This article is written by Ritika Sharma, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho.
Table of Contents
Introduction
It is not an unknown fact that India has been longing to become an international arbitration hub. India has customarily skewed towards ad hoc arbitration over institutional arbitration. Because of this Indian parties themselves do not prefer arbitration in India and run to the Singapore International Arbitration Centre (hereinafter referred to as “SIAC”). The B.N. Srikrishna Committee was formed with a mandate to review and reform institutional arbitration in India.
In view of the recommendations of the BN Srikrishna committee, the 2019 amendment was meant to strengthen institutional arbitration in India through grading institutions, while heavily relying on the recommendations.
Why institutional arbitration
Institutional Arbitration is where a specialised institution intervenes and administers the arbitration through its own set of defined rules and procedures (which are constantly updated as and when latest developments take place). On the other hand, an ad hoc arbitration is one where the parties have the liberty to decide their own rules for the proceedings and appoint an arbitrator of their choice.
Institutional arbitrations have their own set of timelines for the conduct of proceedings. This method gives the parties less scope of disputes, since they would not be responsible for deciding the procedure or the arbitrators. Such institutions have the required expertise and better administrative control over the proceedings than an ad hoc arbitration.
The availability of good infrastructural facilities is also another thing that parties prefer to take up institutional arbitration.
However, the cons of institutional arbitrations overweigh the pros in India, which is why the SIAC has been the preferred choice for the country. In 2019, India was the top foreign users of SIAC [1]. The next part shall deal with how an effort has been made to strengthen arbitral institutions through the 2019 amendment, however, I have also highlighted the problems related to these amendments.
2019 Amendment
Section 2(ca) defines an arbitral institution as an institution designated by the Supreme Court or High Court of India.
Arbitration Council of India
The 2019 Arbitration and Conciliation amendment added “Part IA- Arbitration Council of India”. The Arbitration Council of India (hereinafter referred to as “ACI”) is an independent body which shall be promoting institutional arbitration in the country through steps like:
- Grading the arbitral institutions;
- Accreditation of arbitrators;
- Holding training, workshops and courses on the subject of arbitration;
- Promoting alternative dispute resolution mechanisms in India;
- Maintaining a depositary of arbitral awards and many others. [2]
The ACI shall be the nodal agency to promote uniform standards and to drive regulator and policy reforms in the field of arbitration. The members of this Council shall be appointed by the government at the centre consisting of judges, eminent academicians, arbitration practitioners, officials of the central government and industry body representatives.
The establishment of the council showcases the intent to promote growth of institutional arbitration in India. There have been some concerns although, since the officials shall be appointed by the government which may affect the neutrality of the process, and moreover increased supervision of the government may be a red flag for parties. It should be brought to light that the government is also a party in many proceedings, which could compromise the independence of the council.
The composition of the ACI is in stark contrast with the committee recommendations and therefore raises questions of high levels of bureaucracy in the country.
Accreditation of arbitrators
India lacks a regulatory code that governs its arbitrators, which has been time and again highlighted to be an issue. The ACI has been given the responsibility to recognise arbitral institutions which will accredit arbitrators. The 2019 amendment added an eighth schedule [3] which lays down the qualifications and experience of arbitrators as well as the general norms which are applicable to arbitrators.
This accreditation system enables the involvement of lawyers, experts in the public sector and the legal sector. The level of expertise and professionalism would no doubt increase due to this amendment and will instil confidence in the parties. It will sway the focus from retired judicial officers to a more expanded horizon, however, as opposed to the CIArb promoting students to enrol as arbitrators, the eighth schedule provides seniority and age thresholds.
It must be noted that since the amendment the provision of ACI and accreditation of arbitrators have not been notified yet, since the council has not yet been established.
Grading arbitral institutions
The ACI has been given the task of grading institutions on criteria like performance and compliance with time limits for disposal, infrastructure, quality of arbitrators. Since currently, the 35 institutions in the country had no grading system, there was no will to perform better, but in the race to become the best institution of the country, such institutions will strive to do well.
