This article is co-authored by Tariq Khan, Senior Associate, Advani & Co. & Kritika Parakh, a third-year student of National Law University, Jodhpur.
The prominent objective of arbitration is to provide a cost-effective and expeditious dispute resolving mechanism. However, certain lacunas in the provisions of Arbitration and Conciliation Act, 1996 [“Act”], have opened a wide welcoming gateway for Indian judiciary and its ineffectiveness into the arbitration. In addition to it, the approach of the arbitrators and parties towards the arbitration procedure is similar to traditional litigation, which has further tainted the image of arbitration. These reasons have led to an increase in delay in a number of ways and defeated the institution of arbitration in India. These lacunas can be cured by more stringent and not merely regulatory amendments in the Act as suggested at the end of this paper with the conclusion.
Intervention of Indian Courts
1. Challenges against arbitrators [Section 12(4)]
Section 12(4) of the Act allows a party to challenge the appointment of an arbitrator in case of doubts regarding his impartiality or if he does not possess the qualification of such appointment. Since there is no separate institution to entertain such challenges against the arbitrator, the same are resolved by the Indian courts. There is no need to mention the time taken by Indian courts to resolve an issue and give judgment and therefore, the whole idea to keep the resolution procedure away from Indian courts defeats here.
One of the prominent reasons for so many challenges against arbitrators is the conflict of interest in the appointment of arbitrators arising because of unilateral appointments. There is no bar in the Act which prohibits the clause of unilateral appointment in the arbitration agreement. Though such clause is agreed to by the other party, yet at the time of the dispute, he tends to challenge such unilateral appointment of an arbitrator in which he does not enjoy any say. Therefore, it can be concluded that because of unilateral appointment, the number of challenges against the arbitrators have increased and this has severely hurt the expediency of arbitrations.
2. Arbitral award can be set aside by the court [Section 34]
A domestic arbitral award can be set aside by the court on certain grounds enumerated in Section 34 of the Act, such as arbitration agreement or arbitral award is void, it has violated the principles of natural justice of not giving adequate opportunity to present the case or the arbitral award is in conflict with the public policy of India, etc.
The wide interpretation of the ground of ‘in conflict with the public policy of India’ mentioned in Section 34(2)(b)(ii) has led to much controversy as well as delay. This provision has widened the scope of judicial intervention and discouraged people from considering arbitration as a mode of recourse. The 2015 amendment has made an unsuccessful attempt to restrict the scope of ‘public policy’ by inserting explanations 1 and 2 to Section 34(2)(b)(ii). However, the terms used in these explanations, such as ‘contravention with the fundamental policy of Indian law’ or ‘conflict with the most basic notions of morality or justice’ also have the capability to give wide scope to the courts to intervene.
3. Interim measures by court [Section 9]
Section 9 of the Act allows the party to take interim measures before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced. This provision is frequently invoked by parties which creates hurdles in the smooth arbitration procedure. Again, the Indian courts take immense time to decide such interim reliefs.
4. Court’s assistance in taking evidence [Section 27]
This provision creates another way for the court’s intervention. Though it is assumed that the evidences would be collected inadequate time and would prove important in the arbitration, yet this assumption could not be converted into reality. Therefore, this well-thought provision to aid arbitration has ended up in delaying the same.
5. Appointment of arbitrators by Supreme Court or High Court [Section 11(13)]
This provision states that an arbitrator has to be appointed ‘as expeditiously as possible and an endeavour shall be made to dispose of the matter within a period of sixty days’. This is not a mandatory rule and merely lays down a direction for the courts.
6. Discretionary extension of time limit for arbitral award [Section 29A]
Section 29A(5) gives the power to the court to extend the time limit further on sufficient grounds and on such terms and conditions as may be imposed by the Court. The misuse and frequent invocation of this provision have practically nullified the idea of putting the time frame on a resolution of such disputes.
