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RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 05 MUMBAI 000042 
 
SENSITIVE 
SIPDIS 
 
DESK -- PLEASE PASS TO USTR 
 
E.O. 12958: N/A 
TAGS: PGOV BTIO ECON EINV KDEM KIDE KJUS ETRD IN
SUBJECT: ALTERNATIVE DISPUTE RESOLUTION GROWING IN INDIA 
 
REF: 09 MUMBAI 431 
 
MUMBAI 00000042  001.2 OF 005 
 
 
¶1.  (SBU) Summary.  With the majority of civil litigation cases 
taking over a decade to resolve through the Indian courts, 
businesses in Mumbai increasingly pursue alternative means for 
resolving contractual difference quickly and cheaply.  The 
business community has devised Alternative Dispute Resolution 
(ADR) mechanisms outside the courts, including arbitration, 
mediation, and community-based dispute resolution. 
International firms, however, still prefer foreign venues rather 
than India.  Arbitration is not a complete panacea, however, as 
parties and even the arbitrators can delay the process for 
financial gain. End Summary. 
 
 
 
Delay in Commercial Litigation Weighs on Businesses 
 
--------------------------------------------- ------ 
 
 
 
¶2.  (SBU) The Indian courts are overburdened and underfunded and 
litigation often takes a decade or more to conclude (see reftel 
A).  Judicial delays harm business development, create 
uncertainty, and tie up capital that might otherwise be used 
productively.  For the average plaintiff, the dread of a long, 
expensive legal battle gives defendants leverage to force an 
advantageous settlement, Attorney Zulfiquar Memon noted.  Those 
who can afford the best attorneys may be able to push their 
cases through the system in three to five years, according to 
attorneys Congenoff spoke with, but Attorney Zia Mody, a partner 
in the firm AZB & Partners, noted that many cases languish in 
the courts once a party has secured an interim order freezing 
assets.  (Note:  This is similar to a temporary restraining 
order or preliminary injunction in the U.S. End Note.)  Abhi 
Abhimanyu, the General Counsel of DSP Merrill Lynch, and other 
lawyers told Congenoffs that parties may become amenable to 
settlement once an interim order freezes their assets, but many 
face protracted litigation with no resolution for years. 
 
 
 
¶3. (U) The legal framework in India is partially to blame for 
the lack of swift resolution of cases.  Mumbai High Court Judge 
Roshan Dalvi explained that court rules in India do not have 
procedures for accelerated judgment in civil cases which would 
enable a judge to swiftly determine a matter.  (Note:  In 
contrast, the U.S. legal system has "judgment on the pleadings" 
-- a determination at the outset of a case that, as framed, the 
pleadings do not state a legal cause of action -- or "summary 
judgment" -- a decision reached by the court without trial where 
facts are undisputed.  End Note.)  Although Union Law Minister 
Veerappa Moily has proposed such mechanisms to expedite judicial 
resolution (ref A), Dalvi said she does not see accelerated 
judgment gaining acceptance among the judges any time soon 
because they are reluctant to declare a winner and a loser, 
preferring that the parties reach a settlement on their own 
where possible.   The Law Commission of India similarly noted in 
its November 2008 report looking at the burgeoning problem of 
dishonored check cases, that "Litigation as a method of dispute 
resolution leads to a win-lose situation leading to growth of 
animosity between parties, which is not congenial for a peaceful 
society." 
 
 
 
India Turns to Out-of-Court Processes for Dispute Resolution 
 
--------------------------------------------- --------------- 
 
 
 
¶4. (SBU) To grapple with judicial delays, civil society in India 
resorts to creative solutions ranging from progressive forums, 
such as formal arbitration, to archaic "time-honored" means, 
such as private debt collectors and village councils, to resolve 
disputes.  In India, "private debt collectors" are widely used 
to obtain payment on behalf of lenders or vendors.  Debt 
collectors charge a fee of 20-30 percent of the amount 
collected, and often obtain payment by threatening the debtor or 
the debtor's family.  Civil Rights attorney Yogesh Kamdar said 
that the construction industry is most noted for using such 
 
MUMBAI 00000042  002.2 OF 005 
 
 
"strong-arm" tactics as they have so much invested in a single 
project that non-payment by a debtor could put them out of 
business. 
 
