Section 29A has completely failed: Senior Advocate Saurabh Soparkar on arbitral delays

Senior Advocate Saurabh Soparkar practices extensively before the Gujarat High Court, the Income Tax Appellate Tribunal (ITAT) and the National Company Law Tribunal (NCLT) in Ahmedabad.

Regarded as a doyen of the Gujarat tax bar, Soparkar was Standing Counsel for the Income Tax Department in the late 80s and spent 22 years as a Visiting Professor at IIM Ahmedabad teaching Corporate Tax Planning and Legal Aspects of Business. He is also a board member of the Gujarat High Court Arbitration Centre and known for breaking down complex academic subjects with ease.

In this conversation with Bar & Bench’s Neha Joshi, in the midst of the bustling GHAC Arbitration Week at GIFT City, Gandhinagar, to discuss institutional arbitration, judicial pendency and tax indemnities.

Edited excerpts follow.

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Neha Joshi (NJ): Domestic parties overwhelmingly favor ad hoc arbitration. How ready is the Gujarat Bar and corporate sector for institutional arbitration?

Saurabh Soparkar (SS): First of all, we need to make them realise this alternative position. The fact of the matter is that most people are unaware that there is something like institutional arbitration. People only know ad hoc arbitration, where I appoint my arbitrator, the other side appoints their arbitrator and the two of them appoint a third arbitrator.

But the concept that the whole work of arbitration can be undertaken by an independent, neutral body is, frankly, not known to the business world beyond a point.

Firstly, that awareness must spread. Then we must make sure that the idea becomes palatable by ensuring top-class arbitration facilities, top-class arbitrators, top-class infrastructure and quick, speedy disposal. Once things start moving in that direction, I am sure people will start shifting from ad hoc arbitration to institutional arbitration.

NJ: The Gujarat High Court Arbitration Centre (GHAC) is closely tied to the High Court. Does this association build instant credibility, or is strict institutional separation necessary?

SS: As of today, there is no watertight separation in the sense that they operate independently. You must appreciate that to bring credibility to any institution to begin with, it needs someone to hold its hand. The Gujarat High Court, in order to ensure the best arbitration practices, has initiated this move. It is an independent center, but it is closely associated with the High Court.

Over a period of time, as more credibility gets attached to this institution, it may also like to be regarded as independent of the High Court. Not because it wouldn't like to be associated with it, but because we do not want this to be viewed merely as an extension of the High Court. It is an independent body and must appear to be one. So, this is a marriage of convenience to begin with, but eventually, it will start growing on its own.

NJ: How can GHAC leverage GIFT City's financial framework to compete with international arbitration centers?

SS: We are still quite far away from becoming an international arbitration center. It would be foolhardy on my part to say that we are currently capable of handling every kind of situation. We are in the process of inviting more experienced arbitrators to be part of our panel. Once we have a list of top-class arbitrators on the panel and the whole system becomes acceptable to the public at large, work will start flowing in.

This is cyclical: the more work you have, the more credibility you get. The more credibility you have, the more work you receive. Somewhere, you have to break that initial inertia. Over time, things will start moving upwards.

NJ: Is GHAC looking to bring in international arbitrators?

SS: Yes. We desire to provide a full package, right from the smallest domestic arbitration to high-end international arbitration. But we cannot start solely with international arbitration in mind. We first have to create an ecosystem where people find credibility in our institution.

NJ: Former Supreme Court Justice L Nageswara Rao mentioned having dedicated benches to dispose of arbitration matters. What specifically should judges do to ensure pendency is reduced?

SS: The problems exist theoretically at two levels: the Section 34 level and the Section 37 level. I say "theoretically" for a reason. The real problem is at the Section 34 level.

Unfortunately, district judges today are so overworked that even though they want to prioritise Section 34 matters, in reality, they are unable to spare much time. They face the dilemma of balancing criminal work against commercial work, questioning how much priority to give to arbitration matters. For that reason, Section 34 matters get clogged.

Fortunately, as far as Section 37 is concerned, there is currently not much pendency in the Gujarat High Court because Chief Justice Sunita Agarwal has been handling Section 37 matters from the very beginning. All matters are taken up and disposed of, whether admitted or dismissed, at the initial stage itself. No matter is admitted and put into cold storage to be retrieved years later. So at least for Gujarat, I don't see a problem at the Section 37 level.

The bottleneck is only at Section 34. If there is some direction where a district judge dedicates 1 or 2 days exclusively to handling arbitration matters, things will clear up at that level too.

