Commercial disputes in India are slow, costly and all too likely to end in stalemate. Meticulous planning and the careful selection of advisers are crucial factors in achieving a successful outcome By Ben Frumin in New Delhi
Nick Archer, an international dispute resolution partner at Slaughter and May, had flown into New Delhi from London. Two of his clients had flown in from Denmark. They had a hearing scheduled before the Monopolies and Restrictive Trade Practices Commission in India’s teeming capital to deal with allegations that a Danish manufacturer was dumping catalysts in the Indian market.
Archer and his clients arrived a couple of days before the hearing. They stayed at the upscale Oberoi hotel and met with the senior counsel who would later argue their case in court.
When they showed up at the tribunal, however, their hearing was immediately adjourned. Nothing was explained and even less accomplished. Archer’s Danish clients were soon on a plane back to Europe.
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On his way out of the court, Archer saw a list of all cases before the commission in final hearings. Of the handful of cases listed, his was the only one that had not begun in the 1990s – it had started in 2002. Perhaps his clients were relatively lucky.
Compare this to the experience of Bob Nelson, a partner at Thelen Reid Brown Raysman & Steiner in San Francisco, who acted as the lead outside lawyer for Bechtel and GE in connection with the shutdown and restructuring of the now-infamous US$3 billion Dabhol power project.
“After four years of litigation we were never able, in the context of the Indian courts, to have the ability to have the owners of 85% of Dabhol Power Company be entitled to run Dabhol Power Company,” says Nelson. He estimated that more than 10,000 lawyer hours, more than US$5 million in legal fees and over 100 court appearances went into the litigation.
Constructing a case
Disputes in the infrastructure sector present unique challenges
The market for infrastructure projects in India and the resulting opportunities for investors are huge.
India will need to invest US$475 billion by 2012 in roads, airports and power plants to maintain growth of 9% a year, AFP reported in August.
But legal disputes related to infrastructure projects in India pose particular problems for foreign investors, in part because, as Thelen Reid partner Bob Nelson says, “projects represent fixed assets that cannot readily be moved or resourced, unlike contractual agreements for the provision of services or goods”.
So if a dispute regarding an infrastructure project arises, foreign investors often lack the leverage or options that their counterparts in non-infrastructure ventures might enjoy.
According to Gauri Rasgotra, director of the India Studies Center at George Washington University Law School in Washington, DC, the causes of disputes regarding infrastructure projects are many – from a defaulting government whose guaranties were unreliable (as alleged in the Dabhol power project), to escalation of project costs due to poor economic assumptions, to administrative delays in grant of permissions or acquisition of land by the government.
Because of the sheer size and scale of many of these infrastructure projects (and the resulting disputes), there are typically many parties involved, and each may take divergent paths and actions to try to resolve the dispute, Rasgotra says, noting that when multiple countries are involved, matters can get even more confusing. Sometimes the involvement of multinational parties implies the difficult interplay among different controlling laws and legal systems.
And in some cases, India does not yet have laws in place regarding certain aspects of infrastructure projects, allowing for environmental and human rights concerns raised at an advanced stage to significantly delay a project, Rasgotra adds.
Also, if the project is in its operational phase during the dispute, “there is invariably the difficulty that parties will have to continue to work together on the project whilst litigating between themselves at the same time,” says Melvin Sng, a partner at Linklaters in Hong Kong.
When the Indian government is a party, as it often is in infrastructure projects, it may be difficult for it to accept arbitration in another country outside its own jurisdiction. Political risk can play a role in such projects, and new governments sometimes seek renegotiation of closed deals, further protracting legal disputes, Rasgotra says.
Because of this government involvement, “there are potentially more forces aligned against the investor, either overtly or behind the scenes,” says Nelson.
“Given the somewhat parlous state of infrastructure in India (especially on the power side), and the more intensively political these matters can be (in the context of an often fractious Indian system of political parties and coalitions where political points can be scored, and campaigns mounted, in regard to infrastructure needs and costs), problems are much more likely to arise than in the context of normal commercial matters.”