 
 
¶5. (U) In India, the practice of informal dispute resolution is 
not new; rural villagers have long taken their disputes to the 
village council, known as the "panchayat," rather than seek 
justice in far away courts with procedures too complex for the 
common man.  The central government's Ministry of Law and 
Justice is formalizing this system by establishing Gram 
Nyayalaya, or village tribunals, to provide a cost-effective, 
grassroots level forum for settling disputes.  In small towns 
and cities, "Lok Adalats" or "People's Courts" address consumer 
complaints and public grievances, similar to the panchayat 
format.  The Lok Adalat is comprised of three members who meet 
once a month.  Cases pending in court can be transferred to the 
Lok Adalat, if both parties agree, and results in a binding an 
enforceable award.  Prathamesh Popat, an attorney who also 
serves as an arbitrator and mediator with the Indian Merchants 
Chamber of Commerce (IMCC), said that disputes between 
government-owned companies are often taken directly to the Lok 
Adalat and courts can transfer cases to the Lok Adalat for 
informal resolution.  Popat noted that the government is the 
biggest litigant in India and is named in 60 percent of the 
cases filed in court, mostly disputes between governmental 
agencies or government-owned enterprises.  According to Popat, 
the government officers involved in inter-agency litigation feel 
compelled to reach a compromise before the Lok Adalat as it is 
chaired by a retired judge or other highly-respected person. 
Union Law Minister V. Moily recommends that all 
intra-governmental disputes be submitted to an administrative 
tribunal instead of to the courts as a major step to reducing 
the back log in the courts. 
 
 
 
Alternative Dispute Resolution Taking Hold in India 
 
--------------------------------------------- ------ 
 
 
 
¶6. (U) Successful businesses with professional management 
largely prefer to use alternative dispute resolution methods 
(ADR) rather than litigate in court.  India formalized ADR in 
the 1996 Arbitration and Conciliation Act (ACA), which provides 
the over-arching structure for various ADR mechanisms.  The Act 
follows the Model for Commercial Arbitration drafted by the 
United Nations Commission on International Trade Law (UNCITRAL) 
in 1985.  According to the Act, a case may be subject to 
arbitration, rather than litigation in a court, based upon a 
contract signed by the parties before or after the dispute 
arose.  Under the ACA, the parties choose their own arbitrators, 
either Indian or foreign nationals.  The arbitrators may use 
mediation or conciliation techniques to get the parties to come 
to an agreement, if not precluded by the parties' agreement. 
The ACA also authorizes the arbitrator(s) to award costs, 
including attorneys' fees, and the costs of the arbitrators and 
expert witness fees as part of its determination of the matter. 
Costs incurred for renting a private venue are normally shared 
by the parties, according to Memon.  Popat, who heads the IMCC's 
arbitration forum, suggests that all commercial contracts should 
have a clause for ADR to prevent the courts from being clogged 
with commercial disputes. 
 
 
 
 
 
Ad Hoc and Institutional ADR forums 
 
----------------------------------- 
 
 
 
¶7.  (U) Arbitration can be arranged ad hoc by the parties or 
through institutions which provide the forum and arbitrators. 
The most common mechanism for ADR among Indian commercial 
litigants is ad hoc arbitration, where each party selects an 
arbitrator and the two designees pick a third, trusted person to 
 
