INTRODUCTION
India’s startup landscape is now world-renowned with more than 100 unicorns across technology, fintech and edtech sectors. As startups begin to scale globally, cross-border transactions are increasingly emerging as one of the most common forms of exit for founders and investors.. The matters in this scenario are suited for arbitration, and perhaps more specifically, international commercial arbitration, as an efficient mechanism to address and resolve the issues underlying cross-border transactions. Arbitration provides a pathway for confidentiality and enforceability, paired with procedural flexibility low barriers that innovative businesses may find enticing[1].
GRASPING THE CODE’S STRUCTURE
The Arbitration and Conciliation Act, 1996, which is amended in 2015, 2019, and 2021, serves as all-important legal framework for arbitration in India[2]. The Act is modelled after the UNCITRAL Model Law, and recognizes the New York Convention (1958) to generate enforceability of foreign arbitral awards[3].
The Bhart Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (2012), popularly referred to as ‘BALCO’ was a watershed moment in the development of arbitration law in India. In the case the Supreme Court clarified that Part I of the Act only applies to arbitration seated in India. The judgment reaffirmed territoriality and brought the arbitration law of India in line with international law.
In cross border acquisitions involving startups, parties typically prefer to have foreign-seated arbitrations, usually under rules provided by the Singapore International Arbitration Centre (SIAC) or London Court of International Arbitration (LCIA)[4].
ARBITRATION AND THE MOVEMENT OF FOREIGN CAPITAL
Evidence shows a link between access to international arbitration and foreign direct investment (FDI). Myburgh and Paniagua (2016) measured investor confidence in investor-state contracts, showing that arbitration mechanisms increased both the willingness to invest capital and the amount of cross-border investment, especially in those economies where the judicial branch is less robust (Myburgh & Paniagua, 2016)[5] .
For India’s innovative companies where numerous and prominent startups receive financing and exit from foreign investments, such as from Walmart or Tiger Global, or strategic firms, such as Prosus investor confidence in the arbitral process means that the deal is more likely to be executed smoothly.
A startup usually relies more on intangible assets, such as algorithms, data about online users, or proprietary information related to platforms. Public decisions and litigation expose those intangible competitive advantages. An arbitral process is confidential, and ultimately either party can use an expert to precede over the dispute, often a solicitor that specializes in technology or intellectual property law[6].
PROTECTING IP IN CROSS- BORDER TRANSACTIONS
According to a study by “Skowronski and Benton (2018)”, weak IP enforcement intensified the risk of theft or misuse of proprietary information in international outsourcing[7] (Skowronski & Benton, 2018).In arbitration, there can be an enforceable, confidential, and technically informed decision.
In India, Tata Sons v. Siva Industries, an Arbitration case heard by the LCIA in 2016, was focused on breach of contract and reputational duties[8]. While not strictly an IP case, it demonstrated the art of arbitration in protecting non-physical business interests, an important point for Start-ups in establishing brand equity and proprietary innovations.
CASE STUDIES : ARBITRATION IN ACTION
- Amazon v. Future Retail (2021)
In this high-profile dispute, Amazon sought to invoke its emergency arbitration clause under SIAC arbitration as a possible means to restrain it from selling its assets to Reliance. The Supreme Court of India reaffirmed the enforceability of an emergency arbitrator’s award under Section 17(2) of the Arbitration and Conciliation Act[9]. This significant decision send a strong message and reaffirmed that India is committed to international arbitration system and protecting investors in business.
2.. BYJU’S-Aakash Dispute (2023)[10]
The continued arbitration proceedings in Singapore against BYJU’S by its investors generally reflect the use of international arbitration clauses in an agreement relating to venture funding. Major concerns from among the disputes which have arisen stem from claims made by the claimants regarding the payment defaults, matters relating to governance rights, and in the context of violation of agreement provisions, i.e. a clause providing a right of ‘exit’ or ‘buyout’ of a company for example. The disputes themselves are being resolved privately through the arbitral process such that neither business is subject to any public litigation, damaging a brand reputation, or reveal proprietary educational technology in the public arena.
EMERGING TRENDS: DIGITAL ARBITRATION AND MULTI-PARTY DISPUTES
Contemporary startup acquisitions often involve sophisticated, multi-party arrangements with founders, venture capitalists, angel investors, and foreign purchasers. This complexity raises procedural concerns for arbitration, and in particular joinder and consolidation issues.
Some of the most recent literature has identified digitalisation and mechanisms for multi-party participation as emerging trends in international arbitration (Wang, 2023)[11]. Indian arbitration institutions such as the Mumbai Centre for International Arbitration (MCIA)[12] and International Arbitration and Mediation Centre (IAMC) have started utilising digital tools for remote hearings and document management to promote accessibility and efficiency.
Technology-based arbitration for example, blockchain to verify evidence or AI to assist in reviewing evidence may help especially tech or SaaS-based startup organisations address arbitration’s emphasis on speed, cost, and data protection for startups.
