Introduction
The Gujarat International Finance Tec-City (GIFT), a Special Economic Zone (SEZ) is India’s first International Financial Services Centre (IFSC) set up in 2015 to attract foreign investment and promote international business. This is India’s offering to the world of free zones and free zones, according to the Kiel Institute for the World Economy, attribute to making up exports of at least USD 3500 billion a year.
GIFT comes with a number of incentives like Corporate Social Responsibility holiday under the Companies Act, 2013 for five years, non-application of managerial remuneration cap, stamp duty and registration fee exemption/ reimbursement, power tariff subsidy, and some lease rental subsidies.
With the December 9, 2020 circular of the IFSC Authority for Alternative Investment Funds, there is a growing interest in setting up and investment in this space. GIFT is a buzzword in the market today, with the Global Financial Centres Index report of March 2021 suggesting that GIFT tops the list globally of 15 centres likely to be more significant in the coming years, where GIFT received 371 mentions in the last 24 months. The report also importantly suggests that one of the key areas that businesses look at, when investing in free zones, is the rule of law and the institutional and regulatory enforcement.
With this, of course, come questions of what the GIFT City territory qualifies as and consequently how awards and judgments from this territory will be treated in the future, both by courts in India and foreign courts. While answers around these questions remain largely open, GIFT’s super regulator, the IFSC Authority, has a golden opportunity to adopt a brand new regime for India, one that can be modelled around the Dubai International Financial Centre Enforcement model (DIFC) approach or a more localized approach like India’s own Vizag SEZ. I discuss these varied approaches below.
GIFT City’s Super Regulator and the Applicable Dispute Resolution Regime
GIFT has been set up as an IFSC under Section 18 of the SEZ Act, 2005 GIFT’s super regulator, IFSC Authority, has unified within itself powers of the Reserve Bank of India, Securities and Exchange Board of India, Insurance Regulator and Development Authority and other regulators for this region by virtue of the IFSC Act, 2019. Section 12 and 13 of this law provide that it is the Authority’s duty to “develop and regulate” financial products, financial services and financial institutions in IFSC and all powers relating to such a role that other regulators performed (and which have been identified in First Schedule of this Act) will be exercised by the Authority for such financial products, services and institutions.
An SEZ under Section 23 of the SEZ Act allows the State Government of the state where the SEZ is located to designate (in concurrence with the High Court’s Chief Justice) one or more courts to try civil suits and notified offences committed in the SEZ. Section 42 of the SEZ Act states that if such courts have not been designated under Section 23, then notwithstanding anything contained in any other law for the time being in force, for a dispute of a civil nature between two or more entrepreneurs, developers or between them inter se in an SEZ, the disputes are to be referred to arbitration where the arbitrator is to be appointed by the Central Government. Other than what the SEZ Act provides, provisions of the Arbitration and Conciliation Act, 1996 are to apply to such arbitrations also. In Biomedical Lifesciences Pvt. Ltd. v. Zydus Infrastructure Pvt. Ltd. the Gujarat High Court refused to appoint an arbitrator since it recognised the procedure under Section 42 and called upon the parties to approach the Central Government for such appointment.
These provisions however only apply if (a) there are courts designated or (b) in the absence of such designation, the dispute involves entrepreneurs or developers as defined in the SEZ Act. In the absence of these conditions, arguably the field is wide open.
In GIFT, no courts have been designated under Section 23 or otherwise. IFSCs are also unique in that they would qualify as a non-Indian jurisdiction however only for the purpose of legal fiction created in the law in specific regulations. For example, the Foreign Exchange Management (IFSC) Regulations, 2015 state “any financial institution or branch of a financial institution set up in the IFSC and permitted/recognised as such by the Government of India or a Regulatory Authority shall be treated as a person resident outside India.” While it could be argued that this provision suggests that GIFT territory is “foreign territory”, the counter argument to this is that this provision is in the specific respect of the regulation and as such does not qualify or make any comment on the GIFT territory being a “foreign” territory. A better way therefore to view the territory would be that it has its own set of applicable regulations within the existing broader framework of Indian law.