NJ: What about the enforcement of arbitral awards?

SS: Ultimately, enforcement is done through the execution mechanism. An executing court moves only as fast as it normally would and executing courts face a huge backlog. A person against whom an award or decree is passed finds all kinds of innovative reasons to ensure execution does not move forward.

Unless there is urgency on the part of the executing court to execute the award, this problem will persist. Perhaps Section 9 proceedings should be taken up immediately after an award is given so that assets are protected. If such coercive action is taken, things might improve; otherwise, this laxity will continue due to the lack of judicial resources at the district court level.

NJ: Do you feel statutory amendments are required to enforce strict timelines?

SS: There are innumerable statutes where timelines are prescribed for disposing of matters and we have failed everywhere. The Supreme Court eventually has to hold that these timelines are directory in nature, not mandatory, because it is impossible to comply with them. Requiring an executing court by statute to dispose of execution within 3, 6, or 9 months will not make it happen if it is practically impossible. Therefore, setting statutory guidelines will not really help much.

NJ: Indian arbitration often mimics court proceedings with endless adjournments. How can senior lawyers help drive procedural discipline?

SS: Senior advocates and advocates ultimately act on the instructions and desires of the client. If delays are being caused by a litigant, counsel will not refuse to appear simply because the client is trying to delay.

The insistence on discipline must come from the arbitrators. Unfortunately, arbitrators often do not want to appear unpopular. Because arbitration is a more informal setup than a court, things are taken for granted, adjournment applications are allowed as a matter of course and matters get dragged out without rhyme or reason.

Section 29A, in my view, has completely failed. Arbitrators merely keep track of whether time is running out and, if so, seek extensions. District courts granting extensions under Section 29A have failed to scrutinise why extensions are needed for a third, fifth, or tenth time.

Unless arbitrators put their foot down and stop delaying tactics, this will not improve. The CPC and Evidence Act do not apply, so arbitration proceedings do not need to adopt court-like procedures. Yet, these practices continue because arbitrators do not want to appear strict and risk discouraging advocates from appearing before them.

NJ: How can the IBA guidelines on arbitrator conflicts be applied in regional legal markets without shrinking the arbitrator pool?

SS: The problem arises because we look almost exclusively at retired High Court judges as the arbitrator pool. Recently, there has been serious discussion on why the pool cannot comprise practicing lawyers, senior and non-senior advocates alike. In the Gujarat High Court, over the past year, we have started enrolling a large number of lawyers and arbitrations are being assigned to them. If there are only 10 or 15 judges in reckoning, conflicts of interest will naturally arise. But if you have 50 people in the pool, conflicts disappear. Unless you expand the pool, this issue will persist.

NJ: Is there any realistic scope for institutional arbitration to apply in corporate tax or revenue matters?

SS: I don't believe so. As the learned ASG mentioned, no government would like to hand over its sovereign right of taxation including the interpretation of taxing statutes to an arbitrator. They prefer to leave it to courts or tribunals like the Income Tax Appellate Tribunal or Commissioner (Appeals). That is an adjudicatory function. It is unlikely that tax disputes will be resolved through arbitration anytime soon.

NJ: Barring tax disputes, how can confidence be built in the State to opt for arbitration?

SS: Apart from tax, all commercial matters can go to arbitration. The State is one of the largest litigants in commercial disputes. Unfortunately, as per recent press reports, the government has decided not to include arbitration clauses in commercial construction contracts. Unless that policy is reversed, that sector will remain excluded. However, commercial disputes are precisely where quick resolution benefits both parties. This area needs to be appropriately examined and emphasized.

NJ: M&A transactions often involve tax indemnities. Is our arbitral ecosystem equipped to deal with tax indemnity issues?

SS: Tax indemnities are a small component of M&A deals. In the event of a dispute, if the arbitrators possess in-depth commercial knowledge, they will easily understand the tax implications. Arbitrators are not required to interpret tax law; they only need to determine the loss or tax liability suffered by a party based on final assessment or appellate orders. They do not need to express a qualitative view on the tax law itself, as that is outside their domain. So, I do not see a major problem there.

NJ: Any final thoughts on the event and the promotion of arbitration in Gujarat?

SS: Everyone should appreciate the efforts being made to promote arbitration in the State of Gujarat. I hope things turn out well and, hopefully, we can meet after 5 years to see how much progress has been made.