India is slowly moving towards a modern economy. As per the OECD 2017 economic survey India’s growth was marked at 7.5% which made India the fastest growing G20 economy.i Its GDP (Gross Domestic Product) is expanding rapidly. Since two decades it has been a priority for policymakers to provide better investment opportunities and a hassle-free trade mechanism.ii At the same time, Indian lawmakers are focusing to provide better provisions of enforcing contracts and quick and easy of means for resolution of disputes.”
India is progressing towards improving its global perception of doing business in India. According to the “World Bank’s rating on Ease of Doing Business 2018”, India ranked “100 out of 190 countries as compared to 131 in 2016”.iii According to areas tracked by Doing Business in 2016-2017, India was amongst the “top 10 economies improving the most in reforms reducing complexity, cost of the regulatory process in the area of starting a new business, getting credit facilities and improving in the area of trading across borders”.iv
Even after prioritizing all the reforms India still has a less effective legal system. It is a known fact that India has huge pendency of cases in various courts. As of 10.02.2018, there are “more than 25 million cases pending”.v As a World Bank’s study, India is ranked as 164 on the ease of enforcing contracts and still takes 1,445 days to resolve a dispute. The cost for dispute resolution is 31% of the claim value. The quality of judicial process which includes “court structure and proceedings, case management, court automation and alternative dispute resolution is also poor it is indexed at 10 out of 18”.vi
The above-mentioned statistics have been consistently present in the India judicial system. These statistics were driving away all the investors away from India. There was a die-hard need felt for out of court dispute resolution system to speed up the dispute resolution. Due to which various forms of Alternative Dispute Resolution mechanisms were introduced namely Arbitration, Conciliation, Negotiation and, Mediation.”
The then Arbitration Act of 1940 was discouraged heavily on the ground of too much judicial intervention and lack of smooth proceedings.vii Consequently, the Arbitration and Conciliation Act, 1996, based on the 1985 United Nations International Commission on International Trade Law (UNICTRAL) model law and rules, was enacted.”
Due to its flexibility and unique process, arbitration becomes the celebrated dispute resolution mechanism in international trade disputes. India now is aiming to encourage arbitration and starting to make efforts to become a hub for international arbitration. Further to reach the desired goal the 1996 Act which led to various practical problems, crucial changes were brought by Arbitration and Conciliation (Amendment) Act, 2015. In addition to this amendment, a new statute came into existence which was aimed at revitalising India’s commercial dispute resolution ecosystem.”
However, there were certain issues felt in making India a Global Arbitration. In a global conference organised by NITI Aayog on “National Initiative towards Strengthening Arbitration and Enforcement in India”, there were three areas where drudgery was needed – “Firstly, there was a need to restructure the framework governing the arbitration. Secondly, there is a deficit in infrastructural support to encourage international arbitration. Thirdly, need to create awareness regarding arbitration as the best mode for dispute resolution”.viii
To encourage the dispute resolution through arbitration there is need to promote institutional arbitration in India. It is well-known fact that arbitration in India is predominantly conducted through the ad-hoc method and institutional method is not preferred. In the year 2016 out of 307 cases administered by “Singapore International Arbitration Centre (SIAC) 153 involved Indians”.ix In the recent times, there are steps being taken to promote institutional arbitration. In a recent discussion in the 8th BRICS summit at Goa, “a creation of BRICS-Centric arbitration centre was deliberate, with the aim of offering services on arbitrating international commercial disputes between BRICS countries”.x
In December 2016, a High-Level committee to review the institutionalisation of arbitration mechanism in India was created under the chairmanship of Justice (Retd.) B.N. Srikrishna. The objective of this committee was to “identify issues in the arbitration process and to find out the challenges faced in the development of institutional arbitration”.xi The committee has submitted a Report titled “Report of the High-Level Committee to Review the Institutionalisation of Arbitration Mechanism in India” on August 3, 2017 suggesting reforms to the arbitration in India.
