This chapter attempts to provide a basic introduction to arbitration and it especially focus on the evolution and development of the arbitration in India. This chapter also provides an insight on the views of leading academics on arbitration and the judicial intervention in the same.
1.1 What is Arbitration?
There have been various attempts to define the evolving general understanding of the legal forms of arbitration. Amongst the better-known ones is that of Rene David, who defines arbitration as the settlement of a question of dispute between two or more parties by a third distinct party or parties. These private parties gain their power from the agreement between the parties and not from the state.
Arbitration is a mode of dispute settlement for the resolution of all type disputes outside the national courts of a country, where the parties between whom the dispute has arisen refers it to a neutral party or parties, for its resolution. The third neutral party is known as the sole arbitrator or where there is more than one arbitrator, the arbitral tribunal. The arbitral tribunal is usually formed of parties who are experts in their fields and are familiar with the law and the actual or potential disputes between the parties. The arbitration agreement between the parties may be in the form of a separate contract or may be included in the primary contract itself in the form of an arbitration clause.
The primary feature of this method is that the parties explicitly agree that in the event a dispute arises between the parties, such dispute will be submitted to the arbitral tribunal so envisioned in the agreement, for final determination and the resolution method in general, are preferred by parties since they follow procedures that allow for more flexibility. Since a number of disputes also include transnational laws, these arbitral tribunals are better placed to deal with such disputes than national courts.
Arbitration, in the Indian context, has been defined under s. 2(a) of the Indian arbitration and conciliation Act, 1996 which, however, does not throw any light on what arbitration is, merely defining it as “any arbitration whether or not administered by a permanent arbitral institute.”
Arbitration has four fundamental characteristics:
It works as an inherent alternative to national courts.
It is a privately powered mode of dispute resolution.
In this mode of dispute resolution, the parties themselves are in control.
It is binding upon the parties.
The most enticing feature of arbitration is perhaps the fact that the parties are entirely in control of the process, thus leading to a greater satisfaction with the final award in comparison to the outcomes of litigation.
History of arbitration in India
Since ancient times, arbitration has been an integral part of the Indian culture. Local forms of self-government like jirgas and panchayats conducted informal arbitral proceedings and their decisions were considered to be binding. These forms of dispute resolution involved the nomination of local luminaries often village elders or others of high social stature, to settle disputes within communities. This traditional council of adjudicators eventually evolved into a form of self-rule in India, the panchayat raj, which incorporated arbitral practices as part of a post-colonial ideal of local governance and grassroots democracy.
Even Hindu Mythology provides early descriptions of arbitration. In some account of Ramayana, Lord Rama and his family attempt to settle their dispute through arbitration by deities. Under British colonial administration, arbitration was accorded a limited, but gradually expanding, place in the resolution of Indian commercial disputes.
Post-independence, India ratified the New York Convention on 13th July 1960 pursuant to which the foreign awards (Recognition and Enforcement) Act, 1961 was the first step towards the development in the international commercial Arbitration which ultimately gave recognition to the Arbitral awards decided by outside the territories of India, in India.
Section 4 of the said Act stated that “foreign awards would be enforceable in India as if they were Awards made in India.”
what is International commercial Arbitration?
The Indian and conciliation Act, 1996 defines International Commercial Arbitration under S. 2(1)(f) as “an arbitration relating to dispute arising out of legal relationships, whether contractual or not, which must be considered commercial, and where either of the parties is a foreign national or resident or a foreign body corporate, or is a company, association or body of individuals whose central management or control is in foreign hands”
The scope of “commercial” relationship was laid out by the supreme court in- by holding that “commercial” should be construed broadly having regard to the manifold activities which are an integral part of international trade today.”
1.1.3 Law of international commercial arbitration in India?
India adopted the provision of UNICTRAL Model Law by consolidating “the foreign awards (Recognition and enforcement) Act 1961, the Arbitration (protocol and Convention) Act 1937 and the Indian Arbitration Act 1940”.
Prior to the Act of 1996, the prevailing law of arbitration was unable to fulfil the needs of the business community and globalization. After the introduction of economic reforms in the year 1991, a need for a more comprehensive statutory law was felt. The supreme court of India, on many occasions, discussed the need for a more effective law on arbitration, keep in mind the ever-changing nature of the industries and commerce.
