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Institutional Arbitration: Indian Approach

The promotion of India as an arbitration hub has been on the agenda of Indian lawmakers for some time now. The changes brought about by the Arbitration and Conciliation (Amendment) Act, 2015 (2015 Amendments) to the Arbitration and Conciliation Act, 1996 (ACA) were aimed at achieving this goal by facilitating speedy and efficacious resolution of disputes through arbitration.

The enactment of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 (Commercial Courts Act) which facilitates swift disposal of arbitration-related court proceedings by providing for arbitration matters involving commercial disputes to be heard by commercial courts / divisions was another step in this direction. In this context, the promotion of institutional arbitration in India is another issue that has come to the forefront. It is widely accepted that India prefers ad hoc arbitration. Though various arbitral institutions have been set up in India, especially in the last five years, ad hoc arbitration continues to be the preferred mode of arbitration.

Moreover, a large number of international arbitrations involving Indian parties are seated abroad and administered by foreign arbitral institutions. In order to promote institutional arbitration in India, it is imperative that:
  1.  Indian parties involved in domestic and international arbitrations are encouraged to shift to institutionally administered arbitrations rather than resort to ad hoc arbitrations; and
  2. India becomes a favoured seat of arbitration for international arbitrations, at the very least in matters involving Indian parties.
Against this background, this Working Paper delineates certain issues that exist in the institutional arbitration landscape in India. We seek to put out some important questions that need to be asked to understand better why India has thus far not established itself as a centre for institutional arbitration.

To this end, an attempt will be made to understand why several existing arbitral institutions in India are not functioning effectively. Some data collection from such arbitral institutions and stakeholders in arbitration may be helpful in understanding such reasons. For this purpose, this Working Paper will be accompanied by two questionnaires that are being circulated to:
  1. arbitral institutions in India; and
  2. stakeholders in an arbitration such as parties, their in-house counsel, lawyers and arbitrators. We have also studied some of the most popular arbitral institutions worldwide in order to identify international best practices. On this basis, the paper identifies areas for reform in the Indian arbitration landscape - to strengthen the existing arbitration mechanisms, and also to put forward focus areas for promoting institutional arbitration in India. Comments are invited on the Working Paper's suggestions to develop a culture of institutional arbitration in India.

Meaning of Institutional Arbitration
It is that method of arbitration where the whole arbitration is conducted by an established arbitral institution or organization. The arbitration agreement itself provides for appointment arbitral institution. The parties specifically provide that the in case of any dispute arises in the period of contract the dispute would be solved through institutional arbitration.

In the case of Nandan Biomatrix Ltd. V D 1 Oils Ltd (1) it was agreed between the parties agreed to the resolve the dispute through institutional arbitration. The issue arose whether not providing specific name of the arbitral institution and only agreeing to resolve the dispute through institutional arbitration would make the arbitration agreement invalid. It was held that as the parties unequivocally agreed to settle the disputes through institutional arbitration and not though ad-hoc arbitration. Therefore, there existed a valid arbitration agreement between the parties.

These intuitions are preferred by the international business community as it provides them various services. Such as providing a specific arbitration procedure, experienced panel of arbitrators and expertise that provide a quick and effective dispute resolution process. Some of the famous arbitral centres are The London Court of International Arbitration (LCIA), The Chartered Institute of Arbitrators UK, The National Arbitration Forum USA and The International Court of Arbitration Paris Singapore International Arbitration Centre, Hong Kong International Arbitration Centre (HKIAC).

Significance of Arbitration in International Commercial Arbitration
Among all the other alternative dispute resolution mechanisms arbitration is considered as the best technique for resolving commercial disputes. The significance lies in its characteristics. Party's autonomy allows the whole process consensual and private in nature. It allows the parties to decide the law through which the dispute needs to be resolved.

The whole process aims at out of court settlement making it faster and convenient. Theoretically, arbitration can be conducted without judicial intervention. The tribunal is appointed by the parties, its powers and duties are also decided by the parties. It is all included in the arbitration agreement.

An award is made by the tribunal according to the arbitration rules and regulations agreed by the parties. It is ensured by the tribunal that Due process and Principles of Natural justice are followed. According to some thinkers, there is no need of the law to govern the process the agreement enters by the parties is sufficient.

However, there is need of law and courts intervention can be allowed in specific circumstances. According to Lord Mustiill, there is a relationship between courts and arbitration. He puts it as: Ideally, the handling of arbitral disputes should resemble a relay race.

In the initial stages, before the arbitrators are seized of the dispute, the baton is in the grasp of the court; for at that stage there is no other organisation which could take steps to prevent the arbitration agreement from being ineffectual. When the arbitrators take charge, they take over the baton and retain it until they have made an award. At this point, having no longer a function to fulfil, the arbitrator's hand back the baton so that the court can, in case of need, lend its coercive powers to the enforcement of the award.

The above statement though talks about the relation between the litigation and arbitration but it can totally be applied to today's arbitration system has. It has become a dominant method in resolving the international commercial disputes. The arbitration has become the costly form of dispute resolution. No regulation of Ad-hoc arbitration has led to this situation, nevertheless. Modern arbitration is facilitating the resolution in well organized and cost-effective manner through well-institutionalised centre's and is contributing to the global economic development.

Concept of Institutional arbitration and Ad-hoc arbitration
It is important to understand that parties are free to choose the method of arbitration. It depends upon the facts and circumstances of their dispute. In India, parties have preferred ad-hoc method of arbitration, whereas internationally institutional arbitration is a preferred method of dispute resolution. Therefore, it is important to understand both forms as they are having their own pros and cons.

Development of Arbitral Institutions in India
The report by the High-Level Committee discusses in detail regarding the development of the above-mentioned Arbitral Institutions and the reasons why these institutions are the most preferred among the parties.

Briefly, the reasons are:
Efficient Governance: This is probably the major reason why they are most preferred arbitral institutions. All these institutions have modern and updated rules which allow them to offer parties more flexibility. Services like scrutiny of the draft arbitral award and other potential defects make them more preferable. These have experienced panel of arbitrator having international expertise and a well-organized administrative staff. The state-of-the-art infrastructure is available for conducting the whole process.

Adequate Support from the government: The foremost reason given by the committee was that among two of the top five arbitral intuitions namely the SIAC and the HKIAC were immensely supported by their respective governments. The governments provided them adequate financial and infrastructural support as well as playing an important role in promoting them to international level. Maxwell Chambers was also established through the government support. This indeed is a problem in India.

Though, the New Delhi International Arbitration Centre (NDIAC) Bill 2018 which was recently introduced in Lok Sabha is a positive step toward institutionalizing arbitration in India. The bill provides for the takeover of the existing International Center for Alternative Dispute Resolution, also proposes to set up an arbitration chamber.

References:
  • OECD Economic Surveys: India. (Feb. 9, 2018), http://www.oecd.org/eco/surveys/economic-survey-india.htm
  • Report of the High-Level Committee to Review the Institutionalisation of Arbitration Mechanism in India (2017) p. 3. (Further the Report)
  • National Juridical Data Grid ( Feb. 10, 2017 ), http://njdg.ecourts.gov.in/njdg_public/main.php
  • Ad Hoc v International Arbitration Charles Russell Speechlys (Feb 17, 2018), https://www .charlesrussellspeechlys.com/en/news-and-insights/insights/real-estate/2013/ad-hoc-v-international-arbitration/
    1. Nandan Bio matrix Ltd. V D 1 Oils Ltd, (2009) 4 SCC 495.
    2. Supra Note

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