Significance of Arbitration in International Commercial Arbitration
Among all the other alternative dispute resolution mechanisms arbitration is considered as the best technique for resolving commercial disputes.xii Party’s autonomy allows the whole process consensual and private in nature. It allows the parties to decide the law through which the dispute needs to be resolved. The whole process aims at out of court settlement making it faster and convenient. Theoretically, arbitration can be conducted without judicial intervention. The tribunal is “appointed by the parties, its powers and duties are also decided by the parties, all included in the arbitration agreement”.xiii
An award is made by the tribunal according to the arbitration rules and regulations agreed by the parties. It is ensured by the tribunal that Due process and Principles of Natural justice are followed. According to some thinkers, there is no need of the law to govern the process the agreement enters by the parties is sufficient.”
However, there is need of law and courts intervention can be allowed in specific circumstances. According to Lord Mustiill, there is a relationship between courts and arbitration. He puts it as: “Ideally, the handling of arbitral disputes should resemble a relay race. In the initial stages, before the arbitrators are seized of the dispute, the baton is in the grasp of the court; for at that stage there is no other organisation which could take steps to prevent the arbitration agreement from being ineffectual. When the arbitrators take charge they take over the baton and retain it until they have made an award. At this point, having no longer a function to fulfill, the arbitrators hand back the baton so that the court can, in case of need, lend its coercive powers to the enforcement of the award.”xiv
The above statement though talks about the relation between the litigation and arbitration, but it can totally be applied to today’s arbitration system has. It has become a dominant method in resolving the international commercial disputes. The arbitration has become the costly form of dispute resolution. No regulation of Ad-hoc arbitration has led to this situation, nevertheless. Modern arbitration is facilitating the resolution in well organized and cost-effective manner through well-institutionalized centers and is contributing to the global economic development.
Concept of Institutional Arbitration & Ad-Hoc Arbitration
It is important to understand that parties are free to choose the method of arbitration. It depends upon the facts and circumstances of their dispute. In India, parties have preferred ad-hoc method of arbitration, whereas internationally institutional arbitration is a preferred method of dispute resolution. Therefore, it is important to understand both forms as they are having their own pros and cons.”
Meaning of Ad-Hoc Arbitration
It can be defined as “a method of arbitration under which the parties where parties and the arbitral tribunal will conduct the arbitration according to the procedures which will either be previously agreed upon by the parties or in the absence of such agreement be laid down by the arbitral tribunal at the preliminary meeting once the arbitration has begun”.xv
Therefore, under this method, the arbitration is conducted and arranged by the parties themselves and there is no involvement of the third party such as an institution. The proceedings are conducted by an arbitrator appointed as per the agreement between the parties. All the aspects related to arbitration needs to be decided by the parties themselves like the procedure of conducting arbitration, number of the arbitrators, how the appointment would be made, rules and regulations applied to the arbitration.”
However, as there is no institution involved in it is important to that the parties agreeing to arbitrate should have the spirit of co-operation and has the intention to accept the award passed by the arbitrator. This process can be “flexible, cheap and less time consuming as there is no administrative body involved in the process”.xvi
Features of Ad- Hoc Arbitration
Ad-hoc arbitration can be the best method of arbitration due to the reason that all the process is depending upon the parties and there is no manner in which any other authority or third party can interfere in it. This allows the parties to resolve the dispute in a “faster, cheaper and efficient manner”.xvii However, according to one school of thought, it is the responsibility of the appointed arbitrator to look for the best interest of the parties and administer the entire process in a well-organized manner.
“Enhanced Flexibility: As mentioned above the main feature of ad-hoc arbitration is freedom of the parties to decide all the aspects relating to the process. This allows the process to be immensely flexible and party friendly.
Speedy Disposal: The flexibility in deciding the process of dispute it permits the parties to decide and pick laws and rules that would make the process the faster. In some cases, the parties also decide not to discuss certain matters in the arbitration to save time.
Cost Saving: As there is no institution and administrative body involved in the dispute the cost of resolving a dispute comes down to a large extent. The major costs involved in the process is relating to the fees of the arbitrators and experts appointed as adjudicators and representatives to resort the dispute”.xviii
Meaning of Institutional Arbitration
It is that method of arbitration where the whole arbitration is conducted by an established arbitral institution or organization. The arbitration agreement itself provides for appointment arbitral institution. The parties specifically provide that the in case of any dispute arises in the period of contract the dispute would be solved through institutional arbitration.
