OVERVIEW OF INSTITUTIONAL ARBITRATION IN INDIA

Author: Ayushi Patidar, 4th Year, B.A. LLB (H), School of Law, Jagran Lakecity University, Bhopal

Introduction

Arbitration Law has had a slow and steady pace in Indian Law system; this has been phenomenal with the increase in trade, commerce, economic development and foreign investment. India is now an emerging global economic and investment hub. However the essence of Arbitration has been present in India and across the world, since very long, even when the law was not codified. Arbitration has a long history, the virtue of which can be read in the ancient Upanishads, the Buddhist tripitikas and Jataka Tales and various other ancient texts in India and worldwide. Arbitration is considered as the best technique for resolving commercial disputes, as it saves time and reputation of the party and is definitely speedier than the traditional form of Justice.

India had Arbitration Laws before Independence and firstly it was applied on the princely states of Madras Bombay and Calcutta. The Act went over various reforms in 1899 in 1900’s and then the Arbitration Act too was discouraged on the ground of too much judicial intervention and lack of smooth proceedings. Thereafter, the Arbitration and Conciliation Act, 1996, was enacted based on the 1985 United Nations International Commission on International Trade Law (UNICTRAL) model law. Even this Act has went over various amendments, over the years in the year 2015 and then more recently in the year 2019 the Arbitration and Conciliation (Amendment) Act, 2019 has been enacted, which also gave some evident recognition to Institutional Arbitration which was much needed The arbitral proceedings are majorly under taken by the Ad Hoc or Institutional Arbitration.[1]

Institutional and Ad Hoc Arbitration

The concept of Institutional Arbitration is by far newer than that of Ad hoc Arbitration, for one reason that Ad hoc arbitration has been in practice since the inception of the Arbitration Act in India, whereas institutional Arbitration is a newer concept. After the UNCITRAL model came into being India adopted the model in its Arbitration and Conciliation Act, 1996, UNCITRAL Model deals with and governs International Arbitral Laws. When we talk about Arbitration it is basically divided in two types on the basis of execution and preference Ad Hoc Arbitration is where party mutually and consciously agree upon the place where the execution of Arbitral proceeding will take place according the procedure which the parties will previously consent upon and in absent of it the arbitration tribunal will decide.[2] Ad hoc arbitration is preliminary decided by the parties, they choose the arbitrator of their choice and hence there is no third party interference under AD Hoc Arbitration.

Arbitration can be ad hoc or institutional Arbitration, in the latter the parties are under obligation to follow the rules and guidelines of any independent arbitral Institution which may be a chamber of organization commerce or any trade association governing the conduct of the proceedings.[3] Usually when the matter pertains to international disputes or where parties belong to different countries, Institutional Arbitration is preferred,[4] as it has fewer complexities and usually the manner of solving international Dispute is very versed with institutional arbitration.

Institutional Arbitration widely differs from Ad Hoc as the whole process of Arbitration is administered by an Independent Arbitral Institution such is explicitly written under the agreement and contract of the party, that in case of any dispute, the matter will be resolved in an Arbitral Institute.

In literal sense Institutional Arbitration is conducted under the rules of a body or an institution, which may be national or international and to which the parties agreed to refer their disputes for settlement.[5]

Arbitral Institutes are the first choice and mainly preferred by the international trade and business community as Institutional Arbitration provide various service, basically the parties don’t have to worry about anything, these arbitration and self sufficient and work rigorously to complete the process within time

