In several transactions, the Indian parties have taken recourse to initiate criminal action against the foreign companies

Though the change in the business climate in India is prompting many foreign investors to think of investing here, the absence of an effective dispute resolution mechanism has proved a major deterrent, say legal experts.

“For foreign direct investment (FDI), there is lot of interest from here as well as hesitation too. Their main concern is that they are not sure about the security of their money. It takes years to resolve a dispute arising in India. Many investors have bitter experience of being taken for a ride by their Indian partners,” said Sarosh Zaiwalla, Senior Partner, Zaiwalla & Co, a U.K.-based law firm.

“So, India must have a dispute resolution mechanism of high standards. Investors want a legal mechanism that is truly independent. The law is so different in India, and it is often skewed towards the dishonest local partners. Anyone who would put money wants comforts, and the Indian government must address this concern,” Mr. Zaiwalla added. Legal experts said the government must establish independent tribunals to expeditiously settle the disputes pertaining to FDI in India.

“The foreigners should be encouraged to have the legal redressal before the tribunal in India instead of knocking for justice at jurisdictions outside India. If parties have decided to be governed by a foreign law to settle the dispute, the tribunal should be able to adjudicate in India while applying the agreed foreign law. This will not only boost the confidence of investors but shall also check any abuse in this regard on the part of the investee companies and Indian promoters,” said Rajesh Narain Gupta, Managing Partner, SNG & Partners, a Mumbai-based law firm.

“In several transactions, the Indian parties have taken recourse to initiate criminal action against the foreign companies and their owners with the sole view to harass them and somehow create situation that these investors forgo their claim in India. This is a dangerous precedent. We have examples like summoning of Samsung Chairman by a court in U.P.,” Mr Gupta said. “The right of filing criminal action cannot be and should not be taken away but a government-constituted board should examine the matter and give a prima facie clearance before any criminal action is initiated against a foreign investor. This will ensure that the criminal justice system is not being abused for settlement of a commercial transaction or to avoid making legitimate payments by the Indian party,” Mr. Gupta added.

More In: Economy | Business