In the case of Nandan Biomatrix Ltd. vs. D. 1 Oils Ltd,xix it was agreed between the parties agreed to the resolve the dispute through institutional arbitration. The issue arose whether not providing specific name of the arbitral institution and only agreeing to resolve the dispute through institutional arbitration would make the arbitration agreement invalid. It was held that as the parties unequivocally agreed to settle the disputes through institutional arbitration and not though ad-hoc arbitration. Therefore, there existed a valid arbitration agreement between the parties.”
These intuitions are preferred by the international business community as it provides them various services.xx Such as providing a specific arbitration procedure, experienced panel of arbitrators and expertise that provide a quick and effective dispute resolution process. Some of the famous arbitral centers are The London Court of International Arbitration (LCIA), The Chartered Institute of Arbitrators UK, The National Arbitration Forum USA and The International Court of Arbitration Paris Singapore International Arbitration Centre, Hong Kong International Arbitration Centre (HKIAC).”
Features of Institutional Arbitration
There are several major advantages of institutional arbitration as compared to its counter-part ad-hoc arbitration. These intuitions provide for professionals and pre-established infrastructure and rules.xxi
“Pre-Determined arbitration procedure: all the popular institutions provide for an arbitration procedure and the saves parties and their lawyers the effort of determining the arbitration procedure and some institution also the provide service of drafting an arbitration clause.
Updated rules in lieu of latest developments: it provides for updated rules taking into consideration the latest developments that are taking place in arbitration practice. This ensures that there is no ambiguity in relation to the arbitration process.
An efficient panel of Arbitrator and professional support: this is one of the major benefits of institutional arbitrator International arbitration institutions usually benefit from vast databases of arbitrators in order to assist parties in appointing appropriate arbitrators for the resolution of their disputes. The institutions have panels of experienced arbitrators specializing in various areas like construction, maritime, contract, trade, commodities, etc. available to them.
Well-built Infrastructure: these institutions have a tremendous work ethic and provide latest infrastructural facilities. They have sophisticated conference halls etc. All the above-mentioned advantages make the complete procedure speedy, risk-free and efficient and swiftly take the dispute resolution process toward better form”.xxii
However, besides all the advantages the biggest problems arise due to the superfluous flexibility arise in the ad-hoc arbitration.
Issues with Arbitral Institutions in India
It has been a decade since policymakers had dreamed of making India a hub international commercial arbitration. But still the dream could not be fuelled, there are several reasons for this. The former chief justice of the Supreme Court of the United States of America Warren E. Burger while addressing the American Bar Association said that:
“The entire legal profession has become so mesmerised with the stimulation of the courtroom that we tend to forget that we ought to be healers of conflicts. For many claims, trials by adversarial contests must in time, go the way of the ancient trial by battle and blood. Our system is too costly, too painful, (…). As healers of human conflicts, the obligation of the legal profession is to provide mechanisms that can produce an acceptable result in the shortest possible time, with the shortest possible expense and the minimum of stress on the participants. That is what justice is all about”.xxiii
The statement was made in the context of litigation and it was felt that there is need for Alternative Dispute Resolution (ADR) in our judicial system. But this current system fits perfectly in today’s arbitration mechanism especially the Ad-hoc arbitration. The dispute resolution has been too costly, too painful and moreover time-consuming. Therefore, there was needing felt for institutionalising arbitration in India.”
To address the same a High-Level Committee was set up by an order dated on January 13th, 2017 by the Ministry of Law and Justice, Government of India. The committee was chaired by Justice B.N. Srikrishna (Retired judge, Supreme Court of India). The “object of the committee was to:
1. To identify issues those are affecting the current arbitration mechanism in India.
2. To create a roadmap for making India a hub for international and domestic arbitrations”.xxiv
The committee came out with a report on 3rd August 2017 “Report of the High-Level Committee to Review the Institutionalisation of Arbitration Mechanism in India”.xxv The report is divided into three parts – “Part I deals with institutional arbitration in India, the current state of institutional arbitration and ad-hoc arbitration and various other aspects relating to the same. Part II deals with the case study of the ICADR and the Committee’s recommendations for its reform. Part III of the Report deals with the role of arbitrations in BIT disputes involving the Union of India”.
