In this blog post, Pramit Bhattacharya, Student, Damodaram Sanjivayya National Law University, writes about the concept of institutional arbitration and how it is gaining momentum in India. The post also highlights the advantages of institutional arbitration mechanism.

Arbitration may be defined as a process in which two or more parties settle their disputes as to their legal rights and liabilities by referring the dispute to a particular person (arbitrator), who decide the dispute with a binding effect and by applying the law, instead of the parties going to the Court of law.[1] Arbitration is an alternative process of solving disputes, and hence, it coexists with the system of litigation. The main objective of having an arbitration proceeding is to solve the dispute as fast as possible, which also has a binding effect, without going to the Court of law and getting engaged in the long-drawn judicial procedure. In India, the alternative method of solving disputes have been present from a long time, since trade and commerce started to grow outside the country.[2]

This post wouldn’t go much deeper into the history of arbitration as it deals with the subject of “Institutional Arbitration”, but a glance at the previous arbitration laws is necessary to proceed further.

Before 1996, India had three enactments which governed the process of arbitration. These were the Arbitration (Protocol and Convention) Act, 1937, the Arbitration Act, 1940, and the Foreign Awards (Recognition and Enforcement) Act, 1961. These legislations never restricted the disputing parties to approach the Court at any stage they felt like. There was also a lot of interpretational reciprocation between the three acts, which meant that it was difficult to achieve efficiency and speed in disposing of the disputes.

Following much inducement from various bodies, in 1996, the Government introduced the Arbitration and Conciliation Act, 1996, which was based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law. This ensured that there was a certain level of uniformity in the law. After this Act had been introduced, it restricted the situations in which the disputing parties could approach the Court and the Act also provided genuine and legitimate powers to Arbitrational Tribunals.

Coming to the concept of Arbitration in the Indian business community, people relied upon and put their faith on the ad hoc form of arbitration, and the concept of institutional arbitration is relatively new to the Indian community.

Types of Arbitration Procedures[3]

As stated above, there are two main types of arbitration procedures. These are-

• Ad- Hoc Arbitration
• Institutional Arbitration

1. Ad-Hoc Arbitration

Ad-Hoc Arbitration can be defined as a procedure of arbitration where a tribunal disputed parties will come together and conduct arbitration between the parties, following the rules which have been agreed by the party beforehand or by following the rules which have been laid down by the tribunal, in case the parties do not have any agreement between them. However, there are no hard and fast rules, as different parties may choose to follow different rules, for instance, the rules laid by the trade union t which the disputing parties belong.[4]

One peculiarity regarding the process of ad-hoc arbitration is that the disputing parties would choose arbitrator of their own choice, and then those arbitrators would appoint another arbitrator by deciding among themselves. For the sake of convenience, these arbitrators would appoint the presiding arbitrator, who is senior to both of them. Many parties prefer to choose retired judges of the High Courts or the Supreme Courts as the presiding arbitrator, keeping various factors in mind like the quantum of the claim, the complexity of the dispute, etc.

Now, there is a drawback in this procedure. With the parties generally preferring senior judges as arbitrators, and given their limited number, sometimes it takes as long as a whole year to get over with the arbitration proceeding. Therefore, it beats the whole purpose of the arbitration proceeding, which was meant to be quick and efficient in solving the dispute between the parties.

2. Institutional Arbitration

With the growth of the economy, trade and commerce developed. This was true for the Indian market also. With the enlargement of the economy, and investment into the Indian market by the foreign investors, demand for institutional arbitration shot up suddenly. Despite the rising demand for institutional arbitration, the growth of institutional arbitration procedures has been slow.

But in recent times, prestigious institutional arbitration association like the London Court of International Arbitration, The Permanent Court of Arbitration and the International Chamber of Commerce have opened Centres in India. This could be seen as a very positive sign because these institutes are very well-known and prestigious and wouldn’t have opened Centres in India if they did not see a potential growth in Institutional arbitration.

In the case of Institutional Arbitration, the disputing parties submit their issue to an institution that has been designated to administer the arbitrational process. The institution then arbitrates the dispute according to the rules laid by them in front of the parties. Although, the dispute is not arbitrated by the institution. The institute selects a panel which administers the whole process.[5]

All the institutes do not provide the same type of services.[6] Some institute just provides the guidelines and the rules on which the procedure will be based (London Maritime Arbitration Association). Other provide a roster of arbitrators to the parties but do not appoint the arbitrators themselves (Society of Maritime Arbitrators in New York).