The Supreme court in M/s Guru Nanak Foundation v. M/s Rattan singh & Sons thus opined:
“Interminable, time consuming, complex and expensive court procedures impelled jurists to search for an alternative forum, less formal, effective & speedy for resolution of disputes avoiding procedural claptrap and this led them to Arbitration Act, 1940 ('Act' for short). However, the way in which the proceedings under the Act are conducted and without an exception challenged in Courts, has made lawyers laugh and legal philosophers weep. Experience shows and law reports bear ample testimony that the proceedings under the Act have become highly technical accompanied by unending prolixity, at every stage providing a legal trap to the unwary. Informal forum chosen by the parties for expeditious disposal of their disputes has by the decisions of the Courts been clothed with 'legalese' of unforeseeable complexity.”
In a landmark judgment, the apex court observed that,
“we should make the law of arbitration simple, less technical and more responsible to the actual realities of the situations but must be responsive to the canons of justice and fair play and make the arbitrator adhere to such process and norms which will create confidence not only by doing justice between the parties, but by creating sense that justice appears to have been done.”
1.2 Statement of Problem
“Justice delayed is Justice denied”. It is estimated that 8-10 years of period and money is likely to be wasted if one initiates litigation machinery in courts. In order to resolve disputes between parties, litigation in courts is one of the oldest and most used methods since the time of civilization. But due to Industrialization and growth in global commerce, there was a dire need felt for exercising Arbitration mechanism in order to consensually resolve the disputes in an expeditious and effectual manner against the prolonged mode of Justice dispensation that is practiced in courts. For instance, in a sector like the construction sector where a transaction typically involves multiple parties, it is often the case that parties commence legal proceedings for a variety of purposes, all of which would have a cascading effect. The ultimate effect is the suspension of the project until the dispute is resolved.
1.3 Objectives of Research
To verify the hypothesis and for the purpose of this submission, the objectives of study are:
To evaluate the history and the legal definition of “Arbitration” with a national perspective.
To analyse the process of arbitration in India.
For the purpose of this study, the following hypotheses have been framed.
Introduction of greater party autonomy might allow more parties to refer disputes to arbitration.
Introduction of third-party funding may allow more parties to gain resources to refer and solve disputes through arbitration.
Increase in the number of arbitration centres is directly proportional to the reduction of pressure on existing arbitration centres thus allowing for a greater number of disputes to be resolved in lesser time.
Stricter norms for ad-hoc and institutional arbitration might lead to lesser challenges to the final arbitral awards.
1.5 Research Questions
The following research question came up in the process of preparing the synopsis:
How the Arbitration of India was evaluated?
What are the challenges faced while undergoing Arbitration in India?
Has the Indian Arbitration and conciliation Act, 1996 helped in the reduction of judicial intervention?
1.6 Research Methodology
The Research Methodology shall be Historical. Reference will be made to various sources, national, such as the Indian arbitration and conciliation Act, 1996. Emphasis will be given to the legal dimension of various arbitration regimes around the globe and what steps can be taken to help facilitate arbitration in India on a wider scale. However, with a view to complement and substantiate the dissertation, the researcher has supported it with various case studies and possible remedies available to curb the various problems parties face while undergoing Arbitration.
1.7 Survey of Literature
1.7.1 PART I: Arbitration: Definitions
Q Hogg states that “an arbitration is the reference for binding judicial determination of any matter in controversy capable of being compromised by an agreement by way of accord and satisfaction or rendered arbitrable by statute between two or more parties to some person or persons other than a Court of competent Jurisdiction”.
R. Desing Rajan carried out a historical review of the origin and growth of arbitration through the times and how and to what extent it has developed in India. In his book, the author successfully laid out his views on International Commercial Arbitration in India, while also giving a clear and precise history of the same.
The author also laid out in detail how the arbitration machinery of India is infested with problems at its very roots, such as slow-moving procedures, lack of infrastructure, expense of carrying out arbitration, the lack of knowledge and intense misinformation of the potential parties. According to him, to overcome these problems, an intensive overhaul of the arbitration machinery of India is required. For this, he gave thirteen solution, some of which are: development of proper infrastructural facilities for arbitration, procedure of fast-track arbitration and awareness programs for the same, a paradigm shift towards arbitration from litigation and the teaching and training of students in law school itself, while setting up more arbitration centres to facilitate the above, etc.