As per the reports, there is a preference for Ad-hoc arbitrations by Indian parties. But the report suggested that there is a relative advantage of institutional arbitration over ad-hoc arbitration. The same has been discussed in chapter II of this paper in details. It was observed that not only the small disputes but also gigantic commercial disputes were solved through ad-hoc arbitration.”The report said that “India has not fully embraced institutional arbitration as the preferred mode of arbitration despite the existence of several institutions which administer arbitrations”.xxvi
Current situation of Arbitral Institution in India
As per the report there are more than three dozens of arbitral tribunal present in India, like the “International Centre for Alternative Dispute Resolution (ICADR), Indian Council of Arbitration (ICA), the Delhi International Arbitration Centre (DAC), and recently added in the list the Mumbai Centre for International Arbitration (MCIA). Some of these institutions have their own set of arbitral rules or administer under United Nations Commission on International Trade Law (UNCITRAL Arbitral Rules)”.xxvii
It is worthwhile to mention that 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 International Chamber of Commerce (ICC) and the SIAC. Recently the LCIA India has even closed its office in India due to insufficient caseload.
Even after having an edge over the ad-hoc form of arbitration in India the parties do not prefer the institutional arbitration. There are certain reasons why these institutions are not gaining popularity among Indian parties. The report suggested that there is need to change the structure these institutions are working in India.”
Development of Arbitral Institutions in India
The report by the High-Level Committee discusses in detail regarding the development of the above mentioned Arbitral Institutions and the reasons why these institutions are the most preferred among the parties. Briefly, the reasons are
“Efficient Governance: This is probably the major reason why they are most preferred arbitral institutions. All these institutions have modern and updated rules which allow them to offer parties more flexibility. Services like scrutiny of the draft arbitral award and other potential defects make them more preferable. These have experienced panel of arbitrator having international expertise and a well-organized administrative staff. The state of the art infrastructure is available for conducting the whole process.
Adequate Support from the government: The foremost reason given by the committee was that among two of the top five arbitral intuitions namely the SIAC and the HKIAC were immensely supported by their respective governments. The governments provided them adequate financial and infrastructural support as well as playing an important role in promoting them to international level. Maxwell Chambers was also established through the government support. This indeed is a problem in India.
Though, the New Delhi International Arbitration Centre (NDIAC) Bill 2018 which was recently introduced in Lok Sabha is a positive step toward institutionalising arbitration in India.xxviii The bill provides for the takeover of the existing International Centre for Alternative Dispute Resolution, also proposes to set up an arbitration chamber.
Significant role Business Community: To fulfil the need of business of community asking for effective resolution services led to the establishment of several arbitral institutions HKIAC and ICC Court both were establish to fulfil the needs of the business community.
Supportive Arbitration Jurisdiction: The popularity of these institutions is due to the supportive legislative system. These jurisdictions such as Singapore, Hong Kong, and London are completely arbitration friendly seats. They have the better business-friendly environment and also provide for better legal services. The local legislative framework provides priority to party autonomy, the efficacy of proceedings, the sanctity of arbitral awards and the provision of ample court assistance in arbitrations.
Less Interference by Judiciary: According to the report all the mentioned arbitral institutions are blessed with a judicial system which is very supportive of arbitration. They not only respect the party’s autonomy but also preserve the sanctity of the arbitral award. Whereas in India too much intervention under the proceeding and erroneous interpretation of provisions of Arbitration and Conciliation Act has made it more difficult to arbitrate”.
All these reasons were observed by the committee. Nevertheless, some of the feature even the Indian government is trying to adopt and make India an International hub for arbitration. This chapter answers the second question that what are the reasons why institutional arbitration is not preferred in India. The working of the top Arbitral institutions gives a fair idea as to what steps can be taken to improve the current situation to make India an arbitration-friendly jurisdiction.
Key recommendations & suggestions by Sri Krishna Committee
After all the observation made by the committee, the reasons were identified regarding the unpopularity of institutional arbitration in India. On the abovementioned reasons in the above-mentioned chapters, the committee proposed some recommendation to improve the overall governance of arbitral institution and what can be done to boost institutional arbitration in India.