MUMBAI 00000042  003.2 OF 005 
 
 
complete the panel of arbitrators to hear the case.  Retired 
High Court judges, seen as experienced and neutral, are often 
selected as arbitrators; they also command top fees, according 
to observers.  However, Popat noted that ad hoc arbitration is 
often time consuming and costly because sessions are scheduled 
for just a couple of hours each day, prolonging the case and 
increasing lawyers and arbitrator's fees.  In contrast, 
institutional arbitration has defined rules in place, fees are 
lower and the arbitrators can be "reigned in" by the 
institution, he argued.  Popat, however, acknowledged that 
institutional arbitration is rare, as it requires the consent of 
both parties or the institution has to be specifically named in 
the parties' contract.  For these reasons, legal experts 
explained, most Indian attorneys prefer ad hoc arbitration, 
selecting their own arbitrators, rather than submitting the 
dispute to an institutional arbitration forum where they would 
be limited in the choice of arbitrators and lose some autonomy 
over the pace of the case. 
 
 
 
¶8.  (U) Nonetheless, the number of institutions offering dispute 
resolution services is growing: 
 
 
 
--The Indian Merchants Chamber of Commerce (IMCC) has hosted an 
arbitration forum since 1985, offering a panel of legal and 
technical experts as arbitrators and several meeting rooms that 
can be used for arbitration.  Popat noted that in using an 
institutional forum like the IMCC, the parties know the fees 
will be fixed, motivating arbitrators to move the case to 
conclusion quickly, as opposed to private arrangements where the 
arbitrators are paid hourly or daily fees.  The IMCC claims that 
none of its arbitration awards have been challenged in court. 
However, statistics provided by IMCC indicate they have hosted 
only 50 arbitrations in the past 5 years and Popat acknowledged 
that the recent law making issuing a bad check a criminal 
offense has significantly reduced demand for IMCC's ADR 
services. (Note:  A special fast-track court is being 
established in Mumbai to handle dishonored check cases to 
resolve them quickly.  End Note).  The IMCC is working on a 
memorandum of understanding to become the venue of choice for 
disputes among members of the textile industry's professional 
association. 
 
 
 
--The Indian Council of Arbitration (ICA) provides a private 
forum for dispute resolution, either in New Delhi or in its 
regional offices in Mumbai, Kolkata or Chennai.  The ICA has 
assembled a panel of arbitrators including attorneys, retired 
judges, accountants, engineers and other experts whose knowledge 
may be critical to resolving technical disputes.  The ICA also 
provides the venues for the hearings, which can be costly in 
privately-arranged arbitrations.  According to the ICA website, 
the Union Ministry of Commerce recommended ICA as the venue of 
choice in all government contracts for public works in 1999 and 
from time to time continues to recommend the ICA forum. 
 
 
 
--The Singapore International Arbitration Center (specializing 
in construction litigation) allows the parties to choose their 
own venue, with SIAC providing the arbitrators, or the hearings 
may be conducted SIAC's offices in Singapore.  Popat said 
international construction firms prefer to use the SIAC because 
of its specialization in a technical field and it is trusted as 
a neutral forum. 
 
 
 
-- Popat also explained that trade associations in India, such 
as the Clothing Manufacturers Association and the Grain 
Association, have their own informal arbitration forums which 
resolve disputes in five days. 
 
 
 
 
 
Small Religious Communities Offer Dispute Resolution Services 
 
MUMBAI 00000042  004.2 OF 005 
 
 
 
--------------------------------------------- --------------- 
 
 
 
