This article is written by Nithya Srinivasan, pursuing a Certificate Course in Arbitration: Strategy, Procedure and Drafting from Lawsikho.com. Here she discusses “How Effective is the Arbitration Law in India?”.
According to World Bank Report 2019, India ranks 77 out of 190 in Ease of Doing business whereas ranks 163 in enforcing contracts and it takes an average of 1445 days to resolve a commercial dispute in India through the judicial process. As on 02.09.2019, there are about 59,616 pending cases. According to the Law Minister Ravi Shankar Prasad, there are about 43.55 lakh cases pending before High Courts and out of these, 18.75 lakh relate to civil disputes and 12.15 lakh are criminal cases. In 2013, there were 32,656 civil cases pending in various high courts, of which 52% were commercial disputes. All these statistics denote that the arbitration process in India is ineffective and we have a long way to go yet.
When is a law said to be effective?
Law is said to be effective depending on the following factors –
- There is rule of law in the said statute
- The degree to which people abide by the legal decisions
- The degree to which people feel protected by their laws and legal processes
- The way in which people feel it runs with their interests and not against them
- Law is cost and time effective
Whenever two or more parties face a commercial dispute between them, they either opt for resolving the dispute through the process of litigation, or through the process of alternative dispute resolution.
Lack of awareness
Arbitration is an extremely important supplement to enhance ease of doing business. However, it is quite necessary for us to analyse whether there is sufficient awareness among the business community about the arbitration process and its legal validity. When we have a look into Parliamentary debates on ‘Statutory Resolutions’ dated August 1, 1996, it is very much evident that the Parliamentarians themselves had a misconception that arbitration is equivalent to the concept of ‘Panch Parmeshwar’ that was prevalent in ancient times in our country. People presume law to be equivalent to a ritual in many ways. It is heavily formalised and standardised with compulsive pressure. It is agreed that there have been recent developments making substantial changes in the Act, it could be successfully implemented only when people become aware that the statute provides a cost-effective and time-effective solution. Arbitration being a quasi-judicial process, it is very much essential to educate the people that the arbitral award passed by the arbitrators have legal binding on the parties. It is not denied that corporates and other big entities have understood the significance and advantages of resolving disputes through arbitration. However, other small entities and individuals dealing with commercial contracts must also be given adequate awareness about the arbitration process.
Hindrances for an efficient arbitration in India
Some of the major setbacks that the parties face during the arbitration process include:
- Selection of right expert
- Frequent Court’s intervention in the arbitration process
- Time and cost factors
Selection of Right Expert
Half the battle is won if the parties are able to choose and appoint the right person as arbitrator. Choosing the arbitrator is fundamental to the outcome of the dispute and both disputing parties must have absolute faith in their chosen arbitrator from the very beginning of the arbitration process. If the parties resort to institutional arbitration, selection of the right expert becomes an easier task. However, if the parties opt for ad-hoc arbitration, the parties are bound to choose the right person only from a small club of seasoned arbitrators. There is no separate panel of accredited arbitrators recognised by the Government to facilitate the parties in choosing the right expert. In such a scenario, the appointment of the right expert in the place of arbitrator becomes a herculean task for the parties. Similarly, when Courts are approached for the appointment of arbitrators under Section 11 of the Act, the courts revolve only around retired judges for the appointment of arbitrators. On the contrary, some of the parties may require field and technology experts to resolve their dispute quickly and efficiently. However, with the recent amendment in 2019, the Government is yet to form ‘Arbitration Council of India’ which will be an independent body. The statute empowers this independent body to frame rules on grading institutions and setting out norms on accreditation of arbitrators, quality and performance of monitoring, and training of arbitrators. Whatsoever, the statute now enables the parties to choose the right expert from the panel, thereby ensuring the independence and credibility of the arbitrators. Further, the Arbitration Council of India has to provide adequate training to those empanelled arbitrators, especially for those not having a judicial background, to ensure speedy and efficient administration of justice in commercial disputes. By this, we can also ensure that the Awards passed by such arbitrators can withstand judicial scrutiny. This step will set a major leap in building trust and faith in the arbitration process.