Institutional Arbitration India

According to the Arbitration and Conciliation(Amendment) Act, 2019  in Section 2 (ca) is added which under Indian Perspective and for the applicability of the act provides that “arbitral institution’’[6] means an arbitral institution designated by the Supreme Court or a High Court under this Act;’ There is no doubt that when it comes to arbitration Indian companies is more inclined towards Ad Hoc Arbitration that does not mean that Institutional Arbitration is not competent enough, infect Institutional Arbitration provide varied service that to on a uniform fixed rate other than that Institutional Arbitration holds some of the very prestigious and renowned organization who are working globally in various countries and have lot of experience and a very powerful and decisive panel to provide the best of results, hence the first and foremost reason for Institutional Arbitration to be a second choice amongst parties is lack of awareness and another can be certain myths and misconceptions that have followed Institutional Arbitration of charging high fee etc, which is not true at all. Currently Institutional Arbitration like the International Court of Arbitration of the International Chamber of Commerce (“ICC Court”), the London Court of International Arbitration (“LCIA”), the HKIAC, the SIAC and the Arbitration Institute of the Stockholm Chambers of Commerce (“SCC”) are functioning in India and they are also preferred worldwide. In Spite of the ICC and LCIA holding the top two ranks in arbitration Institutes[7] worldwide, they have not been much successful in Indian Scenario.

Advantages and Disadvantages of Institutional Arbitration

Institutional Arbitration is gradually increasing in India, there are various Advantages and Disadvantages of Arbitral Proceedings conducted through Institutional Arbitration.

The most befitting advantage of an Institutional Arbitration is its versatile and well versed team of expertise, panels, and arbitrators who are specialists in various fields and laws related to Arbitration.

Better Infrastructure is one of the plus points of Institutional Arbitration; these institutions are well built and have numerous conference halls and environment sufficing of well moral code of conduct and ethics hence providing faster and more efficient service.[8]

Repute International Organization is definitely what most of the clients look for in Institutional Arbitration especially those dealing in foreign trades and commercial services enjoy the versatile service and mostly prefer to choose Institutional Arbitration due to their presence in the global market.

Arbitral institutions also provide services like drafting of the arbitral clause and they also initiate the proceedings by providing a proper procedure for arbitration hence saving a lot of the time of the parties. Moreover the process is less ambiguous as the institutions stay updated with the latest development in the Arbitration techniques and procedure.

Arbitral institutions charge less fee and it is more cost effective as an Institutional Arbitration covers procedural matters, however Ad Hoc can become little expensive, when additional proceedings take places other than the arbitration.

Challenges faced by Arbitration Institutes

There are a lot of challenges faced by Institutional Arbitration; these challenges are due to various reasons such as the misconception in the mind of people in India related to Institutional Arbitration and their preference towards Ad Hoc Process. These misconceptions are present on the basis of fees charged by arbitral institutions which is not as much as is t hyped and also in the long run this gets more economic than the Ad Hoc system.  Currently Institutional Arbitration like the International Court of Arbitration of the International Chamber of Commerce (“ICC Court”), the London Court of International Arbitration (“LCIA”), the HKIAC, the SIAC and the Arbitration Institute of the Stockholm Chambers of Commerce (“SCC”) are functioning in India and they are also preferred worldwide. In Spite of the ICC and LCIA holding the top two ranks in arbitration Institutes[9] worldwide, they have not been much successful in Indian Scenario

Flexibility is one of the feature of Ad Hoc and it is a misconception that Institutional Arbitration are inflexible or they provide very  few matters in hands of parties, however it is not so most of the very well known and prestigious Institutional Arbitration strike a balance between this they only control and keep the issues pertaining to the legality and integrity of the proceeding and rest is under the domain of the parties to arbitration, which is only fair enough as this gives proper leverage to the institutions to guarantee a proper conduct and best experience to the parties.

