Column: Taking a pro-arbitration turn

May 15 2014, 21:01 IST
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SummaryDespite challenges, especially from the judiciary, India is opening up to arbitration for dispute resolution

Based on the UNCITRAL Model law on International Commercial Arbitration, 1985—and superseding the Arbitration (Protocol and Convention) Act, 1937, Indian Arbitration Act, 1940 and the Foreign Awards (Recognition and Enforcement) Act, 1961—the Arbitration and Conciliation Act (1996 Act) was enacted with the objective of encouraging arbitration as a cost-effective and quick mechanism for dispute settlement. However, the 1996 Act’s objectives were not effectively fulfilled due to various factors such as increased judicial intervention, issues in appointment and jurisdiction of arbitral tribunals, difficulty in enforcement of foreign awards, etc.

However, recent developments have resulted in a revival, making India a pro-arbitration destination. This can be attributed to the efforts to promote arbitration in India by executives, legislatures and the judiciary. But a few challenges and issues still persist.

Challenges

Expensive, lengthy proceedings: Indian arbitration panels are known for frequent adjournments that contribute to long arbitration time-spans. Often, arbitrators lack the expert knowledge required to resolve disputes and calculate claimant’s damages, leading to further delay and numerous appeals against final awards. According to an EY study, 50% of respondents believe that Indian arbitration does not provide timely resolutions and 46% agree that arbitration in India is not cost-effective. International arbitration has, therefore, been a preferred choice for many due to its procedural rules, fixed costs and support services.

Judicial logjams: Appeals against arbitral awards lie with concerned high courts and, more often than not, parties aggrieved by the panel’s award take the appeal route. A problem with Indian courts is their traditional attitude towards arbitration. Some experts assert that judges are suspicious of the whole arbitral process altogether or are uncomfortable with the idea of a court’s jurisdiction being outsourced to other tribunals, where the decision-makers may not be persons acquainted with the law.

Judicial intervention at various stages stretches arbitral proceedings as Indian courts are typically known for giving frequent adjournments. The Supreme Court (SC), especially, has assumed the role of a frequent judicial interventionist and recent decisions have only increased the challenges to foreign arbitral awards, generating uncertainty regarding enforceability in India. However, recent Supreme Court judgements show a major shift in approach towards arbitration proceedings.

Non-amendment of laws: Although the law ministry, on many occasions, planned to amend the 1996 Act to make it more international-arbitration-friendly, only recently has it proposed a fresh bill to make arbitration, especially international commercial arbitration, more workable.

Latest trends

A recent EY report highlights that India is witnessing

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