INSTITUTIONAL ARBITRATION: INDIAN SCENARIO AND RECENT DEVELOPMENTS
Prachi Gulati, V year of B.B.A.,LL.B.(Hons.) from Vivekananda Institute of Professional Studies (Affiliated to GGSIPU)
India is one of the world’s largest democracies. It is a fact that there is a stack of cases pending in India in various courts. As of October 18th, 2020, there are more than 34 million cases yet to be resolved. [i] To speed up the dispute resolution and for faster service of justice there arose an urgent need for out of court dispute resolution mechanism. The above statistics are the reason for the introduction of Alternative Dispute Resolution mechanism. The aim behind arbitration is to provide the parties with a mechanism to resolve their disputes mutually without arduous judicial proceedings. It facilitates to reach a final and binding determination of the rights and obligations applicable to the parties. The parties must honour the rights and obligations in the award without delay. Moreover, it is a private process and thus it involves confidentiality of the process.[ii]Arbitration concerning commercial transactions conducted across national boundaries refers to International Commercial Arbitration. [iii]
“At all events, arbitration is more rational, just and humane than the resort to the sword”
In India, arbitration is governed by the Arbitration and Conciliation Act, 1996. The Indian Arbitration and Conciliation Act, 1996 (“the Act”) has imparted a fresh lease of life into the Indian institutional arbitration. The Act is predicted on the1985 under United Nations Commission on International Trade Law (“UNCITRAL”) Model Law on International Commercial Arbitration and the UNCITRAL Arbitration Rules 1976 which brings it at par with international standard of arbitration.
In India, there are two types of arbitration proceedings: ad-hoc arbitration and institutional arbitration. The parties have the option to seek recourse to either of them depending on their choice as well as on the facts and circumstances of each case.
Institutional arbitration is a method of arbitration in which the arbitration process is administered by an institution following its own rules of procedure. Such institution appoints the arbitrators, oversees the arbitral process with its own set of rules, as well as arranges venues for holding hearings. A large number of well-known and internationally recognized institutional arbitration centres have opened centres in India. Currently, there are a total of more than 35 arbitral institutions in India that comprise of domestic, international arbitral institutions, arbitration facilities by PSUs, trade and merchant associations, and city-specific chambers of commerce and industry. Many of them have their own set of rules and some follow the arbitration rules set by the UNCITRAL. [iv]
Advantages and disadvantages
Institutional arbitration has a significant number of advantages for the parties and well as the courts. The reputation of the arbitration institutions has a great influence on the parties to assure them as to the enforcement of arbitral awards passed by such institutions. Further, these institutions have their own set of rules which makes the process a lot more uniform and removes ambiguity in factual situations. Arbitration tribunals have a limited time for the exchange of the parties’ pleadings, the main hearing and the publication of the final award leading to a speedy process.
Alongside its advantages, there are several challenges faced by institutional arbitration. There is a misconception that exists that this process is expensive. This is false and these institutions rather charge a reasonable fee because these institutions help avoid dispute in procedural matters resulting in cost savings. Despite certain developments and efforts put by the government, more focused efforts along with better governmental support are required to promote this process. The Act has no provisions specifically aiming towards promoting institutional arbitration. Section 29A of the Act which was inserted by the 2015 Amendments, is perceived to have made arbitral institutions wary of arbitrations in India. Strict timelines for completion of arbitration proceedings are provided under Section 29A. This limits the scope of arbitral proceedings. [v]
In case of institutional arbitration, the arbitration agreement stipulates the particular institution to be referred in case a dispute arises. These institutions are responsible for appointing an arbitrator when the dispute is referred to them. Some of the most prominent arbitration institutions around the world are:
· International Chamber of Commerce (“ICC”)
· Indian Council of Arbitration (“ICA”)
· World Intellectual Property Organisation(“WIPO”)
· Federation of Indian Chamber of Commerce & Industry(“FICCI”)
· The International Centre for Alternative Dispute Resolution(“ICADR”)
· London Court of International Arbitration(“LCIA”)
All these institutions have framed their own set of rules which would apply to the arbitral proceedings conducted by them instead of the provisions of the Arbitration and Conciliation Act in matters of procedure and other details as permitted by the Act. They may provide for domestic arbitration or international commercial arbitration or both and the disputes dealt with by them may be general or specific.
The Indian Council of Arbitration is the apex body in arbitration matters in the country and it has handled the largest number of international commercial arbitration in India.
The Arbitral Institutions also fix the fees to be paid by the parties to the arbitrators, administrative expenses, qualified arbitration panel, etc., which help in the smooth and orderly conduct of arbitration proceedings. Some of the prominent arbitral institutions in India are:
· New Delhi International Arbitration Centre (“NDIAC”) – New Delhi
· Indian Council of Arbitration (“ICA”) – New Delhi
· Construction Industry Arbitration Council (“CIAC”)- New Delhi
· London Court of International Arbitration India (“LCIA”) – New Delhi
· International Centre for Alternative Dispute Resolution (ICDAR) – New Delhi
· ICC Council of Arbitration – Kolkata
Present Indian Scenario Supporting the growth of Institutional Arbitration
There are several arbitral tribunals present in India, like the ICADR, ICA, DIAC, and the one that has been added to the list in 2016, the Mumbai Centre for International Arbitration (“MCIA”). Some of these institutions have their own set of arbitration rules or they administer under UNCITRAL Arbitral Rules. [vi] with time, there is an increase in the number of the institution but still, the parties are not approaching these institutions at this level. Even the popular institutions like the International Chamber of Commerce (“ICC”) and the Singapore International Arbitration Centre (“SIAC”) are not receiving a high demand. In 2016, the LCIA, India has even closed its office in India due to lack of sufficient cases.
