Rationalizing Institutional Arbitration vis-a-vis the Arbitration and Conciliation [Amendment] Act 2019

Progress is impossible without change, and those who cannot their minds cannot change anything” – George Bernard Shaw.

Arbitration is considered to be one of the most convenient alternatives to court litigation; for the disputes are resolved in a progressive and cost-effective manner. Given the overstressed judicial system in India and the exigency for faster resolution of issues, arbitration has gained prominent credibility in disputes related to commercial law.

Generally, the type of arbitration followed in India is the ‘Ad-Hoc Arbitration’. It is considered to be a “parties’ dominated” method; wherein the parties are entitled to appoint the Arbitrators and, can also decide that which law shall be governing the arbitral proceedings.

But just like a coin has its two sides; an ad-hoc Arbitration has its own set of pros and cons. Despite being the most preferred method; there are many cases, where the results don’t end up as fruitful as desired by the parties. Reasons being, an ad-hoc Arbitration mostly relies on the full effectiveness and co-operation of the parties and if parties don’t adhere to the same zeal throughout the proceedings, then they might end up in despair. Given to parties’ entitlement, it equally places a responsibility on them to appoint Arbitrators who are proficient, skilled and knowledgeable. Lack of expertise is one of the major drawbacks of an ad-hoc arbitration.The failure of the ad-hoc Arbitration methodology to address the problems at hand, resulted in the inception and introduction of a new concept called the ‘Institutional Arbitration’. In this method, the whole arbitral proceedings are conducted by an established arbitral institution or a reputed organisation.

The author is not discouraging the parties from preferring an ad-hoc arbitration method; but is emphasizing on giving an equal importance to institutional Arbitration as well. In an institutional Arbitration, the entitlement and the responsibility of the arbitral institution is designated by the Arbitration agreement itself. The parties specifically provide this clause in the contract, that if there is any dispute that arise during the period of contract, then it shall be referred to Arbitration and shall be solved by institutional Arbitration.

In case of NandanBiomatrix Limited. v. D1 Oils  Limited [(2009) 4 SCC 495] , the issue arose that whether not providing the name of a specific arbitral institution and simply agreeing to resolve the dispute by opting an arbitral institution would make the Arbitration agreement invalid. The Court held that there was an agreement between the parties that issue shall be settled through arbitral institution thus the agreement was valid.

Institutional Arbitration has already gained a lot of credibility and is still highly encouraged in international arena of Arbitration. Some of the known institutions are the London Court of International Arbitration [LIAC], Dubai International Arbitration [DIAC], Dubai International Finance Centre [DIFC] and International Chamber of Commerce [ICC], Hong Kong International Arbitration Centre [HKIAC]. There are some institutions who specifically deal with particular trade associations and commerce like; the Palm Oil Refineries Association of Malaysia or the Malaysian Rubber Exchange.

Some of the advantages of institutional arbitration are as follows –

  • Institutional Arbitration have their own framework of rules and regulations with respect to administering the arbitral proceedings within an allotted time frame.
  • These rules are updated from time to time by the institution. The parties are well informed about these rules in advance of any actual dispute. This lessens the burden of negotiating the rules of meeting on the spot and allows for faster resolution.
  • An arbitral institution in order to provide speedier resolution, makes sure to set strict schedules with respect to parties’ exchange of pleadings, the meeting and publication of final award.
  • Arbitration institution always offers a panel of highly knowledgeable and talented Arbitrators to preside over arbitral proceedings. Parties don’t have to take the pain of approaching to the court for the appointment of Arbitrators.
  • Another advantage is that the institution trains their staff, to efficiently administer the arbitral proceedings. The duty of the administration department is to make sure that the parties adhere to the strict guidelines imposed by the institution and respect the proceedings.
  • Parties don’t have to bang their heads on deciding the remuneration for arbitral tribunal, for the institution has determined scale of remuneration and thus collects from the parties. Arbitrators are not directly involved in this.

Despite promising with such benefits, parties in India still prefer for ad-hoc Arbitration. But it has to be understood, that the ad-hoc method has become cumbersome, costly and time-consuming and hence, that’s why, there is a need of institutionalization of Arbitration.

To address the same, a committee was set by an order dated – 13th January 2017, by Ministry of Law and Justice, Government of India. The committee was headed by Justice B.N Srikrishna [Retired Judge, Supreme Court of India]. The committee’s main objective was to identify and resolve the issues which were affecting the current Arbitration mechanism in India and thus, make India a hub for international and domestic arbitration.

