The Significance of Arbitration and ADR
Arbitration today is the default setting for commercial dispute resolution in India. Initially finding favour with foreign parties reluctant to submit to Indian Court jurisdiction owing to the endemic delays in the Indian legal system and perceived interference, it was not long before Indian parties also realized the benefits of a simpler and quicker way of resolving their disputes. Indeed, the Indian Government also recognized that increase efficiency in arbitration and the enforcement process was a mechanism to ratchet it up to World Bank rankings for doing business. In the ‘World Bank Report on Doing Business 2018’, India’s ranking for ‘Enforcing Contracts’, improved several positions, i.e. from 172 in 2016, to 164 in 2017, and 163 in 2019. In so far as general ease of doing business is concerned, India jumped places from 2018 to a ranking of 77 in 2019.
Development of the Arbitration Regime in India
That said, arbitration is not new to India. Even prior to the advent of the British, village elders or ‘panchayats’, routinely settled disputes between disputing members of the village. The first codification of India’s arbitration law was the Arbitration Act, 1899 (based on the English Arbitration Act, 1899). It was further codified in Schedule II of the Code of Civil Procedure, 1908, where arbitration provisions were extended to various parts of British India. Thereafter the law governing arbitration was fragmented across different enactments – the Indian Arbitration Act, 1940 (dealing with domestic arbitration); and the Arbitration (Protocol) and Convention) Act, 1937; and the Foreign Awards (Recognition and Enforcement) Act, 1961 (both dealing with recognition and enforcement of foreign awards under the Geneva Protocol & Convention and the New York Convention, respectively). The Arbitration & Conciliation Act of 1996 (the “Act”), modeled on the UNCITRAL Model Law on International Commercial Arbitration, consolidated the law of arbitration law in India, repealing all three earlier statutes. The Act came into force at the time of India’s economic liberalization and intended globalization and was expected to be a shot in the arm for a quick and cost-effective form of alternative dispute resolution through arbitration. It was touted as updating the law of arbitration in India to make it more responsive to contemporary requirements and while restricting the intervention of courts, envisaged co-operation between the judicial and arbitral process. Almost two decades later, the criticisms reached their zenith, and India’s reputation, its nadir. Indian courts were reputed as being particularly interventionist, exercising jurisdiction even over arbitration proceedings seated outside India3. The gross delays in the Indian judicial system resulted in a country that was seeking to be a star on the global stage, being shunned as a seat of arbitration at all costs. The award issued by a three-member ICC tribunal in the White industries case which roundly held the Indian Government to blame for not providing White Industries with “effective means” of asserting claims and enforcing rights”, highlighted the embarrassment4. It was evident to anyone who cared to take a look, that the Act required further amendment, clarification, and some reform. The landmark Supreme Court decision in ‘BALCO’5, and two proposals for amendment of the Act6, finally culminated in the 20th Law Commission’s Report No. 246 (issued in August 2014, with a Supplementary Report in February 20158), on proposed amendments. A fresh look at the various lacunae in the Act and subsequent court rulings over the years, and suggested some long-awaited and critical amendments. Extensive amendments were brought about by the Arbitration and Conciliation (Amendment) Act, 2015, which came into effect from October 23, 2015 (“the 2015 Amendments”). The 2015 Amendments demonstrated a clear preference for institutional arbitration by making special allowances in respect thereof, for instance by exempting institutions and arbitrators appointed by them from the fees set out in the Fourth Schedule (presumably on the basis that every institution has its own schedule of fees, which is carefully considered and fixed).
Challenge of an arbitral award
The grounds on which an award may be set aside are limited and pertain primarily to the procedure of the arbitration and principles of natural justice. A crucial amendment was the inclusion of specific wording in relation to the scope of the public policy challenge – perhaps the most abused provision in the Act. The amendments clarify that an award will be in conflict with the public policy of India only if:
• The making of the award was induced or affected by fraud or corruption or was in violation of confidentiality provisions or admissibility of evidence provisions in the Act;
• It is in conflict with the most basic notions of morality or justice; or
• It is in contravention with the fundamental policy of Indian law. Specifically, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute. An additional ground of challenge available only to purely domestic awards is patent illegality appearing on the face of the award.
Once again, there is a differentiation between purely domestic and international commercial arbitrations, though both are seated in India; both may be institutional arbitrations – or not; both may have arbitrators qualified in the same manner (whether the ubiquitous retired Indian Judge, or Indian Senior Counsel, or Queens Counsel); the only difference between the two is that one of the parties is a foreign party. The Law Commission recommended this insertion on the basis (rightly or wrongly), that, “The legitimacy of judicial intervention in the case of a purely domestic award is far more than in cases where a court is examining the correctness of a foreign award or a domestic award in international commercial arbitration.” And further that, “given the circumstances prevalent in our country, (there is) legitimately so, greater redress against purely domestic awards.” This suggests an assumption that the purely domestic arbitration will be ad hoc, and/or that it will, therefore, be inefficient, and/or that the arbitrators may not be sufficiently qualified or experienced to deal with the dispute in an appropriate manner, and that therefore such judicial intervention is justified (in our view, perhaps not). The 2015 Amendments clarify that even in relation to the ‘patent illegality’ challenge, that shall not imply a mere incorrect interpretation of law or mis-appreciation of evidence by the arbitrator, ensuring that a challenge to an award cannot entail a review on merits. This position has been followed by the court, proving India to be quickly becoming a very pro-arbitration jurisdiction. It is settled now that a mere contravention or misapplication of Indian law will not tantamount to a violation of public policy and have also upheld the narrow construction of public policy as envisaged by the legislature (and in line with India’s ratification of the New York Convention). Circumscribing even further, any attempt to review an award on merits or examine the facts or merits of a case, the 2018 Amendments propose that a challenge to an award must be maintained and established only “on the basis of the record of the arbitral tribunal”
Conclusion and the road ahead
With the introduction of several changes in the law, new case law, governmental impetus, and the clear preference for arbitration in resolving commercial disputes, India is exorcising the ghosts of its past. The Amendments have been a long time in coming and put in place several measures to establish that India is true, an arbitration-friendly jurisdiction. The success of the new provisions and the ultimate ability of India to attract parties as a viable arbitration destination will depend largely on its practical implementation and the co-operation of parties and courts in its process. The interplay of courts and the tribunal in this regime is crucial and the present amendments attempt to strengthen this relationship. The use of block-chain, artificial intelligence in arbitrator selection and document collation mechanisms, new arbitral institutions streamlining the process, and increased prevalence of arbitration across the business, arbitration is likely to get more sophisticated and efficient over time. While India is still making progress with developments in the law of arbitration, the present signs of changes in the field make us optimistic.
“The views of the authors are personal“
Frequently Asked Questions
Is arbitration legally binding in India?
Yes, the Arbitration process in India is something which is followed to end a business dispute. The Arbitration and Conciliation Act 1996 is the key law governing arbitration in India.
What are the essentials of the arbitration agreement?
The signature of the parties is essential to constitute an arbitration agreement. It can be in the form of a signed document by both the parties and comprises all the terms or it may also be a signed document by one party, which contains the terms and an acceptance signed by the other party.
What are the advantages of arbitration?
Arbitration is often faster than litigation in court, and a time limit can be placed on the length of the process. Arbitration can be cheaper and more flexible, more commercial, and less formal than court. Unlike court rulings, arbitration proceedings and arbitral awards are confidential.
Can you sue after arbitration?
Arbitration can be non-binding or binding depending on what the parties agreed upon. While binding arbitration is usually less time consuming and less expensive, it also means that you are basically giving up your right to sue in a court of law.