Establishing an Alternative Dispute Resolution Centre (ADRC)
- The International Financial Services Centre Authority formed a committee in May 2023 to draft rules and guidelines for setting up an ADRC in GIFT City.
- The committee is led by M.S. Sahoo, former chairperson of the Insolvency and Bankruptcy Board of India.
- The panel proposed that arbitrations seated at GIFT City should be considered “international commercial arbitration.”
- This designation aims to attract more foreign companies to invest in India. To facilitate this, the panel seeks amendments to the arbitration laws.
- The panel recommended explicit changes to the Arbitration and Conciliation Act, allowing parties—whether Indian or foreign—to choose GIFT City or any other IFSC as the seat of arbitration.
- This change could position India’s IFSCs as attractive arbitration centres for foreign companies.
Judicial Framework
- The panel proposed creating a separate bench in the Gujarat High Court to handle issues arising from the GIFT City ADRC.
- Additionally, it suggested the eventual establishment of a separate high court dedicated to IFSC-related issues.
- However, while a separate bench is beneficial, a new high court could lead to increased litigation between the state high court and the special high court, potentially slowing the dispute resolution process.
Grading Arbitrators
- Competence and Conduct
- The committee debated a system for grading arbitrators, with most members opposing the idea, except for the chairperson.
- India’s arbitration and mediation laws already require professionals to meet a threshold level of competence and conduct.
- There is a mechanism in place to disallow individuals who fail to meet these standards from serving as mediators or arbitrators.
- Comparison with Insolvency Rules
- The chairman parallels the country’s insolvency rules, including a grading mechanism specifying the competence and conduct required to register as an insolvency professional.
- These rules also provide procedures to deregister professionals who must meet the required standards.
International Financial Services Centre (IFSC):
- An IFSC enables the return of financial services and transactions currently carried out in offshore financial centres by Indian corporate entities and overseas branches/subsidiaries of Financial Institutions (such as banks, insurance companies, etc.) to India.
- It offers a business and regulatory environment comparable to those of leading international financial centres like London and Singapore.
- IFSCs are intended to provide Indian corporates with easier access to global financial markets and to complement and promote the further development of Indian financial markets.
- The first IFSC in India has been set up at the Gujarat International Finance Tec-City (GIFT City) in Gandhinagar.
GIFT City
- GIFT (Gujarat International Finance Tec-City) City is located in Gandhinagar, Gujarat.
- It consists of a multi-service Special Economic Zone (SEZ), which houses India’s first International Financial Services Centre (IFSC) and an exclusive Domestic Tariff Area (DTA).
- GIFT City (Gujarat International Finance Tec-City) is envisaged as an integrated hub for financial and technology services in India and worldwide.
The International Financial Services Centre Authority
- The International Financial Services Centres Authority (IFSCA) has been established in 2020 under the International Financial Services Centres Authority Act, 2019.
- It is headquartered at GIFT City, Gandhinagar in Gujarat.
- The IFSCA is a unified authority for the development and regulation of financial products, financial services and financial institutions in the International Financial Services Centre (IFSC) in India.
- At present, the GIFT IFSC is the maiden international financial services centre in India.
- Prior to the establishment of IFSCA, the domestic financial regulators, namely, RBI, SEBI, PFRDA and IRDAI regulated the business in IFSC.
