Verdict corner: A call for complete overhaul in arbitration law

Written by Indu Bhan | Indu Bhan | Updated: Aug 14 2014, 07:42am hrs
As India attempts to turn into a preferred hub for resolution of commercial disputes through arbitration, the Law Commission, in its 246th report to the government, has suggested some major amendments to the Arbitration and Conciliation Act, 1996.

Although arbitration has fast emerged as a frequently chosen alternative to litigation for almost two decades, it has come to be afflicted with various problems including high costs and long delays, making it no better than time-consuming and expensive litigation.

To achieve the objectives of fairness, cost-effective solution and economy in resolution of disputes, the Commission, chaired by former chief justice of Delhi High Court AP Shah, has proposed minimal interference by courts, time limit to complete proceedings, need for an institutional model of arbitration in India, specialised and dedicated arbitration benches in all high courts, neutrality of arbitrators, and a model schedule of fee structure for arbitrators.

To provide a workable solution to this problem, the Commission has recommended setting up of an Arbitral Commission of India to encourage institutional arbitration in the country and empowering the Delhi High Court to frame appropriate rules for fixation of fees for arbitrators in case of domestic and ad hoc arbitrations.

The spread of institutional arbitration, however, is minimal in India and has unfortunately not really kick-started. The changes suggested by the Commission, however, attempt to encourage the culture of institutional arbitration in India, which it feels will go a long way to redress the institutional and systemic malaise that has seriously affected the growth of arbitration.

Similarly, the Commission seeks to accord legislative sanction to rules of institutional arbitration which recognise the concept of an emergency arbitratorand the same has been done by broadening the definition of an arbitral tribunal under section 2(d).

One of the main complaints against arbitration in India, especially ad hoc arbitration, is the high costs including the arbitrary, unilateral and disproportionate fixation of fees by several arbitrators.

Quick judicial decision is a main attraction for multinational companies. These suggestions will bring about a change in business environment in the country, Shah said.

The Commission notes that international commercial arbitrations involve foreign parties who might have different values and standards for fees for arbitrators; similarly, institutional rules might have their own schedule of fees; and in both cases greater deference must be accorded to party autonomy.

The model schedule of fees proposed by the Commission are based on the fee schedule set by the Delhi High Court International Arbitration Centre, which are over 5 years old, and which have been suitably revised. The schedule of fees would require regular updating, and must be reviewed every 3-4 years to ensure that they continue to stay realistic, the report has recommended for domestic arbitrations.

The expert body also suggested changes that will provide more teeth to the arbitrators interim orders as, at present, such directions do not have any statutory enforcement.

On the neutrality of arbitrators vis-a-vis their independence and impartiality, the Commission has proposed that specific disclosures should be made by the arbitrator at the time of appointment, with regard to existence of any relationship or interest of any kind which is likely to give rise to justifiable doubts.

The importance of arbitration as a commercially significant method of dispute resolution has only grown since liberalisation in 1991. Delays are inherent in the arbitration process, and costs of arbitration can be tremendous. Even though courts play a pivotal role in giving finality to certain issues which arise before, after and even during an arbitration, there exists a serious threat of arbitration related litigation getting caught up in the huge list of pending cases before the courts. The object of quick alternative disputes resolution frequently stands frustrated.

Though the report is quite comprehensive and includes all possible changes, leaving little scope for any changes, it is to be seen whether the government will consider it in totality. Law minister Ravi Shankar Prasad while accepting the report said that the government will seriously consider all the recommendations after having wide-scale consultation with all the stakeholders as to how to make the whole arbitration proceedings more friendly, more quicker, more expeditious, keeping the integrity and transparency of the whole institution of arbitration.