Moreover, Indian parties can now on the basis of these gradings decide which institution to choose while keeping in mind the time taken for disposals and other relevant factors. However, on the ground that there is a lack of an exhaustive list of variables to be considered, which could lead to lack of transparency and clarity.
Designation of arbitral institutions
The 2019 amendment says that the Supreme Court and High Court can appoint a graded arbitral institution to act as appointing authority in the event that the parties to appoint arbitrators [4]. This limits judicial intervention as opposed to the 2015 amendment which made the Supreme Court and High Court the appointing authority.
However, this may create a problem, since the judiciary could be biased in choosing the arbitral institution itself, at the same point I do agree that bias is something that cannot be controlled in any case.
Prioritising Confidentiality
Prior to the 2019 amendment confidentiality was only available for conciliation under Section 75 of the Act, however with the amendment now Section 42A casts an obligation of confidentiality on parties to the Arbitration Agreement, the Arbitrator as well as the Arbitral Institutions. The award may be disclosed only for enforcement of the same or for setting the proceeding aside. Moreover, it is a non-obstante clause with respect to any law.
However, one thing that is important to note that Section 42A has no consequences for violation of the provision. It also does not take into account the following entities which may breach confidentiality:
- Transcribers
- Third party funder
- Witnesses
- Tribunal Secretary [5]
Decreasing time limits
The 2019 amendment removes the 12month disposal limit on international arbitration matters, however, provides for an ‘endeavour’ instead. The 2019 Act mandates that statements of defence and claims must be completed within 6 months from the date of the arbitrator receiving the notice of appointment. After this, a 12 months period is allotted for completing the proceeding, which is extendable by 6 months by mutual consent of parties. These timelines are mandatory when arbitration is between Indian parties and recommendatory for international commercial arbitrations.
This limitation is something very unique to India and invited some traction as well from parties. The present amendment encourages domestic arbitration, however international commercial arbitration became a weak spot now, since parties would prefer seats outside India with jurisdictions which have much better control on disposal time limits.
Setting aside award
The 2019 amendment restricts the scope of interference by judiciary by stating that courts can only rely upon the materials presented before the arbitral tribunal and not take into consideration other factors like: incapacity of parties, lack of proper notice, tribunal acting beyond the scope of jurisdiction). Thereby saving time when parties challenge the awards in the courts, thus delaying the execution of the award.
Conclusion
It cannot be denied that the legislature has been trying to take certain positive steps, however, it must also keep in mind to talk to the relevant interested parties. The BN Srikrishna committee report was a starting point, but then making drastic changes to it somehow dissolved the object of the amendment. There is a certain sense of clarity in the amended sections.
An arbitration conducted through arbitral institutions can be very beneficial during the pandemic by saving costs as well time of the parties. The need to strengthen these institutions has gained relevance due to the lockdown, and they would have to work on establishing a system for handling e-filings and virtual hearings.
ACI can play a very significant role in the near future to promote alternate dispute resolution mechanisms, and the implementation of the amendment would be something to look out for.
Apart from strengthening the institutional arbitration primacy must be given to not only to conducting arbitral proceedings but also implementation of awards without much interference. India is one of the very few countries which has the concept of judicial interference in arbitration, which drags the execution of the award for years. There is a lack of discipline in India and it is perceived by lawyers as a part-time job, since most arbitrators start working after 4 pm, therefore it needs a cultural change in the country.
Instead of relying on amendments as a knee jerk reaction from the previous amendment, what is needed is that of a well thought out and well- structured amendments after taking feedback from the industry and its stakeholders.
References
[1] SIAC Report, 2019.
[2] Section 43D, The Arbitration and Conciliation (Amendment) Act, 2019.
[3] Section 43J of the Arbitration and Conciliation (Amendment) Act, 2019.
[4] Section 11 (6), The Arbitration and Conciliation (Amendment) Act, 2019.
[5] Rajvi, A., NPAC’s Arbitration Review: New confidentiality provision in the Indian Arbitration Act, BAR AND BENCH (September 30, 2019).
[6] Section 29 A, The Arbitration and Conciliation (Amendment) Act, 2019.
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