When disputes arise during the execution phase of an infrastructure project (rather than during the project’s operation), arbitration ought to be the preferred mode of resolution, according to Amar Gupta, a partner at J Sagar Associates in New Delhi. Domestic arbitration conditions are improving, Gupta says, noting changing trends in the constitution of the Arbitral Tribunal, which is shifting from retired judges of the high courts or the Supreme Court to appointed experts in the given field, and a trend towards less interference by civil courts granting interim orders that would otherwise prevent the smooth progress of the dispute resolution process.
Still, it is, according to several lawyers, particularly important that contracts for infrastructure projects include arbitration clauses providing for disputes to be resolved outside India.
“Having said that,” says Nick Archer, an international dispute resolution partner at Slaughter and May in London, “one must always bear in mind that ultimately the award is most likely to have to be enforced in India (which, unless managed properly, can itself take several years).”
A slow process
“While India has a rich and sophisticated legal system with talented judges and a highly competent bar, the reality is that … [it] moves exceedingly slow,” says Glenn S Gerstell, managing partner of the Washington office of Millbank, Tweed, Hadley & McCloy. “As a result, litigation for monetary damages in India is rarely commercially realistic, at least for foreign investors and contractual parties.”
Unpredictable and irritating delay is just one obstacle to overcome in resolving commercial legal disputes in India.
“The decision to litigate [in India] should be based on an accurate dispassionate calculation of the likely success compared with the cost, in time, money and reputation,” adds Marcia Wiss, a partner at Hogan & Hartson in Washington, DC.
With international investment increasing, such disputes between foreign investors, importers or licence distributors and domestic parties such as government agencies, suppliers, contractors, manufacturers or unions are often an entrenched and frustrating reality of doing business.
“The risk of litigation … is highlighted by figures released recently by the Indian government which show that the number of civil and criminal cases pending before India’s courts today stands at an astonishing 30 million,” says Slaughter and May’s Archer.
Other pressing factors play their part. India does not have enough judges. There are about 10 judges per million people, compared to more than 50 in the UK and more than 100 in the US.
Cases are not always assigned to a particular judge in their entirety and the expertise of a particular judge is usually not a consideration when cases are assigned.
Additionally, there are not enough commercial lawyers, trials held on consecutive days are rare and cases are regularly adjourned for seemingly ridiculous reasons.
One example provided by Archer is that of the barrister being “on his legs” in another court and unable to appear.
“Parties involved in an Indian dispute should expect them to take at least 10 years to resolve,” Archer explains, “resembling a chapter straight out of Dickens’ Bleak House.”
Avoidance: The better part of valour
A few guidelines emerge that may significantly aid and speed up the resolution of disputes. Foremost among these is drawing up documents and strategies to avoid commercial disputes in the first place. Prioritizing dispute resolution clauses becomes all-important.
“While most companies focus on issues such as warranties when they are entering into contracts in India, a far more important priority is to ensure that they have the right dispute provisions in place,” says Archer. “The dispute resolution clause is nowhere near high enough on the agenda of commercial lawyers negotiating a contract … Without an effective means of resolving a dispute, all the other provisions in a contract are, from an enforcement perspective, entirely academic.”
A clause providing for international arbitration outside of India takes pride of place in many legal minds.
New York, Switzerland, Vienna, Hong Kong and Singapore are among the venues most often recommended, but London appears to remain the favourite. Indian parties generally feel relatively comfortable in an English forum, says Archer. India and England also have reciprocal enforcement of judgment treaties and both have signed up to the New York Convention regarding the enforcement of arbitral awards.
When it comes to drafting arbitration clauses, among the most important provisions is a specific statement that no application for interim relief or for any other kind of relief will be made to Indian courts, says Nelson of Thelen Reid. The only exceptions ought to be in connection with compulsion to arbitrate or to enforce arbitral awards.
But in spite of the best-made plans, disputes will sometimes arise. And when they do, going to court is normally the last resort.
“Wherever feasible, it is always advisable to settle out of court, since this is … effective in terms of [both] cost and time,” says Vijaya Sampath, group general counsel for Bharti Televentures in New Delhi.
“A litigation is long drawn out, and in large matters it is highly likely that the losing party will take up the matter on appeal before the highest court.”
“Litigation in an Indian court is typically a disastrous outcome,” echoes Nelson. “In most cases, the litigations will simply not be resolved in a reasonable time frame.”
On top of this, the ease of securing preliminary relief “can freeze the status quo and remove leverage from the party that has the stronger case. If that, rather than arbitration, is your only alternative, then look to settle if at all possible.”