The Department of Legal Affairs, Ministry of Law and Justice, on 13 January 2017 constituted a High-Level Committee consisting of ten members under the Chairmanship of Justice B.N. Srikrishna, Retired Judge, Supreme Court of India. It was set up to review the institutionalization of the arbitration mechanism and suggest any reforms in future. [vii]The High-Level Committee in one of its reports discussed in detail concerns regarding the development of the Arbitral Institutions. It states the features, positive aspects and the reasons as to why parties subject to arbitration resort to these institutions. Some of them are as follows:
Efficient Governance: These arbitration institutions have modern and updated rules which allow for a scope of flexibility in the process. These institutions have a panel of skilled arbitrators, having international expertise, who are appointed when a dispute is referred to them. Thus, this is one of the major reasons for the preference of arbitral institutions that they have an efficiency of governance.
Adequate support from the government: It was stated that two of the top five arbitral institutions, namely Singapore International Arbitration Centre (“SIAC”) and Hong Kong International Arbitration Centre (“HKIAC”), are immensely supported by their respective governments which led them to the top international position. Adequate financial and infrastructural support was provided to them by their government. Maxwell Chambers was also established through government support.
Significant role Business Community: To fulfil the need of the business community asking for effective resolution services led to the establishment of several arbitral institutions. HKIAC and ICC Court both were established to cater to the needs of the business community.
Supportive Arbitration Jurisdiction: These institutions are popular due to their supportive legislative system. Countries such as Singapore, Hong Kong, and London are completely arbitration-friendly seats. They have a business-friendly environment and also provide better legal services. Priority has been provided by the local legislative framework to party autonomy, the effectiveness of proceedings, the sanctity of arbitral awards and the provision of court assistance in arbitrations.
Less Interference by Judiciary: It was stated that the successful arbitral institutions are blessed with a supportive judicial system who interfere less with the process. They not only respect the party’s autonomy but also preserve the sanctity of the arbitral award. Whereas in India, due to too much intervention under the proceeding and erroneous interpretation of provisions of Arbitration and Conciliation Act has made it more difficult to arbitrate.
These are the reasons that the committee must ensure. Even the Indian government is trying to implement some of these recommendations to ensure that India becomes an International hub for arbitration and that is what the government seeks to achieve.
One of the recommendations of the High-Level Committee, amongst others, was to revamp the ICADR to meet its shortcomings. Based on the above recommendation, the New Delhi International Arbitration Centre (“NDIAC”) Bill, 2018 was introduced in Lok Sabha by the Minister of Law and Justice, Mr. Ravi Shankar Prasad. The objective behind this Bill was to establish an autonomous and independent institution to facilitate an improved level of management and arbitration process in India. It was passed by the lower house of the parliament in January 2019 but remained pending in the upper house of the parliament and later on lapsed.
Thereafter, the NDIAC Bill, 2019 was introduced in the lower house of the Parliament and was passed on 10th July 2019. It was passed by the upper house of the Parliament on 18th July 2019.
The assent of the President was received on 26th July 2019 and the New Delhi International Arbitration Centre Act, 2019 (“NDIAC ACT”) was enacted. The NDIAC Act declares the NDIAC to be of national importance. The NDIAC Act provides for the takeover of the existing ICADR by the NDIAC and naturally the transfer of rights, title and interest of the ICADR to the NDIAC. The NDIAC Act includes provisions regarding the composition, objectives and functions of the NDIAC, terms of office, etc.
This was an excellent initiative taken by the government to promote institutional arbitration through the NDIAC.
The government is taking several steps by following the suggestions of the High-Level Committee to turn India into a hub of International Arbitration. Despite this, a lot more steps and efforts must be taken by the government to encourage people as well as to remove the misconceptions from the minds of parties. To avoid the diminishing future of Arbitration in India, institutional arbitration must be promoted. Certain things are to be kept in mind to attract foreign parties and investors. To start with, it is a universal fact that the quality of arbitration depends upon the skills of the arbitrators chosen and the Courts may not be able to appoint the appropriate arbitrators who would be experts in the subject matter in the dispute. This might be an issue especially in cases of international commercial arbitration, where the national court judge will have limited experience in selecting appropriate international arbitrators. While having an arbitration institution these problems can be dealt with because of their day to day involvement in the process of international arbitration which results in their specialization and their access to highly qualified and suitable arbitrators. [viii]
By following these steps along with a little patience, India will be able to promote institutional arbitration. If countries like Singapore and Hong Kong can become a hub of arbitration due to their persistent and firm efforts, so can India.
1. National Juridical Data Grid <http://njdg.ecourts.gov.in/njdg_public/main.php> accessed 18 October 2020
2. The Arbitration and Conciliation Act, 1996, s. 2(1)(a)
3. The Arbitration and Conciliation Act, 1996, s. 2(1)(f)
4. Alan Redfern and Martin Hunter, Law and Practice of International Commercial Arbitration, (4th edn, Sweet and Maxwell 2004)
5. High Level Committee, Report of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India <https://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf> 30 July 2017
6. RituparnaPadhy, ‘Institutional Arbitration in India’ (September 11 2019) Law Times Journal <http://lawtimesjournal.in/institutional-arbitration-in-india/> accessed 10 October 2020
7. High Level Committee, Report of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India <https://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf> 30 July 2017
8. Adv. Shijo George, ‘What India needs to do to make Institutional Arbitration Success in India?’ INBA <https://www.indianbarassociation.org/what-india-needs-to-do-to-make-institutional-arbitration-success-in-india/> accessed 20 October 2020