1.7.2 PART II: the shift of the Indian arbitration regime from anti-arbitration to pro-arbitration.
Justice Fali S. Nariman in his study entitled “Ten Steps to Salvage Arbitration in India: The First LCIA-India Arbitration Lecture” noted that India has failed to achieve what the Legislature had intended with the enactment of the Arbitration Act of 1996. By this Act, the Legislature had intended that the establishment of a machinery which enabled the functioning of International Commercial Arbitration in a smooth manner in India, and allowed it to become competent and credible in resolving such disputes.
It is pertinent to note that while the Hon’ble Mr. Justice noted in his study suggested measures like the setting up of a Bar exclusive to arbitration and the need for a new act, he failed to elucidate as to how the failed arbitration mechanism of India can be bettered.”
It is also interesting to note that the author N. V. Paranjape, in his book entitled “Law Relating to of Arbitration & Conciliation in India” stated that the current Arbitration Act, that is, the Arbitration Act of 1996 has taken care of the fallacies of the previous Act, that is, the Act of 1940 and, to a large extent, eradicated the interference of the Courts, which was the reason for a lot of hue and cry and unnecessary litigation. He also observed that the introduction of provisions such as the implementation of arbitral awards held the same status as the implementation of a Court Decree, the enforcement of greater Party Autonomy for the parties, the provisions ensuring that the arbitrators remain independent and impartial amongst various other pro-arbitration measures, has strengthened the position of arbitration in India and cemented its place as a reliable mode of dispute resolution.
Finally, S. C. Tripathi in his book “Law of Arbitration & Conciliation in India with Alternative Means of Settlement of Disputes Resolution” made a comparative analysis of the two Arbitration Acts of India, that is, the incumbent Act of 1940 and the present Act of 1996.He noted that the Act of 1996 was more detailed and reduced the interference of the Judiciary in arbitration proceedings to a great extent, more specifically so when it is compared with the Act of 1940.
The History and evolution of Arbitration of India
In the Indian context, it is stated that arbitration was more prevalent in India than in other countries such as England. In fact, the system of arbitration was so prevalent in India, that Marten, CJ., was compelled to state:
“It (arbitration) is indeed a striking feature of ordinary Indian Life. And I would go further and say that it prevails in all ranks of life to a much greater extent than is the case in England. To refer matters to a Panch is one of the natural ways of deciding many a dispute in India”
Arbitration in India can be divided into three periods, namely:
Present day or the Post-British Era.
Dividing the history of Indian arbitration into 3 periods conveniently helps us to examine in detail, the arbitration system that was prevalent in India.
While in the pre-British Era Arbitration was not per-se defined, the dispute resolution methods greatly resembled it.
According to Sir Henry Maine:
“In those parts of India, in which village community was most perfect, the authority, exercised elsewhere by the headman, was lodged with what was called the village council or the panchayat”
“It was always considered a representative body and whatever was its real number, it always bore the name which recalled is constitution of five persons or ‘Panchayat’. Traces of this method of settling disputes can still be found in certain communities in the country”.
In Ancient Indian Jurisprudence, two methods of dispute resolution were recognized. The first was the judicial process through which the courts established decided the disputes, while the second was dispute resolution through arbitration. The ‘Brhadaranayaka Upanishad’, which is one of the ancient scriptures in Hindu Law, talks about three types of arbitral institutions. They are: ‘Puga’, ‘Srenis’ and ‘Kulas’. Collectively, they are known as Panchayats and are often compared with the modern day ‘Arbitral Tribunals’.
The Puga courts comprised of persons dwelling in the same place, irrespective of their caste and/or employment and were competent to decide cases in which the local public were interested. The Strenis (guilds) were associations of persons engaged in similar pursuits of which the merchants’ guilds were the most important. They were competent to decide matters relating to their special calling for traders. Finally, the Kulas, which were comprised of the village elders, decided matters concerning the members of a particular community.