Certain institutions administer the whole process of arbitration (International Court of Arbitration of the International Chamber of Commerce).[7]

Advantages of Institutional Arbitration[8]

1. Reputation

One of the biggest advantages of opting for institutional arbitration is the reputation of the institution. Decisions given under the name of any prestigious institution is easier to enforce as it is accepted by a majority of other bodies.

2. Efficient Administration

One more advantages of going for institutional arbitration is that such institutes provide trained staff to the parties for administering the whole process. The administrative staff will lay down the rules, ensure that the time limits are being complied to, and the process is going ahead as smoothly as possible.

In the case of ad-hoc arbitration, when the arbitrator himself has to do all the administrative work, it may distract him from his primary objective.

3. Clear Rules

In the case of institutional arbitration, the rules of the arbitration are generally fixed by the institution. There is no further dispute between the parties regarding the rules of the procedure, which might happen in the case of ad-hoc arbitration. Also, the rules are framed keeping all eventualities in mind, as these institutions have an experience of going through various arbitration proceedings and know what eventualities may arise.

Also, the rules are flexible in nature. There is a mechanism to oppose any part of the process which is not consistent.

4. Quality of Arbitral Panel

One of the major advantages of institutional arbitration is that they have an extensive panel of experts, who acts as arbitrators. These institutions also have arbitrators who specialize in different areas, so that any type of dispute can be resolved.

Big institutions like ICC also have a network of national committee for appointment of arbitrators to ensure that there is no bias based on the country to which the parties belong.

5. Supervision

Apart from the administration of the arbitrational process, some institute also supervises the process, i.e., examine the award or penalty sanctioned ensuring that due process of law has been followed, and proper reasoning has been given to the parties for taking that particular decision.

6. Remuneration of the Tribunal

In the case of institutional arbitration, the remuneration to be paid to the arbitrators is already fixed. The disputing parties do not have to haggle with the arbitrators to decide the terms and amount of remuneration. The remuneration of the arbitrators in case of institutional arbitration is based on a fixed scale. The money is paid to the arbitrators without involving them directly.

7. Default Procedure

Many institutional arbitrators expressly provide the rule that the proceedings will continue and not stop in between, even if one of the parties defaults in the course of the proceedings. For instance, Article 21 (2) of the ICC Rules states that if any party fails to appear for the proceeding without giving any valid excuse, even after it has been duly summoned by the institution, the Tribunal will proceed with the proceedings.[9]

Growth of Institutional Arbitration in India

India adopted the Arbitration and Conciliation Law in 1996. India is also a party to the New York Convention (on enforcement of arbitration award). Sec 89 of the Civil Procedure Court, 1908 also supports the Alternative Dispute Resolution system and urges parties to settle disputes outside the court.

The Courts in India also fully support arbitration proceedings. The Supreme Court gave a pro-arbitrational judgment in the judicial pronouncement of Sumitomo Heavy Industries Ltd. v ONGC[10] where it stated “…..If the conclusion of the arbitrator is based on a possible view of the matter, the Court is not expected to interfere with the award. The High Court has erred in so interfering. Court while considering challenge to arbitral award does not sit in appeal over the findings and decision of the arbitrator…’’

This judgment also shows that the Courts are not very much inclined to interfere in the process of arbitration and thereby lends its supports to this system of Alternative Dispute Resolution.

Concluding Remarks

The growth of institutional arbitration mechanism is inevitable. Also, the support of the Courts to the institutional arbitration mechanism gives it a huge boost. The Arbitration and Conciliation Act, 1996 is based on the UNCITRAL Model, which provides it with a lot of stability and uniformity, and it is at par with international standards of arbitration, which will surely be very beneficial for the institutional arbitration mechanism in the long run.

[1] Butterworths, HALSBURY’S LAW OF ENGLAND (4th edition, 1991)

[2] Alternate Dispute Resolution, 13 (P.C. Rao & William Sheffield eds., Universal Law Publishing co. Pvt. Ltd.).

[3] Gerald Aksen, Ad hoc Verses Institutional Arbitration, 2(1) ICC Bulletin (1991): 8-14.

[4] Instances of such association are Grain and Feedstock Trade Association (GAFTA) and London Maritime Arbitrators Association (LMAA).

[5] Alan Redfern and Martin Hunter, Law and Practice of International Commercial Arbitration, 47(4th ed., 2004)

[6] http://www.lawctopus.com/academike/institutional-arbitration-expeditious-justice-system/#_edn6

[7] G.K. Kwatra, Arbitration and Alternative Dispute Resolution, 59 (Universal Law publishing co., 2008).

[8] ibid

[9] Art. 21.2, ICC Arbitration Rules.

[10] 1998 (1) SCC 305.