THE CASE FOR INSTITUTIONAL ARBITRATION IN INDIA: A MISSED OPPORTUNITY OR AN OCEAN OF POSSIBILITIES?
This is a co-authored article by Ms. Tanisha Prashant and Damini Chauhan, 4th-year student of the Institute of Law, Nirma University, Ahmedabad. In this article, they explained the concept of institutional arbitration.
“Nothing is possible without men, but nothing lasts without institutions”
– Jean Monnet
The idea of Arbitration is not novel to India. Despite having been introduced for quite some time, we have failed to thoroughly explore the different facets that arbitration has to offer. India seems to have made its peace with ad-hoc arbitration and appears to be pretty content with the functioning of it, thus neglecting the intrinsic drawbacks of it. The primary objective of arbitration is to lessen the burden on judiciary and to provide an expeditious disposal to disputes. Thus, If India truly wants to realize these objectives then, Institutional Arbitration is the need of the hour. This paper gives an insight into the status quo of Institutional Arbitration in India and challenges posed to it. It also distinguishes the Institutional Arbitration with Ad hoc Arbitration and draws comparison with well- established hubs of Arbitration across the world. Further, it outlines the major feature of New Delhi International Arbitration Centre Bill, 2019 while analysing the same.
Arbitration as a process aims at production of acceptable results, in shortest possible time with minimum expense and minimal stress on the participants. To which, Institutions prove to be the most effective forum in administering this process. Presence of effective and strong institutions in countries has been found to be the key to their capacity development process in all fields. The Institutional arbitration refers to the settlement of disputes through established institutions wherein its rules of procedure of arbitration are well defined. The world in the past decade has seen a significant rise in establishment of such institutions ranging from Singapore to London. With intersecting boundaries these arbitral institutions have come to achieve a larger goal than just dispute resolution. They are here for making fundamental changes to the legal environment of the country and reflect establishment of the rule of law and good governance.
Drawbacks in the current regime
India has more than 35 arbitration institutes, but it has still failed to emerge as a strong arbitration hub. There are several factors that have led to the failure of Institutional arbitration in India. If anything, the situation of Institutional arbitration in India is a case study on “how not to run an arbitral institution”.[i]
The underlying reason behind the projected hostility towards this is varied. Firstly, there has been a consistent lack of judicial support to arbitration because arbitration has been viewed by the Indian judiciary in a very paternalistic manner. [ii]In addition to this, it is considered as something of foreign dominance rather than seeking it as an alternative to time consuming litigation.[iii] Secondly, it is believed that institutions reflect the societal structure and previously, it has been observed that institutions have often resulted into more corruption and crimes. Further, It is often argued that setting up more institutions will just add another level of administration which in turn will increase the pressure on the system.[iv] Thirdly, institutions have always carried with themselves the idea of limiting flexibility and opportunities and invoke a world of constraint. [v]
Ad Hoc Arbitration vis a vis Institutional Arbitration.
There are two forms of arbitration which are predominantly followed around the globe, ad-hoc arbitration and Institutional arbitration.[vi] Ad-hoc arbitration is more of a tailored dispute mechanism. From appointing the arbitrators to setting rules for the proceedings, the parties determine all minute aspects of it. Ad hoc arbitration provides more freedom and a myriad of opportunities to the parties. There is no doubt a greater level of party autonomy under this yet the chance of arbitration resulting in a deadlock is higher it may sometime happen that ground rules established may not fit the dispute that has arisen leading to greater conflicts.[vii] Moreover, it is easier in occasions where parties tend to be cooperative and adjusting but it is highly unlikely that this cooperation exists when a dispute has reached arbitration.
It is observed that ad- hoc arbitrations lack scrutiny and ultimately result in litigation, thereby defeating the whole purpose of arbitration[viii]. In these arbitrations, owing to lack of credible experts in the field, the appointment of judges is on a rise. Judges have their own preconceived notions and with little time to spare, they tend to go with the traditional methods of litigation and court room practices.
Institutional arbitration in contrast, does not pose such problems. It operates with the same level of party autonomy as the ad hoc arbitration and has added benefits. In institutional arbitration with an experienced pool of arbitrators, the cases are handled much more diligently and effectively[ix]. Since the rules of the institutions have been incorporated by trained professionals over a period of time through experience, they are already “tried and tested”. Also, the reputation of the Institutes helps not only in the enforcement of arbitral award but boosts the legal hospitability environment of the country, bringing in more trade and investment. The level of infrastructure available and the kind of hospitable environment that is being offered by the institutes are factors which make the institutes more acceptable and accessible to the stakeholders.[x]
Comparing India with Established institutional hubs.
India needs to revamp its approach towards arbitration, it needs to observe and learn from the functioning of well-established hubs like LCIA (London Court of International Arbitration), SIAC (Singapore International Arbitration Centre), ICC (International Court of Arbitration), Hong Kong International Arbitration Centre (HKIAC) etc. Seemingly, the underlying reasons behind the success of these Institutional hubs are fairly common such as; a. experienced and qualified panel of arbitrators, b. time bound mechanism c. geographical positioning of these hubs, d. arbitration-friendly judiciary, e. finality of arbitral award and f. sound legal framework.[xi]
Moreover, Hong Kong and London were able to gain a reputation of successful Arbitration Centre because they have expertise in resolving the most complex issues with well-defined rules of arbitration. In addition to this, they keep abreast with the changing legal environment and to sustain the modern needs arising therefrom, they have built an infrastructure to offer the the best possible services for dispute resolution[xii]. Nowadays, SIAC, is thriving as the most preferred destination for dispute resolution because it encompasses a large number of expert arbitrators from more than 35 different jurisdictions, renowned arbitration practitioners, and a multinational secretariat panel. [xiii]Further, it has an arbitration-friendly judiciary with most efficient and malleable rules.