THE MED-ARB MODEL AND CONVERGENCE WITH GLOBAL STANDARDS
The integration of mediation and arbitration (Med-Arb) is becoming increasingly popular worldwide as an economical dispute resolution model. Nigmatullina (2018) suggests that Med-Arb results in quicker settlements because the parties must first attempt conciliation, before proceeding to an enforceable binding arbitration (Nigmatullina, 2018)[13].
The introduction of the Mediation Act, 2023 in India, in combination with pro-arbitration amendments, signals a shift in governmental policy toward hybrid mechanisms. Other legal developments, specifically the Singapore Convention on Mediation (2019)[14] that allows for the enforcement of mediated settlement agreements internationally (Chua, 2019), bolster this framework.
Indian startups involved in cross-border acquisitions can use Med-Arb to expedite the resolution of disputes over valuations or payments without lengthy litigation, all while preserving working relationships.
JUDICIAL SUPPORT AND ENFORCEMENT IN INDIA
Indian courts have transformed from a perspective of interventionist to pro-arbitration, as in Cairn Energy PLC v. Government of India (2021), India’s eventual acceptance of an international arbitral award under the India-UK Bilateral Investment Treaty demonstrated its commitment to respecting arbitral outcomes[15].
Likewise, the 2021 Amendment established protections against fraudulent awards, however, it has maintained an overall pro-enforcement orientation. The courts have officially endorsed a supportive posture for arbitration, increasing India’s standing in the global arena as an arbitration-friendly jurisdiction, particularly after the recognition of the Amazon v. Future Retail matter[16].
PROTECTING INDIAN INNOVATION: POLICY AND PRACTICE
The purpose of arbitration is more significant than the resolution of disputes, it provides protection for Indian innovation. Including an arbitration clause in cross-border acquisition agreements, for startups, helps protect and limit the misuse of proprietary technology or confidential business models.
RECOMMENDED KEY POLICIES:
The establishment of specialized technology arbitration panels under the MCIA and IAMC;
Requiring confidentiality of intellectual property clauses in all acquisition contracts;
Support for neutral-seated arbitration for all cross-border transactions;
The education of current startup founders and their legal teams on arbitration to negotiate better terms.These policies will provide opportunities for India’s innovation ecosystem to reach international best practices and make India a preferred place for technology investment[17].
CONCLUSION:
Arbitration goes from being an alternative to litigation, to playing an even bigger role in an important foundation of India’s global startup economy. Through confidentiality, neutrality, and enforceable mechanisms, arbitration protects the very essence of what represents Indian innovation: ideas, technology, and intellectual property.
Even as India pursues a global innovative economy, there must be robust arbitration mechanisms in place to protect entrepreneur innovation and investor confidence during cross-border acquisitions of start-ups. If norms, institutional capability, and IP and arbitration law, are in place and supported by digital methods, arbitration will become the guardian of India innovation in the global market place[18].
Author(s) Name: Lavanya (UILS, Chandigarh University , Mohali(Punjab))
References:
[1] Gary Born, International Commercial Arbitration (3rd edn, Kluwer Law International 2021).
[2] Arbitration and Conciliation Act 1996 (India), Preamble; UNCITRAL Model Law on International Commercial Arbitration 1985.
[3] Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc [2012] 9 SCC 552.
[4] LCIA Rules (2020); SIAC Arbitration Rules (2016).
[5] Anton Myburgh and Jordi Paniagua, ‘Does International Commercial Arbitration Promote Foreign Direct Investment?’ (2016) Journal of Law and Economics 59(3) 597.
[6] Margaret L Moses, The Principles and Practice of International Commercial Arbitration (Cambridge University Press 2017).
[7] Kenneth Skowronski and W C Benton, ‘The Influence of Intellectual Property Rights on Poaching in Manufacturing Outsourcing’ (2018) Production and Operations Management 27(2) 244.
[8] Tata Sons Ltd v Siva Industries and Holdings Ltd [LCIA, 2016] Final Award.
[9] Amazon.com NV Investment Holdings LLC v Future Retail Ltd [2021] 9 SCC 1.
[10] Singapore International Arbitration Centre, BYJU’S and Aakash Dispute Arbitration Proceedings (SIAC, 2023)
[11] Jie Wang, ‘Joinder Mechanism in International Commercial Arbitration: A Trend in the Digital Age?’ (2023) International Journal for the Semiotics of Law 36(3) 911.
[12] Mumbai Centre for International Arbitration (MCIA) Rules 2022; IAMC Rules 2023.
[13] Dinara Nigmatullina, Combining Mediation and Arbitration in International Commercial Dispute Resolution (Routledge 2018).
[14] Singapore Convention on Mediation 2019, United Nations Treaty Series (No 16).
[15] Cairn Energy PLC v Government of India [PCA Case No. 2016-7, Award, 2021].
[16] Arbitration and Conciliation (Amendment) Act 2021 (India).
[17] Ministry of Law and Justice, India’s Arbitration Promotion Strategy (Government of India, 2022).
[18] Chua Ee, ‘Enforcement of International Mediated Settlement Agreements in Asia: A Path Towards Convergence’ (2019) Asian International Arbitration Journal 15(2) 175.
