What Indian Arbitration needs to do to make Institutional Arbitration a success in India?

Institutional arbitration in India is fledgling, evolving and yet to reach a stage to successfully address industry concerns. A cultural shift is inevitable for institutional arbitration to be successful in India. In order to keep pace with the rest of the developed and developing world, there is an urgent need to popularize institutional arbitration in India to achieve the foremost objective of arbitration law, viz. to provide a quick and cost effective dispute resolution mechanism. To further the said objective following recommendations are made:

1. Create Awareness:

  • There is lack of awareness in the public of the advantages of institutional arbitration. The Government, Bar Associations and media can help create awareness of the advantages of institutional arbitration.
  • Indian arbitration institutions do not vigorously promote the cause of institutional arbitration and their own services. Foreign arbitration institutions such as LCIA, SIAC and ICC continuously hold conferences, seminars, sponsor and organise workshops with technical and legal experts, which not only promote the cause but also draw potential end users who avail of such services. It is imperative that Indian domestic arbitration institutions should take regular, consistent and pro-active steps to promote themselves and create more awareness of its existence, the calibre of arbitrators on its panel, inform public about its rules, fees charged and the nature of procedural and administrative support it offers.

2. Cultural shift: The real problem in enforcing arbitration award is not a legal one. Judges and courts can play an important role in encouraging parties to refer disputes to institutional arbitration and lean towards giving an adequate thrust to the arbitration process and uphold awards showing least tolerance towards parties committing breach of contractual obligations or challenging the award. It is necessary for law firms, counsels and lawyers to know and uphold the objective of the latest amendments to the Arbitration and Conciliation Act, 1996, respect the will of the parties and adopt practises conducive to making arbitration speedy, cost effective and binding. The Indian Arbitration forum was set up by a few law firms with an objective to liaise with the Government to introduce reforms which is a step in the right direction.

3. Establish more arbitration institutions: There is such a dearth of strong credible Indian international arbitration institutions. Certain trade associations like FICCI and ASSOCHAM have set up reputed centres such as ICA and ICADR. Then there are centres such as IIAM, Nani Palkhiwala Arbitration Centre at Chennai and IMC in Mumbai, which are but a few centres having made some inroads. However, India is still not a preferred international arbitration destination. If one of the party to the dispute is a foreign national then foreign international arbitration institutions such SIAC or LCIA or ICC are preferred since arbitration in India is seen as mired with undue delay, exorbitant costs and needless court intervention. Hence, setting up more arbitration institutions in India can help regulate and streamline the arbitration process and thereby allow more people to use institutional arbitration. The more established arbitration institutions there are, the more likely India will become a preferred international arbitration destination.

4. Role of Trade Houses and Business Communities: Trade and business community may take a lead and come forward to set up arbitration centres all across India. A good example is to be found in the stock exchange arbitration mechanism. In the event each industry sector has its own specialised arbitration centre with experts from the field appointed as arbitrators, members of such trade associations could resolve their disputes with utmost speed and at reasonable costs.

5. Rules of arbitration institutions: Institutions should give great emphasis to formulating its rules. Well established uniform rules can deal quickly and efficiently with many delaying tactics and/or assist the arbitral tribunal to discourage frequent and baseless adjournments, ensure continuous sittings for arguments and evidence which in turn enables the arbitrator to publish an award within stipulated time making the arbitration process strictly time bound. Uniform rules can efficiently deal with many procedural issues that might otherwise have to be resolved by a domestic court. There must be provision in the rules to remove any arbitrator who lacks independence or is otherwise not performing his or her functions properly and appoint a substitute in his or her place. Rules should also provide a pre-award scrutiny, which limits appeals and time consuming procedures.

6. Enforcement of interim orders: An arbitral tribunal has no mechanism or authority to enforce compliance of interim orders passed by the arbitrator. Judicial support to enforce interim orders, including initiating contempt proceedings against defaulting party, secures implementation of the interim orders passed. Further, decisions of the High Court which govern such interim orders passed by arbitrators, and which do not substantively decide the rights of parties, should be made non-appealable. Punitive costs ought to be awarded by courts for non compliance of interim orders.

7. Panel of arbitrators: It is often said that arbitration is only as good as the arbitrators. Factors such as credibility and integrity (read non-corruptibility), linguistic skills, knowledge and expertise in technical and legal field, dedication of sufficient time to read case papers, attend all hearings and meetings, remain neutral and independent from parties and decide a case with impartiality are critical, essential and significantly impact the arbitration process and its outcome. Confidence in the arbitrators and the arbitration process results in credible arbitration practice and allows issues to be resolved fairly and efficiently. Institutions ought to uphold minimum quality standards whilst impaneling arbitrators. Independent arbitration institutions may go further and even impart training for nurturing competent professionals who are trained to delve into the crux of the dispute for its resolution. There is need to move away from the practice of appointing only retired judges as arbitrators but have a diverse panel which is possible only with institutional arbitration.

8. Costs and fees: Prevalent high cost of ad-hoc arbitration in India is a factor that prevents arbitration from being effective. Insertion of fourth schedule with respect to fees of arbitral tribunal in the Arbitration and Conciliation Act, 1996 is a right step towards rationalization of fees which will make ad-hoc arbitration less expensive. Fees of institutional arbitrators may be based on the value of the claim or on hourly basis so that parties know the costs upfront which will enable them to make an informed choice. Additionally it may help in empowering parties to stipulate a specific arbitration institution to be name in their contracts.

9. Enforcement of award: Special dedicated judges/bench hearing arbitration matters will ensure disposal in a time bound manner in accordance with the time stipulated in the amended Act. No automatic stay ought to be given. Conditional stay may be granted on compliance of strict terms, including depositing the award amount in court diminishing the incentive to challenge award / litigate to a great deal. Courts ought to award punitive costs in the event the arbitrator finding on evidence the existence of perjury and/or fraud.

By –

Ashish Bhakta