Solutions in the light of 2019 amendment: critical analysis of the bill
New Delhi International Arbitration Centre (hereinafter referred as NDIAC) Amendment Bill, –2019 is an ambitious step taken towards making India, an Institutional Arbitration Hub. Formerly, in 1995 International Centre for Alternative Dispute Resolution (hereinafter referred as ICADR) was established as a centre of Institutional Arbitration with an aim to promote institutional arbitration and alternative dispute resolution methods in India. However, as per the committee report headed by B.N. Shri Krishna, ICADR, failed to achieve the desired objective because it remained complacent with outdated rules of 1996 and could not understand the dynamic nature of arbitration.[xiv] Thus, to cure the defects posed by ICADR, NDIAC Bill[xv] was put on the table with a vision to accommodate new rules, which are in line with International Standards of Arbitration and global arbitration needs.
The framework of NDIAC has been designed in a way to house the dynamic nature of arbitration and thus the bill asserts NDIAC to be an institution of national importance. Following are the basic features of the Bill which received the assent of the President on 26th July 2019:
- The proceedings of dispute resolution matters pertaining to arbitration, conciliation and mediation will be conducted.
- ICADR will be replaced and all its titles, rights, books of accounts, property etc. are to be vested in the Central Government.
- The institution aims to instil the confidence and credibility amongst the investors of commercial disputes.
- It will follow the time bound mechanism with efficient disposal of cases.
- It will strive to grow as an arbitration hub.
Although, the Bill seems promising, with its new features and its vision to become a global arbitration hub, still, it is premature to make any assumptions or speculations with regards to its functioning. Also, there exists no domestic yardstick against which the performance of NDIAC can be measured, thus, the direct comparison will be made with hitherto global arbitration hubs which means that this aspiring institute has some big shoes to fit in.
For a thriving institutional arbitration centre, institutions need to become more transparent with efficient administration, under an overarching regime of rule of law and good governance. The need to establish stronger institutional arbitration is not just necessary to promote cross border transactions but also to develop the systems internally. With its new self-reliant vision, it has to robustly change the existing position of institutions. With increasing transnational interactions, projecting a hospitable and amicable dispute resolution mechanism is a mandate. Since India is reshaping itself as the basket of foreign investments, there needs to be a cushion of assurances coming from various instruments, one of them is Institutional arbitration. With such safety nets companies, investors feel comfortable in carrying out their endeavors which becomes a feather in the cap of the Indian economy and its ease of doing business. This one stone can kill many birds, given we make the swing.
[i] Abhishek Sharma, The future of institutional arbitration in India, MONDAQ,(Feb 5,2020 2:30 p.m.), https://www.mondaq.com/india/arbitration-dispute-resolution/843032/arbitration-newsletter-august-2019
[ii] Bibek Debroy and Suparna Jain, Strengthening arbitration and its enforcement in India- Resolve in India, https://smartnet.niua.org/sites/default/files/resources/Arbitration.pdf.
[iii] Stephen York, India as an arbitration Destination: The road ahead, Vol.21 NLSIU L.R., 77-103, 92, (2009).
[iv]Brian C. Pinkham and Mike W. Peng, Overcoming institutional voids via arbitration, Vol. 48, Journal of International Business Studies, 344-359, (2017).
[v]Roger J. Perlstadt, Timing of Institutional Bias Challenges to Arbitration, Vol. 69, Univ. Chicago L.R. , . 1983-2006,(2002).
[vi] Kartikeya Awasthi, Types of arbitration in India, via mediation centre, https://viamediationcentre.org/readnews/OTg2/Types-of-Arbitration-in-India
[vii] Jyotsana Uplavdiya, Ad-hoc and Institutional arbitration, LATEST LAWS, https://www.latestlaws.com/wp-content/uploads/2018/09/Ad-Hoc-and-Institutional-Arbitration-By-Jyotsana-Uplavdiya.pdf
[viii] Niyati Kanojia and Anand pratap singh, Strengthening of the arbitration Institution in the post amendment 2019 era, MONDAQ,(Feb 4, 2020, 11:02 a.m.), https://www.mondaq.com/india/trials-appeals-compensation/882126/strengthening-of-the-arbitration-institution-in-the-post-amendment-2019-era.
[ix] Surya Saxena, Nishitha Kaura, Ad-hoc arbitration to Institutional Arbitration: A way forward, Vol.10,8,PEN ACCLAIMS,(2020).
[x] (2006) 3 SCC (Jour) 1.
[xi] Supra 2.
[xii] Supra 2.
[xiii] Singapore institutional arbitration Centre, https://www.siac.org.sg/.
[xiv] High level committee Report to review the institutionalization of arbitration mechanism in India,(2017), https://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf.
[xv] The New Delhi International Arbitration Centre act 2019, No. 17, Acts of parliament, 2019 (India).