Considering arbitration equivalent to traditional litigation
The frequency of challenging the arbitral awards before the courts show the disrespectful mindset of the parties towards the finality of the arbitral awards [Section 35 of the Act]. Considering arbitrations as court proceedings have resulted in an increment in the time for resolution of the disputes.
Further, such a mindset is not only occupied by the parties, but also by the Arbitrators. A large number of arbitrators are in fact retired judges, who look at arbitration as litigation and get into the technicalities and procedural laws thereby, defeating the vital feature of arbitration i.e. flexibility. In fact, many arbitrators conduct arbitrations by applying strict rules of evidence and procedure which eventually delay the proceedings. Further, frequent and long adjournments have also crept in arbitrations. In addition to it, a more general reason for the delay on any proceeding, whether it be litigation or arbitration is the personal gain of arbitrators or lawyers as their fees from long proceedings.
Other reasons of delay
1. Gap between completion of proceedings and pronouncement of the award
A number of cases have faced this problem where as soon as the arbitration proceedings end, the arbitrators get involved in new arbitration and because of such diversion, there is a delay in the pronouncement of the award.
2. Inefficiency of arbitrator to give sufficient time to a particular case
For the timely resolution of a dispute, it is significant for the parties to know about the quantum of time which their prospective arbitrator can devote to their case. Though it is proclaimed by arbitrators that the issue would be resolved in time, yet the reality is quite different. Even the disclosure is not given by the arbitrators as per schedule VI of the Act wherein they are required to disclose whether they will be able to devote sufficient time to the arbitration and finish it in twelve months.
Conclusion with Suggestions
- The 2015 amendment in the Act has resolved a number of lacunas in the previous legislation, especially, by providing timeframes to almost every step of the arbitration procedure. In addition to this time frame, it is suggested that the parties may put a time frame in consonance with the Act while drafting their arbitration agreement/ clause. Further, a flawless drafting of such agreement, which clearly lays down the jurisdiction, appointment of arbitration and other procedural aspects, would assist in minimizing the court’s intervention. Moreover, the Arbitration and Conciliation (Amendment) Bill, 2018 (“2018 Amendment Bill”) proposes that the written claim and the defence to the claim in an arbitration proceeding should be completed within six months of the appointment of the arbitrators.
- Considering the cons attached to the unilateral appointment of arbitration, which are certainly overpowering the pros of it, the Act should be amended to include an explicit ban on the inclusion of any clause empowering any party to unilaterally appointing the arbitrator. This amendment would certainly result in a decrease in the number of challenges against arbitrators.
- Section 12(1) of the Act requires the arbitrator to disclose any interest or relation he has which are likely to affect his impartial attitude. However, there is no provision which determines the liability of the arbitrator if such information is not disclosed by him. Putting such liability on arbitrator would discourage him to withhold such information and would reduce the challenges against them when such information is later revealed.
- Non-availability of sufficient time with the arbitrator, one of the reasons of delay, can be solved by creating a mechanism or a database which can make parties aware of all the past records and information about a particular arbitrator. In this way, parties can assess the arbitrator’s credibility, areas of interest and scope of partiality.
- Institutionalization of arbitration is a vehement need of the hour. This task should be placed on the shoulders of the panel of trained and certified arbitrators. As the 2018 Amendment, Bill seeks to establish an independent body called the Arbitration Council of India (ACI)., which will formulate policies for grading and accrediting arbitrators and centres and maintain a depository of domestic and international arbitral awards.
- Taking arbitration as the second priority by the lawyers, who perform the roles of arbitrators after court hours, will not develop a healthy culture of arbitration. It is an alternate dispute resolution, but not a secondary dispute resolution mechanism. Treating arbitration at par with litigation is crucial for its development.
- An amendment to the Act is suggested which gives the power to impose exemplary costs on the party if a delay in arbitration can be attributed to him.
Hence, the purpose of arbitration as a mechanism for speedy resolution has to be saved by incorporating stricter provisions and not merely directory norms. These obtrusive delays nullify the sanctity of the institution of arbitration and the faith of the people attached to it.
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