Preliminary relief et al
Mamta Tiwari, a partner at FoxMandal Little, encountered the problem of preliminary relief when representing a Chinese exporter of wire rods that had a dispute with an Indian company over irrevocable letters of credit.
The High Court prevented the letters of credit from being cashed simply because her client was accused of fraud, explains Tiwari.
The ease with which injunctive relief can be granted in Indian courts makes tactics such as raising often-groundless allegations a very present danger for appellants and defendants alike.
International litigation may pose its own problems, however.
One such example is that Indian law does not consider the US to be a “reciprocating territory”, meaning that a court judgment in that country may only be enforced after filing a lawsuit in India and using the overseas award as evidence. In effect, says Glenn Gerstell at Millbank Tweed, “the Indian court has the opportunity to retry the entire case.”
Inevitably, domestic litigation may be unavoidable if the opposing party files first or if irreconcilable differences preclude an amicable settlement. And in certain circumstances, litigation – or at least the threat of it – may still emerge as the best strategic option.
Nelson explains that litigation may sometimes be the best strategy if a company feels that it has a vastly stronger position, more leverage, a massive budget, or has lined up a team of legal heavyweights.
Arbitration options
In most cases, however, arbitration is the more attractive option.
“Arbitration, as an alternative to litigation, often is very effective, since it generally has the benefits of being quicker, less expensive, and more efficient,” says Thomas Butler, a partner at Chadbourne & Parke in New York. “It is also private, and gives each party greater control over the management of the dispute.”
Domestic arbitration, however, has its limitations.
“The existing institutions need to vigorously promote high standards of efficiency and transparency in conduct of international commercial arbitrations,” says Amar Gupta, a partner at J Sagar Associates in New Delhi.
India also lacks its own bar dedicated to arbitration, meaning that “more often than not, arbitration practice takes second place in the professional life of an Indian lawyer”.
“The arbitrators usually are retired judges of the High Court and Supreme Court, who lack the skill and training to effectively conduct arbitration proceedings, and the hangover of their long judicial career mars effective and efficient conduct of arbitration proceedings,” says Gupta.
In spite of these concerns, Gupta considers domestic arbitration to be preferable to domestic court litigation.
International arbitration, while free of the limitations of the domestic system, faces its own all-too-common nemesis -– the unenforceability of awards.
“Enforcement has to be an integral part of the claim strategy, and is a crucial consideration where the law applicable to the determination of disputes differs from the law applicable to the enforcement of awards or judgments,” says Neeraj Tuli, a senior partner with New Delhi firm Tuli & Co, which typically handles insurance disputes often working closely with UK firm Kennedys.
If the Indian party has assets abroad that could be seized to satisfy a foreign judgment or arbitral award, then enforcement may not prove such a huge stumbling block. “[But] … if the assets abroad are insufficient, it will be necessary to enforce the foreign judgment in India—and that’s where the challenges begin,” says Gerstell at Millbank Tweed in Washington.
For example, Michael McIlwrath, a senior litigation counsel at GE Infrastructure in Florence, says that after a decade in court, GE was granted an arbitral award by the International Chamber of Commerce in 1998. Almost 10 years later, GE has still not been paid, largely because the Indian party’s lawyers have used complex domestic formalities to extend, delay and reschedule the payment.
In the words of Gautam Khaitan, a partner at OP Khaitan & Co in New Delhi: “Judicial decisions are not very ‘portable’ in that it is difficult and sometimes impossible to enforce a court decision in a country other than the one in which it was rendered.”
Neeraj Tuli adds that “issues as to enforceability need to be identified, raised and resolved during the course of an arbitration or litigation.”
“Don’t count on arbitration as a way to get paid,” warns McIlwrath.