To increase the quality and performance of arbitral institutions and to solve the problems in their working following recommendations are made:”
“Establishment of Statutory Autonomous body: Arbitration Promotion Council of India (APCI) should be established at national level. This autonomous body would comprise of the representatives from the government, legal community, and arbitral institutions. The members of the body shall have substantial expertise in arbitration. The main function would be grade the arbitral institutions as per the grading policy, to make recommendations regarding the governance of institutions, conduct researches etc. and would always make an effort for promoting Institutional Arbitration in India. On the grade given by APCI, the High Courts and Supreme Courts may be encouraged to designate arbitral institutions as authorities for appointing arbitrators suggests that there is a need for accreditation of arbitrator as this is one of the major issues faced by the arbitral institutions. A group of the qualified and experienced arbitrator will change the entire perception regarding the institutions. In order to be chosen as a member of the arbitral institution, the professional would require adequate education, substantial experience as an arbitrator and professional and moral standing. The selection can be done with the help of interviews, qualifying examinations, professional education from reputed institutes etc. can be taken into consideration. No separate body will be created APCI would administer it.
Establishment of a specialist bar: For speedy and efficient governance of arbitration preceding the Committee is of the opinion that there should be an establishment of a specialist arbitration bar and arbitration benches in India. The arbitration bar would comprise of a young and trained pool of arbitrators who has substantial expertise in arbitration and accredited by the APCI.
Establishment of a specialist bench: The specialist arbitration benches, on the other hand, would deal with arbitration disputes such as the challenge of an award under section 34 of the Arbitration and Conciliation Act and resolve the uncertainty. Judges of Commercial courts will also be forming part of this bench and would be provided with periodic refresher courses on recent developments in arbitration. This would help to reform arbitration by having lawyers and well-informed judges who can promote best practices of international arbitration in India.
Creation of Standing Committee: To ensure that the Indian arbitration laws and practice are in line with the recent development, a standing committee can be constituted under the authority of APCI. The function of the committee varies from reviewing to government’s policy on arbitration to promoting institutional arbitration. It would also be regularly monitoring the provisions of Arbitration and Conciliation Act.
Enhanced Role of Government: The government’s role would be to actively encourage institutional arbitration and provide infrastructural support. The government may facilitate institutional arbitration by helping build a physical infrastructure and also take steps to build integrated infrastructure such Maxwell Chambers.
Promote Mediation as a viable ADR mechanism: According to the committee, there is need to create a difference between ADR mechanism and litigations. Other forms of dispute resolution are also equally important. The committee stressed on the promotion of mediation, as there is a boost in the use of meditation as a form of dispute resolution. There has been a considerable progress in the conduct of mediation. The ‘Med-Arb’ combination is also praised for being more efficient and has greater party autonomy than mediation and arbitration separately. It is suggested that all the arbitral institutions should also provide for mediation services through a cell. APCI has been authorised to set standards to enroll the mediators”.xxix
Thus, these are the recommendations given by the committee in brief and this proves that if all these recommendations are fulfilled then surely in coming years India can be a hub for international arbitration and mediation.
High-Level Committee to review and reform the institutionalisation of arbitration, SAIC’s tie-up with Gujarat International Finance Tec-city, discussions about BRICS-Centric Arbitration Centre shows that we are moving to the right direction.
In order to make India a global hub for International arbitration and mediation there is a need to face-lift and revamp the entire structure of arbitral institutions. The issues faced by the institutions can be resolved through the recommendations of the committee. There is an urgent need to understand that there is a difference between ADR and Litigation. ADR specifically Arbitration and Mediation are the unsurpassed forms of dispute resolutions.
However, this can be only done with the support from the entire stakeholders in the process. The business community should start understanding the potential of Institutional arbitration and indulge in resolving the dispute in an efficient manner. Secondly, it is the responsibility of state to create an arbitration friendly environment by supporting these institutions by providing required financial and infrastructural support. Legislative and the judiciary need to work together and bring out a policy which would support party autonomy rather than imposing mandatory rule.
It is equally important to ensure that the institutional arbitration in India is speedier and more cost-effective. To achieve a continuous effort would be required by the arbitral institutions and gain the confidence of parties to move towards mitigation instead of litigation. This can be achieved by providing state of the art facilities, experienced arbitrators, and effective administrative body and well-designed framework.”
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viii. Bibek Debroy and Suparna Jain, Strengthening Arbitration and its Enforcement in India – Resolve in India (2016).
ix. Mridul Godha, Kartikey M., The New-Found Emphasis on Institutional Arbitration in India, Kluwer Arbitration
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xix. Nandan Bio Matrix Ltd. v. D1 Oils Ltd, (2009) 4 SCC 495.
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xxv. The Report, page 15.
xxvi. The Report, page 13 para 2.
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