The case is the first of its kind and is likely to be an embarrassment to the City and the insurance industry at a time when it is campaigning intensively to promote its international competitiveness. The CRE alleges that legal work was withdrawn from Mr Zaiwalla because of his Indian origins.
As well as being senior partner of his own firm in central London, Mr Zaiwalla, a British citizen, is a council member of London First, a body set up to promote the attractions of London as a business centre.
The CRE case, which is running alongside a related suit by Mr Zaiwalla based on the same incidents, is against Britannia Steamship Insurance Association, one of the biggest of the London-based mutual insurance clubs run by shipowners to pool their insurance risks.
Other defendants are Charles Elstub and the firm for which he works, Tindall Riley, which manages Britannia.
Zaiwalla & Co acted from October 1991 for the insurance club in a case involving arbitration over the Nand Ektia, an Indian-owned ship.
According to court documents, the CRE alleges that Mr Zaiwalla, who has had a long involvement in shipping litigation, was telephoned by Mr Elstub in March 1993 and instructed not to deal personally with the matter any longer.
The club and Tindall Riley wanted the matter dealt with instead by Joseph Hurley, a junior solicitor in Zaiwalla & Co who had been working on the case for Mr Zaiwalla. Mr Hurley, a white Englishman, at the time had less than one year's experience since qualifying.
Mr Zaiwalla refused to hand over and eventually the work was withdrawn altogether from his firm, according to the court documents. The three defendants have strongly denied that what happened was motivated by Mr Zaiwalla's race.
The CRE alleges that the instructions to hand the case over to Mr Hurley were given on racial grounds.
The CRE claims another executive of Tindall Riley also exhibited a racially discriminatory attitude towards Mr Zaiwalla and his practice, believing that because he was of Indian origin he would be biased in favour of Indian companies that belong to the Britannia club. This allegation is also denied.
If the allegations are proved, the court could grant an injunction banning further discrimination by the defendants. There is no fine or other penalty involved, but the CRE is known to regard a favourable decision as an important deterrent that would have a wider impact in the City.
Mr Zaiwalla's own suit, however, could lead to an award of damages.