The problem solvers
Some of the best-known lawyers for India disputes
- Stanimir A Alexandrov, Sidley Austin
- Pravin Anand, Anand and Anand
- Nick Archer, Slaughter and May
- Sanjay Asher, Crawford Bayley & Co
- Ajay Bahl, AZB & Partners
- Marezban Bharucha, Amarchand & Mangaldas & Suresh A Shroff & Co
- Lalit Bhasin, Bhasin & Co
- Gautam Bhattacharyya, Reed Smith Richards Butler
- LK Bhushan, Dua Associates
- Thomas E Butler, Chadbourne & Parke
- Shruti Chaudhary, FoxMandal Little
- Anand Desai, DSK Legal
- Rustam Gagrat, Gagrats
- David Gold, Herbert Smith
- Sumeet Kachwaha, Kachwaha & Partners
- John J Kerr Jr, Simpson Thacher & Bartlett
- Pradip Khaitan, Khaitan & Co
- Rajendra Kumar, K&S Associates
- Sumeet Lall, PH Parekh & Co
- Rajiv Luthra, Luthra & Luthra
- Som Mandal, FoxMandal Little
- Sachin Mandlik, Legasis Partners
- Zia Mody, AZB & Partners
- Bob Nelson, Thelen Reid Brown Raysman & Steiner
- David Reed, Shearman & Sterling
- Jyoti Sagar, J Sagar Associates
- John Savage, Shearman & Sterling
- Judge Stephen Schwebel, Sidley Austin
- Audley Sheppard, Clifford Chance
- Cyril Shroff, Amarchand & Mangaldas & Suresh A Shroff & Co
- Pallavi Shroff, Amarchand & Mangaldas & Suresh A Shroff & Co
- Karan Singh, Trilegal
- Rob Smit, Simpson Thacher & Bartlett
- Melvin Sng, Linklaters
- Chuan Thye Tan, Baker & McKenzie.Wong & Leow
- Shardul Thacker, Mulla & Mulla & Craigie Blunt & Caroe
- Diljeet Titus, Titus & Co
- Mamta Tiwari, FoxMandal Little
- Meg Utterback, Thelen Reid Brown Raysman & Steiner
- Bahram N Vakil , AZB & Partners
- Christopher Walker, Linklaters
- Chris Wyman, Clifford Chanc
The above list is not exhaustive and is provided for reference only. Lawyers are listed alphabetically.
Quick tips
The do’s and don’ts of dispute resolution
DO make preparations before a dispute arises. The damage potential of the majority of disputes can be greatly lessened by making sure agreements include a clause guaranteeing that disputes be resolved in a court or arbitration tribunal outside of India. All the terms you negotiate in a contract are of little value unless you have a dispute resolution mechanism that is practical and effective.
DO spend substantial time, before any dispute arises, developing strong personal relationships with relevant stakeholders and the Indian contracting party. Fools rush in.
DO realize that any dispute will have to be actively managed in order to move things forward. This means regularly being present in India, particularly when hearings are scheduled. Make sure that you assemble a team whose members will actually be available when you need them.
DO immediately obtain an experienced adviser to guide you from the start through any major dispute. Also, as quickly as possible, obtain the best solicitor and Senior Counsel you can find in India. Delay may lead to watching talent being snatched up by the other side, particularly in a major dispute. Because truly leading players on this stage are limited, it’s important to get the best on your side immediately when a dispute arises.
DO seek to maintain communication channels with the other party in order to ascertain, at every opportunity, whether there is scope for settlement.
DO exercise patience. There typically are no quick solutions in major commercial legal disputes in India. Many disputes drag on for years. Be prepared for the long haul. Those without patience are more likely to lose.
DO think creatively. Look for unconventional leverage points, connections, assets and alliances. Seek out fresh ways to move your case forward. View the situation through as many different lenses as possible in order to come up with outside-the-box solutions.
DO ensure that all documentation and information relating to the project, and to the dispute, is preserved and stored systematically.
DON’T harbour unrealistic expectations. Be open and clear about your objectives. Be sure that the outlook of the party you’re representing is reasonable, and that all parties know that any major dispute is likely to last for years.
DON’T delay in making the first move by filing for arbitration if litigation seems inevitable.
DON’T assume anything. Things in India, even if they appear similar to procedures or situations elsewhere, are often not quite what they appear to be. Be sure that you have advisers familiar with India who can explain cultural context and other relevant background information.
DON’T be overly concerned about initial expenses. Disputes are won, resolved and/or minimized when detailed attention and consideration are given at their inception.
DON’T fight cases that you cannot win. Commercial disputes need to be resolved in a time and manner that facilitates future commerce. Remember that the opportunity to compromise is not a fixed stage in proceedings—it is ever present.
DON’T dismiss the importance of the media. Be sensitive to spin control and aware of the sometimes critical role that the Indian press can play in commercial disputes.