The Dubai International Financial Centre Enforcement Model – Process
The DIFC Model of enforcement of its judgements / orders / awards is complicated. This article considers only a simplified version of the process of enforcement of DIFC decisions in the United Arab Emirates (UAE) and outside. The DIFC established different regimes for enforcement of its judgments in the UAE and outside the UAE. Article 7 of the DIFC Judicial Authority Law allows for DIFC judgments/ order/ awards to be enforced outside the DIFC if they are (a) final, (b) “legally” translated through the appropriate agencies in Arabic and (c) certified with a formula for execution by DIFC courts. It also contemplates following the procedures adopted by such enforcing entities including any Memorandum of Understanding (MoUs) between the concerned Courts and DIFC Courts. In fact the DIFC Courts have also signed an MoU with different provinces / emirates within the UAE including with the Ministry of Justice to assist the enforcement process. As to awards whether of DIFC courts or otherwise, these need to first be ratified by the respective courts before enforcement. It may be noted that if enforcement is sought within Dubai it has to be done by obtaining an execution letter from the DIFC Court to the Dubai Court, an application for execution along with the execution letter, and a copy of the judgment and legal translation has to be filed in the Dubai Court. When the Dubai execution Court considers the issue of execution though, it is not permitted to reopen the matter on merits.
DIFC judgments/ awards are enforced outside the UAE much like Dubai judgments/ award – that is, if there is an appropriate convention in place for enforcement, the process therein is followed. Otherwise (like in any other case) the law of the country where enforcement is sought will determine the process. DIFC Courts have also entered into various MoUs with Courts of various common law countries for ease of enforcement.
What Model Can GIFT City Adopt ?
The DIFC Model and the cases that arose from it have shown that it is complex and can lead to some confusion. A lot has been written about the practice of using DIFC Courts as “conduits” to get enforceable orders or judgments within the UAE, through the DIFC recognition route. Despite the drawbacks, we have many takeaways from the DIFC Model that the GIFT city can adopt.
It would do very well for GIFT City to adopt a clean and precise model of enforcement both within and outside Gujarat. Perhaps this could be done by adopting the successful aspect of the DIFC enforcement process which is by signing agreements for the process of enforcement between the GIFT City Courts and High Courts of each state. This could also be done through autonomous legislation. This is a blue sky opportunity for India to adopt an autonomous court regime (perhaps even with national and international judges) that carry out swift, word class processes even in the realm of dispute resolution. The world has seen many successful models of this, including the Singapore International Commercial Court. If GIFT is to be the next, big financial hub, its dispute resolution process also has to be at par with the world, since after all, the package of investment is viewed as strong (or as weak) as its dispute resolution product.
It would bode well for investors to know from the beginning that the sanctity of not just GIFT City judgments/ orders and awards but also of the process that will be followed of enforcing awards from the rest of the country within GIFT City as also foreign judgments and awards. Whilst GIFT City is a financial free zone, it is better viewed as a “sui generis” or “autonomous” territory as opposed to foreign territory. This would mean that insofar as the latter, it would be appropriate to continue to follow the existing uniform regime under the Code of Civil Procedure, 1908 or Part II of the Arbitration and Conciliation Act for enforcement of foreign judgments and foreign awards respectively even within GIFT City. As such, from the point of view of the New York Convention (Article I), it may be argued that GIFT City would continue to be viewed as India and therefore an award rendered there would have the colour of an India seated award, made in the separate financial zone of GIFT City.
One obvious and prevailing lesson is that if the process is clarified and detailed right at the outset, then the need to develop legislation on a piece meal basis is eliminated. It is unhelpful to wait for investments to grow before a model is put in place. The time and opportunity to act on this beneficial step for the IFSC is now.
This article has been authored by Ms. Shalaka Patil, Partner at Cyril Amarchand Mangaldas. This blog is a part of RSRR’s Excerpts from Experts Blog Series, initiated to bring forth discussion by experts on contemporary legal issues.
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