Another challenge which is faced by Institutional Arbitration over the years in India is that it does not have the support of the government as the Ad Hoc has was definitely a lacunae is our system and not of the institutional organization, government should encourage institutional Arbitration, also the changes in the policy of the Government on arbitration need altercation, if the government will take the initiative, the Indians will also seek the help of Institutional arbitration. However this s likely to get redressed under the Arbitration and Conciliation (Amendment) Act, 2019 as again various amendments has been made and under Section 43 D of the Part I of the Arbitration and Conciliation (Amendment) Act, it shall be the duty of the Council to take such measures as may be necessary to promote and encourage arbitration, mediation, conciliation or other alternative dispute resolution mechanism and also frame policy and guidelines for the establishment, operation and maintenance of uniform professional standards with relation to arbitration, for proper implementation of this section clause 2 of section 43 has been amended and various duties of the council has been inserted mainly section 43(2)(h)[10] talks about promoting institutional arbitration by strengthening arbitral institutions “ frame policies governing the grading of arbitral institutions, likewise various sub clause has been added which favors institutional Arbitration like recognize professional institutes providing accreditation of arbitrators, review the grading of arbitral institutions and arbitrators; hold training, workshops and courses in the area of arbitration in collaboration of law firms, law universities and arbitral institutes; act as a forum for exchange of views and techniques to be adopted for creating a platform to make India a robust centre for domestic and international arbitration and conciliation; make recommendations to the Central Government on various measures to be adopted to make provision for easy resolution of commercial disputes; make recommendations regarding personnel, training and infrastructure of arbitral institutions.”[11]

Some of the Institutions outwardly lack professionalism and do not have a good exposure of International Framework and rules for arbitration, this usually happens with Institutions whose panel consists of retired Judges or common lawyers, who do not have good experience and exposure in the field. Hopefully this scenario will most likely be changes after the 2019 amendment in the Act which have amended and inserted various provisions keeping the interest of Institutional Arbitration as the Government under Section 11 of the Act has now proposed subsection 3(A) which gives power to the Supreme Court and high Court to designate Arbitral Institutes, that means, they will have ample support and as the Arbitration Institutes will now function on Grading system utmost professionalism will also be maintained as appointments shall take place as provided under 43-I. “The Council shall make grading of arbitral institutions on the basis of criteria relating to infrastructure, quality and caliber of arbitrators, performance and compliance of time limits for disposal of domestic or international commercial arbitrations, in such manner as may be specified by the regulations.”[12] All these amendments have definitely promoted Institutional Arbitration but again Institutional Arbitration are more likely to face more judicial interference and scrutiny.

Judiciary’s Take on Institutional Arbitration

The Indian Judiciary has never failed to praise the tremendously articulated and proper procedural work and rules which institutional Arbitration has formed and succeeded in implementing, under the case of Sanjeev Kumar Jain Versus Raghubir Saran Charitable Trust and Others[13] The Supreme Court said that “when it happens that the arbitrator is appointed by the court in an ad hoc Arbitration, without disclosing the fee which he will charge, both the parties to the dispute or at least one party is at a disadvantage, first of all parties feel constantly constrained and agree to pay whatever fee is being charged by an arbitrator, also there can be a situation where one party pays the high fee amount of the arbitrator, but it is not in the capacity of other party to pay such higher amount, and is reluctant in doing so will lead to unnecessary embarrassing situation for that party,  he won’t be able to object to such high charges of fear of apprehension that his inability to agree on the said amount would create bias on the other parties favor. Institutional Arbitration has found a better solution to this situation, as the fee is uniformly fixed on a fixed scale by the arbitration institute and organization and the arbitration does not fix his own fee.” Hence the uniformity of Institutional Arbitration is very much appreciated as it has led parties to save more and get efficient solutions for their redressal with a much faster rate.

Future Development and worldwide scenario

The Arbitration and Conciliation (Amendment) Act, 2019 is definitely a way forward to help Institutional Arbitration to reach a proper conduct and good control over the arbitration proceedings in India, certain Lacunae which were present under the 1996 Act have definitely been altered and amended , however more is needed in the field as the interference of judiciary has now become more visible with the 2019 amendment. Definitely this Amendment would boost up the working of Institutional Arbitration in India as earlier to this the conditions of arbitral Institutions were deplorable In India. In a survey conducted by Pricewaterhouse Cooper and Queen Mary University of London[14] showed that about 86 % of Arbitral awards in the preceding ten years were given by Arbitral Institutions; 67% of the time the Arbitration was Institutional Arbitration where state or state owned companies were parties. Presently about 30 arbitral institutions are functioning in India. Including International, domestic and various other arbitral facilities provided by public sector Undertakings and by different chamber, commerce and trade associations, administering Arbitration by following their own rules or those set up by UNCITRAL.