¶9.  (U) The high cost of litigation has led some communities to 
develop ADR alternatives for their members.  Sects within the 
Ismaili Shia community in Mumbai - mostly Dawoodi Bohras and 
followers of the Aga Khan known for their business acumen-- have 
internal ADR mechanisms.  According to Saifee Surka, a Bohra 
scholar, Bohras can submit disputes between members to the 
community's leader, Syedna Mohammad Burhanuddin, in an informal 
forum, upon which he will make a binding determination.  The Aga 
Khans established the Regional Conciliation and Arbitration 
Board (RCAB) and the appellate forum, the National Conciliation 
and Arbitration Boards (NCAB).  According to Aga Khan member 
Firdoshali Kassam Karachi, a Mumbai attorney in private 
practice, "more than 12,000 cases relating to matrimonial, 
commercial, property and partnership disputes have been resolved 
through the process of conciliation, mediation or arbitration at 
the RCAB and NCAB level in India since 1988."   Karachi said the 
Aga Khans use a negotiated settlement approach based upon a 
reading of the Quran in which Mohammed proclaimed that those who 
seek peace will find a solution to their disputes.  Both dispute 
resolution mechanisms are available to the adherents of the 
faith without charge, without the need for lawyers, and with a 
relatively short turnaround of a few months, according to 
members of each sect. 
 
 
 
ADR Cannot Save Litigants from Obstinate Parties 
 
--------------------------------------------- --- 
 
 
 
¶10. (U) ADR is not a complete panacea to avoid delays inherent 
in the Indian judicial system.  Several attorneys have warned 
that attorneys, or even the arbitrators, can prolong arbitration 
hearings to earn higher fees and a party who stands to lose the 
case may delay resolution to avoid payment.  Where one of the 
parties refuses to name an arbitrator, the courts may intervene 
to order parties to comply with their arbitration agreement. 
Indian courts may also intercede to determine the initial 
question of whether a dispute is subject to arbitration, or the 
jurisdiction for the arbitration, if disputed.  Poorvi Chothani, 
founder and managing member of LawQuest, a Mumbai-based general 
practice firm, said that even though a contract's Arbitration 
Clause states that foreign law applies, Indian courts will apply 
Indian procedural rules unless the contract specifically states 
otherwise. 
 
 
 
¶11. (U) While generally enthusiastic about ADR for their 
business clients, attorneys complained that the arbitration 
awards can be appealed in court, which can delay final 
resolution of the matter for years.  Another shortcoming of 
arbitration, critics argue, is that if the losing party refuses 
to abide by the decision of the arbitrators, enforcing the award 
through the court could delay recovery for years.  (Note: In the 
U.S., enforcement of a judgment against a recalcitrant defendant 
is normally an expedited process which can be completed in less 
than six months. End Note.)  Arbitration is, therefore, a useful 
tool only among those who will abide by the arbitrators' 
decision, attorneys noted.  Attorneys told Congenoff that they 
often advise companies to obtain business interruption insurance 
- and hope that the insurance companies pay if business is 
disrupted. 
 
 
 
 
 
International Firms Prefer Foreign Venue 
 
---------------------------------------- 
 
 
 
¶12. (SBU) To avoid the delays inherent in the Indian judicial 
 
MUMBAI 00000042  005.2 OF 005 
 
 
system,  most international corporations insist that every 
contract they sign provide for arbitration in a foreign venue, 
according to Krishan Singhania, who represents multi-national 
clients such as Federal Express.  While onerous to Indian 
businesses that have no presence in the foreign locale, the 
international companies are reluctant to be subject to the 
Indian judicial system with its inordinate delays and reputation 
for corruption.  Whether the foreign venue clause is ultimately 
enforceable depends upon how well the contract is drafted, 
Singhania said. 
 
 
 
Comment 
 
------- 
 
 
 
¶13. (SBU) In the face of long delays in resolving commercial 
disputes, Mumbai-based businesses and entrepreneurs have 
developed creative solutions to avoid the courts.  While India 
has a burgeoning customer base that entrepreneurs want to 
access, it remains a commercial environment fraught with 
potential pitfalls that investors and businesses need to 
consider.  Mandatory arbitration clauses and the availability of 
international forums for ADR have made doing business in India 
more feasible.  India's efforts to tackle the problems of 
overloaded courts and corruption within the judiciary will 
further improve the business climate, but it is unclear when 
these objectives will materialize. 
FOLMSBEE