Column: Making arbitration work

By: and | Published: May 12, 2016 6:14 AM

It is time to establish arbitration institutions across the country for speedy and effective dispute resolution

Alternative dispute resolution received focus when litigants began to feel that Indian courts were unable to provide effective and speedy justice. Gradually, the charm of arbitration as an effective means to speedy disposal waned when arbitral proceedings took almost as long to reach finality as would a proceeding in a court. When the very purpose of arbitration as an effective alternative was being questioned, the legislature wisely introduced the much-needed amendment to the Arbitration and Conciliation Act, 1996, which came into effect on October 28, 2015. Only time can tell the true impact and effect of the amendments to the Arbitration Act, but a speedy, effective and cost-effective dispute resolution methodology is what can be envisioned.

The 2015 amendments require an arbitral tribunal to make an award within 12 months from the date of initiation, extendable up to 18 months with the consent of the parties. Further, cost consequences have been introduced as both a penalty in the case of delay and as bonus in the case of early disposal.

Another significant introduction to the Arbitration Act is the fast-track system for resolving disputes brought about by the inclusion of Section 29B. It provides for an award to be passed within six months of initiation in a case where both the parties have consented to the dispute being conducted in a fast-track or summary fashion where adjudication is on the basis of written arguments alone with no scope for oral arguments.

Mere amendments will not fructify the goal of speedy and effective arbitrations. Learned and independent arbitrators supported by a well-managed system are an absolute necessity to give effect to the amendments. There is no dearth of knowledgeable and experienced arbitrators in our country, with numerous retired judges and technical experts serving as arbitrators. The arbitrators and parties are both inconvenienced due to lack of an effective system to manage and run the arbitration proceedings, and valuable time and money is wasted in coordination and clerical work involved in conducting the proceedings. Therefore, there is a dire need for independent institutional arbitration centres to be established and for them to firmly take roots in the system to give effect to the mandates laid down by the 2015 amendment.

The institutionalisation of arbitration is also the key answer to the challenges that parties face in identifying and appointing an independent and appropriate arbitrator or a panel of arbitrators based on the nature of the dispute.

The advantages of resorting to institutionalised arbitration instead of ad hoc arbitration are manifold. Each arbitration institution has its own set of formulated rules and there is no need for lawyers, parties or arbitrators to spend time on the tedious process of formulating rules and procedure in the case of an institutional arbitration. Secondly, arbitration institutions have the infrastructure required for the smooth functioning of arbitrations, including well-trained secretarial and administrative staff, library and so on, and parties and arbitrators need not spend their time and money on arranging for such infrastructural facilities. Arbitration institutions also have a panel of arbitrators having expertise in varied fields and the profiles of the arbitrators are maintained by the institutions. The identification of an arbitrator suitable to the subject-matter of the dispute itself will facilitate a speedy and fruitful arbitration. As the arbitrators and support staff are subject to the disciplinary rules of the institution, there is a greater degree of confidentiality maintained as compared to ad hoc arbitrations.

In the case of institutional arbitrations, the arbitrator’s fees and administrative costs are predetermined and the parties are able to assess the expenses involved and the claim amount. Contrary to popular notion, institutional arbitrations are often more cost-effective than ad hoc arbitrations. The Supreme Court has appreciated the advantage of institutionalised arbitration in the Union of India versus Singh Builders Syndicate case: “It is necessary to find an urgent solution for this problem to save arbitration from the arbitration cost. Institutional arbitration has provided a solution as the arbitrators’ fees is not fixed by the arbitrators themselves on a case-to-case basis but is governed by a uniform rate prescribed by the institution under whose aegis the arbitration is held.”

The 20th Law Commission of India in its 246th report has opined that the spread of institutional arbitration is minimal and has unfortunately not kick-started, and that the act is institutional arbitration agnostic, as it neither promotes nor discourages parties to consider institutional arbitration. As an attempt to encourage the culture of institutional arbitration, the Law Commission has made various recommendations. With the hope that judges of High Courts and the Supreme Court will take steps to refer disputes to arbitration institutions while exercising their jurisdiction under Section 11 of the Arbitration Act, amendments to the Explanation of Section 11(6)(a) have been recommended. The Law Commission has also suggested that trade bodies and commerce chambers start their own arbitrations centres with the aid of the government. The Law Commission envisions the establishment of Arbitral Commission of India with representation of all stakeholders and dialogues between the legal community and the business community to be the pathway to a new era of institutionalised arbitration.

The functioning of the arbitration institutions in India such as the Delhi High Court International Arbitration Centre, Nani Palkhivala Arbitration Centre, Indian Council of Arbitration and International Centre for Alternative Dispute Resolution has been noteworthy, but private institutions are yet to come to the fore.

The Indian government recognises the need for institutional arbitration centres and has launched the first International Arbitration Centre to be set up in Mumbai. It aims at projecting and developing India as the next hub of international arbitration. India has the potential to emerge as a sought-after seat of international arbitration, given its strategic location in the Asia-Pacific region and its cost-effective services. The large international arbitration centres alone will not serve the needs of parties located across various jurisdictions and only the private institutional arbitration centres can serve the needs of evolving arbitrations.

The future of arbitration and its ability to preserve its characteristics of speedy and effective dispute resolution lie in its institutionalisation. It is time to establish arbitration institutions across the country for the benefit of all.

Manoharan is partner and Natesan is associate, J Sagar Associates

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