DON’T assume that the clauses in the contract are the final word. Much depends on the procedural and substantive laws of the particular jurisdiction.
DON’T litigate in domestic courts unless you absolutely have to. Seek all other alternatives to settling the dispute before entering litigation as such a course can be immensely costly, time-consuming, frustrating and fruitless.
DON’T be overly aggressive, but also don’t be a pushover. Show strength and resolve without being brutish, while also showing patience and respect without being weak.
Worthy alternatives?
Alternative dispute resolution approaches such as mediation have the potential to be cost-effective, efficient and private.
“Such methods can be more successful in avoiding animosity between parties [who can then] proceed with the relationship,” says Sachin Kerur, partner at Pinsent Masons in Dubai.
In India, however, mediation in commercial disputes is still uncommon. “At present the institutionalized mediation process has limited resources, expertise and maturity to undertake resolution of disputes involving complex facts and legal issues,” says Gupta at J Sagar Associates.
The experiences of lawyers based outside India bear out this point of view.
“I do not generally recommend a client to consider mediation as an effective dispute resolution method simply because I have been involved in a number which have not yielded results,” says Melvin Sng, a partner with Linklaters in Hong Kong.
“Although it is fair to say that the success or failure of a mediation depends on the quality [or] experience of the mediator and the approach that each party is taking towards that initiative.”
Recruiting the right generals
Judicious appraisal and selection of Indian legal experts can play a pivotal role in the outcome of any dispute.
“The success of a case can often depend on the depth and quality of the relationship between the external law firm and the Indian law firm involved,” says Gautam Bhattacharyya, a partner at Reed Smith in London.
Among all the normal criteria in choosing external counsel, the availability of a “go-to partner” whom the client can contact at all times should be an important requirement. Similarly, “external counsel should be commercially savvy, responsive and organized, with an eye on the purpose the client is trying to achieve,” says Chuan Thye Tan, a partner at Baker & McKenzie.Wong & Leow in Singapore.
Nelson at Thelen in San Francisco points to other critical factors, especially an ability to “understand the nature of disputes within the context of Indian business and Indian culture, including, in the case of larger disputes and infrastructure disputes in particular, the types of interrelationships that may exist between the relevant business and governmental actors”.
Knowledge of the players reaps rewards.
“Judges collectively have their own strong likes and dislikes,” says Pravin Anand, managing partner of Anand and Anand in Delhi.
“It is extremely important to understand the court that you are before. It is critical to decide the forum where you would ideally like a lawsuit to be brought, and to then look out for evidence which confers territorial jurisdiction on that forum.”
The same awareness may apply for the personalities of individual judges.
“Some judges love case law,” continues Anand, “while others want only a certain type of case law,” such as Indian decisions or decisions of the Supreme Court.
“Most judges dealing with lawsuits love facts and it is extremely important to be able to give them facts in a clear, lucid way rather than concentrating mainly on case law,” adds Anand.
Familiarity with the sort of reliefs and orders the court they’re appearing before has granted in the past may prove equally important.
Are punitive and exemplary damages being granted apart from compensatory damages?
Are unique orders regularly granted by this particular court?
“It’s extremely important for a counsel to know the entire and vast range of orders,” Anand stresses.
Standing firm
When managing a dispute, it is also critical to show firmness and resolve without being brash. “I would classify it as having an iron fist in a velvet glove,” says Nelson. “Indian culture doesn’t like overt aggression.”
Similarly, it’s crucial that a party does not give the appearance of weakness. Nelson gives the example of GE, which could not allow its perceived weakness over the Dabhol dispute to jeopardize its other businesses in India.
“For GE, it was important to show that it wasn’t going to roll over in that dispute,” Nelson says.
“Because if you roll over there when your back gets shoved against the wall, what’s to make, for example, the government think that you’re not going to roll over if they try and put pressure on you in terms of jet engine sales, or turbine sales?”
Commercial disputes in India are complex, often with many fronts and moving parts. Managing them all is key.
“Treat any India-related dispute like a chess game—planning in advance, thinking many moves ahead, and ideally consulting with various advisers and ‘coaches’ in determining options and optimal courses to pursue,” says Nelson.
“Better still, think of it as chess played on a three-dimensional board.”
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