Some of the Arbitration Institutes have barely made a scratch in Indian Arbitration system when we talk about one of the top two Arbitration Institutes of the world in India; the LCIA India closed its operation because it was not able to function properly[15] and cases outflow was very less in India. Likewise, the International Centre for Alternative Dispute Resolution has received just about 20 cases in over a span of 20 years, which is almost negligible to what possibilities a Country like India could have provided.

With the new changes and Amendment coming up definitely Arbitration Institutes are going to get hiked and development in future, however this will be too soon to come to any conclusion as some factors like interference and time limit is still going to trouble the Arbitration process, however the Amended Act has very promisingly helped to fill in the lacunae of professionalism, promotion and Grading of Institutional Arbitration, the new provisions have also brought it under Judicial scrutiny.

Conclusion

As of now India has more inclination towards ad hoc arbitration, however this view is going to change gradually, the provisions for institutional arbitration have strengthened with the 2019 amendment in the Arbitration and conciliation Act, still more developments are required to make institutional arbitration as a very promising option for the parties seeking awards outside the Judiciary. Institutional Arbitration is especially curated to deal in commercial and international commerce and trade related issues, however they are equally satisfying in domestic matter and as the institutions provide impeccable panelist from across the globe on various issues, they are efficient as well as more economical and a little push and aid from the government and law system can make institutional arbitration a success in India.


[1]AZB & Partners India: The Arbitration And Conciliation (Amendment) Act, 2019 – Key Highlights <https://www.mondaq.com/india/arbitration-dispute-resolution/840292/the-arbitration-and-conciliation-amendment-act-2019-key-highlights> (accessed on 20 July 2020).

[2] Edlira Aliaj, ‘Dispute resolution through ad hoc and institutional arbitration’, Academic Journal of

Business, Administration, Law and Social Sciences, Vol. 2 No. 2 (2016), p.241-250,

[3] M C Bhandari’s ‘Guide To Company Law Procedures’ Chapter 3, Ancillary Proceedings PRECEDENT # 65 AGREEMENT for provision of technical know-how vol 4 ed 23 2015.

[4] WORKING PAPER ON INSTITUTIONAL ARBITRATION REFORMS IN INDIA <http://www.icaindia.co.in/HLC-Working-Paper-on-Institutional-Arbitration-Reforms.pdf> accessed on 18 July 2020.

[5] Institutional arbitrationP Ramanatha Aiyar: The Major Law Lexicon.

[6] THE ARBITRATION AND CONCILIATION (AMENDMENT) ACT, 2019NO. 33 OF 2019.

[7]2010 International Arbitration Survey: Choices in International Arbitration’, Queen Mary University of London and White & Case LLP (2010), available at http://www.arbitration.qmul.ac.uk/docs/123290.pdf (accessed on 18 July 2020).

[8] Rituparna Padhy “Institutional Arbitration in India” <lawtimesjournal.in/institutional-arbitration-in-india/ 11 Sep 2019>, (accessed on 18 July 2020).

[9]2010 International Arbitration Survey: Choices in International Arbitration’, Queen Mary University of London and White & Case LLP (2010), available at http://www.arbitration.qmul.ac.uk/docs/123290.pdf (accessed on 18 July 2020).

[10] Section 43) Limitations, Arbitration and Conciliation (Amendment) Act, 2019.

[11] Ibid.

[12] Ibid.

[13] Sanjeev Kumar Jain v. Raghubir Saran Charitable Trust and Others [2012] 1 MLJ 329.

[14] International Arbitration: Corporate attitudes and practices 2008, Queen Mary University of London and PricewaterhouseCoopers (2008), available at <http://www.arbitration.qmul.ac.uk/docs/123294.pdf> (accessed on

[15] ‘LCIA India to end operations’, Herbert Smith Freehills – Arbitration Notes, 08.02.2016, available at http://hsfnotes.com/arbitration/2016/02/08/lcia-india-to-end-operations accessed on 18 July 2020.


Editorial Credits: Kashish Khurana

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