Frequent Court’s Intervention in the Arbitration Process
The significant purpose of alternate dispute resolution is to reduce the pendency of cases in the courts. The arbitration process is intended to alleviate the pressure on courts. One of the main objectives of the statute is to minimize the supervisory role of courts in the arbitral process. It also states that every final arbitral award is enforced in the same manner as if it were a decree of the court. If the arbitration process is efficient, swiftly expedited and effective, the scope of judicial intervention becomes very limited.
Section 8 of the Act mandates the judicial authority to refer the parties to the arbitration. In Hindustan Petroleum Corporation Limited Vs. Pinkcity Midway Petroleums, the Supreme Court has held that the language of Section 8 is peremptory and it is obligatory for the parties to arbitration in terms of their arbitration agreement. If the following conditions are satisfied, the court/judicial authority shall refer the parties to arbitration under Section 8:
- there is an arbitration agreement;
- a party to the agreement brings an action against the other party to the agreement;
- the subject-matter of the action is the same as the subject-matter of the arbitration agreement;
- the other party moves the court for referring the parties to arbitration before it submits its first statement on the substance of the dispute.
Similarly, the latest amendments in Section 36 and various judicial decisions has held that there is no automatic stay on the execution of arbitral award in absence of special order from Court, irrespective of whether their challenge against the award was filed prior to or post the commencement of the Amendment Act. Frequent Judicial interference in the arbitration shall frustrate the client.
In recent years, it is pertinent to note that courts are slowly imbibing the principle of non-intervention of courts in the arbitration procedure. One such example is Kandla Export Corporation Vs. OCI Corporation, wherein the Supreme Court had to decide whether Right to Appeal under Section 13(1) of the Commercial Courts Act applied to Section 50 of Arbitration Act. By relying upon Fuerst Day Lawson Vs. Jindal Exports, the Supreme Court held that the right to appeal does not apply to cases unless expressly covered under Section 50 of Arbitration Act, by applying the basic principle that in case a special statute is a self-contained code, the applicability of general law procedure would be impliedly excluded.
In most of the cases, the award debtor challenges the award just because he had the financial power to do so. To such persons, the decision held by Supreme Court in NHAI Vs Bsc-Rbm-Pati Joint Venture was a sudden blow. The Court observed that as long as the tribunal’s view is “plausible, and not merely possible”, the court would not intervene. It further observed that the tribunal is the final arbiter on factual and legal issues and that errors “which stop short of perversity’ must not be interfered with by the Courts. Similarly, in Delhi Metro Rail Corporation Vs. Delhi Airport Metro Express, the Supreme Court has held that it does not sit as a court of appeal and is not expected to re-appreciate the entire evidence and reassess the case of the parties.
Time and Cost factors
The new amendments in 2015 and 2019 have prescribed time limits for the arbitration proceedings. By 2015 Amendment Act, the arbitral tribunal has to complete the arbitration proceedings within 1 year from the date of appointment of the arbitrator. The tribunal shall be given a 6 months extension period on the consent of parties. If it is delayed beyond the specified time because of the arbitral tribunal, the fees of the arbitrator will be reduced, up to 5%, for each month of delay. There is an additional loophole provided to the parties to approach the court for further extension. Pendency in courts is a serious concern in our nation. The whole intent of this amendment is to convert the arbitration process into a time-bound procedure. But the said intent of the amendment will be in question if the parties are allowed to approach the court for an extension of time because the courts might take even 1 year to decide whether extension shall be allowed or not.
One other serious concern that blocks the mind of the business community is the high costs associated with it. The arbitrator’s fee is one of the key factors attributing to the cost of the arbitral proceedings. By the amendments made in 2015 and 2019, the fee structure for arbitrations has been rationalised. The intention of the legislature is only to provide an indicative schedule based on which High Courts have to lay down their own fee structure. Nevertheless, to say, the Fourth Schedule is not mandatory, rather it is only a guiding principle.
The latest amendments in arbitration laws are more responsive to contemporary requirements. The major setbacks in the arbitration process have been well addressed in the latest amendments. However, a law is said to be effective, only when it is successfully implemented. It is a trite law – “Justice delayed is justice denied”, especially in commercial disputes. The latest amendments have introduced the time limits and fast track procedures in arbitration. With the increase in awareness and effective implementation of the arbitration laws, the ineffectiveness of the arbitration process can be overwhelmed.
- (2003) 6 SCC 503
- (2011) 8 SCC 333
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