Soon the committee came up with a report on 3rd August 2017 titled –“Report on High-Level Committee to Review the Institutionalization of Arbitration Mechanism in India.” The report stated that despite the existence of numerous institutions in India, people are still clinging to ad-hoc Arbitration. The report further elaborated on the advantages of institutional Arbitrationand how India should try to embrace it with an open heart. Some of the recommendations made by the committee to reform governance of arbitral institutions are as follows –

  • Firstly, the report emphasised on the establishment of Arbitral Council at national level. The main functions of the council would include framing policies for grading arbitral institutions and accrediting Arbitrators, forming policies for establishment of operation and maintenance of the codified rules for all alternative dispute matters.
  • Secondly, a specialist bar and specialist bench has to be established. Specialist bar would comprise of young and talented Arbitrators who have substantial knowledge in matters related to ADR. On the other hand, special benches comprising of experts in the field of alternative dispute resolution could help resolve the problem to a large extent.
  • Third, the report also proposed the establishment of a standing committeeunder the authority of Arbitral council. Their main task varies from reviewing the government’s policy on ADR to promoting institutional Arbitration.
  • Fourth; Government’s role should be actively encouraged in development of institutional Arbitration by providing infrastructural support.

The report, not only paved the way to Arbitration and Conciliation Amendment Act 2019, but also to NDIAC [New Delhi International Arbitration Centre] Act 2019. The NDIAC Act seeks to establish NDIAC [subsequently replacing ICADR] which shall be a breeding ground for qualified exceptional Arbitrators and Conciliators who have the zeal to work hard and dispense knowledge at its best.

The Arbitration and Conciliation [Amendment] Act 2019,  was passed by the Upper House of Parliament [Rajya Sabha] on 18th July 2019 and subsequently on 1st August 2019, it was passed by the Lower House of the Parliament [ Lok Sabha] . Finally on 9th August 2019, the Act received the assent from the President and, was thus promulgated as the Arbitration and Conciliation [Amendment] Act 2019, Act No. 33 of 2019. The Amendment Act 2019 has further pushed the initiative of establishing Arbitration institutions and; thereby empowered the Supreme Court and High Courts to specifically designate an arbitral institution in order to perform crucial functions of arbitration proceedings. It introduced the definition of ‘Arbitral Institution’ [which is designated by Supreme Court or High Court based on their grading by arbitral council] under Section 1 (ca) of the Arbitration and Conciliation Act 1996.

Part 1A has introduced the concept of ‘Arbitration Council of India’. The council shall be established by the notification of the Government. The headquarters of the Council will be located at New Delhi, India. The Chairperson of the Council can be –

  • A Judge of the Supreme Court; or
  •  Chief Justice of a High Court; or
  • Judge of a High Court; or
  •  Any eminent person

The Chairperson, although, must have a substantial knowledge and expertise in Arbitration.While the members of Council shall include eminent arbitration practitioners who have substantial knowledge in Arbitration. Ex-officio members of the Councilwill include–

  • Secretary to Government of India in Department of Legal Affairs [Ministry of Law and Justice] and,
  • Secretary to Government of India in Department of Expenditure [Ministry of Finance]; or
  • Their respective representatives not below than the rank of Joint Secretary.

Although Section 11 (6)(b) of the 2015 Amendment Act clearly mentions that the delegation of powers of appointing to concerned arbitral institution does not amount to delegation of judicial power, yet, in many cases courts have always considered it as a judicial function. Now the applications for appointment which were earlier filed before Supreme Court [in case of International Commercial Arbitration] and High Courts [in case of Domestic Arbitration], will be now filed before an arbitral institutions.

Furthermore, the challenges regarding delegating the duty of appointment of Arbitrators from Court to arbitral institutions, will be directly dealt by the Supreme Court under Article 136 of Constitution of India.Change is the essence of life, however, it has to be made sure that the above- mentioned benefits of institutional Arbitration are kept intact.The Institutional Arbitration system being more cost-effective and less cumbersome is likely to achieve greater success but it must not adopt the policy of laissez faire, but it must continue to involve by constantly developing new strategy to keep pace with the recent and likely future developments in face of new policies. In fact both the methods of Arbitration are to be encouraged equally, but the responsibility to transform these methods into success formulas depends upon the parties, Arbitrators and the government who can vouch for it.

BY: NAVIN KUMAR JAGGI & K. AISWARYA

 

Navin Kumar Jaggi 
on 26 November 2019
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