As the British expanded their rule over India, a number of legislations were introduced to regulate the haphazard judicial system of India. Various Regulations and Acts were passed to formulate a system of arbitration in India which was supposed to be in consonance with the Judicial System in Great Britain.
The High Court of Orissa, in the case of State of Orissa and Ors. v. Gangaram Chhapolia, traced the sequence of legal developments leading to the codification of arbitration laws in India in the following words:
“The first attempt at codifying the law was made by the Bengal Regulations of 1772 and 1780 where provision was made for submission of disputed accounts to decision by arbitration. In 1781, Sir Elijah Impey’s Regulation included a provision that “the Judge do recommend, and so far as he can, without compulsion, prevail upon the parties to submit to the arbitration of one person, to be mutually agreed upon by parties.”
In 1787, regulation for the Administration of Justice was passed and it contained rules for referring suits to arbitration with consent of parties. There was no detailed provision, however, to regulate the arbitration proceedings. In 1793, Regulation XVI was enacted with a view to promoting reference of disputes of certain categories to arbitration and to “encourage people of credit and character to act as arbitrators”. Regulation VI of 1813 made some improvement to the Regulation of 1793 and arbitration was available in cases of disputes in regard to land. Bengal Regulation VII of 1822 authorized the Revenue Officers to refer rent and revenue disputes to arbitrators and the Collectors were enjoined to induce parties to agree to such arbitration. Bengal Regulation IX of 1883 authorized the Settlement Officers to refer disputes to arbitration.
In 1834, the Legislative Council for India was constituted and Act VIII of 1859, the Civil Procedure Code for India, was enacted in 1859 and Chapter VI of the Code contained provisions relating to arbitration. The Code, however, was not applicable to the Supreme Court, or the Presidency Small Cause Courts or non-regulation provinces. The Act was repealed and consolidated by the Civil P.C. of 1877; but the provisions relating to arbitration remained unchanged. Act XIV of 1882 revising the Code did not touch the provisions. The arbitration provisions so far provided arbitration of disputes before they had arisen.
There was no provision for reference to arbitration of future disputes. To remedy this, Indian Arbitration Act, 1899 was enacted basing on the English Arbitration Act, 1889. Various sections of the English Act were verbatim transplanted to the Indian soil. The actual application of this Act, was, however, originally limited to Presidency towns and was subsequently extended to a few more commercial towns. When the Civil P.C. of 1908 was enacted the clauses relating to arbitration were transferred from the body of the Code to the Sch. II. Various committees noticed the drawbacks in the existing provisions and advocated for consolidation and amendment of the law and its codification in a separate enactment and that is how the Arbitration Act, 1940 came to the statute book and the Sch. II to the Civil P.C. was repealed.”
Throughout the British Rule over India, a number of Regulations were framed by the East India Company which touched upon arbitration. They were:
Bengal Regulations of 1772 and 1780:
These Regulations did not elaborate much upon arbitration, however, a clause in each of them provided that “in all cases of disputed accounts, it shall be recommended to the parties to submit the decision of their cause to arbitration, the award of which shall become a decree of the court.”
Sir Elijah Impey’s Regulation of 1781:
This Regulation also did not elaborate much upon arbitration, and only two clauses elaborated upon the same. It provided that “the judges do recommend as so far as he can, without compulsion, prevail upon the parties to submit to the arbitration of one person to be mutually agreed upon by the parties”. Another provision of this regulation provided that, “no award of any arbitrator, or arbitrators be set aside except upon full proof, made by oath of two credible witnesses, that the arbitrators had been guilty of gross corruption or partiality in the cause in which they had made their award.”
Regulation of 1787:
In this regulation, it was laid down that parties to a litigation could be referred to arbitration, with their consent. The drawback, however, was that there were no provisions to regulate the arbitration proceedings, whether the award was made in time or for the situations when arbitrators differed in their opinions.
Regulation XVI of 1793:
This regulation made provisions for referring suits to arbitration. There was however, the addendum added, that suits referred to arbitration will be submitted to the decision of the Nizam. Regulations XXI of 1793 and XV of 1795 made further changes to this Regulation and the arbitration law in general. By way of these Regulations, efforts to refer certain types of disputes (such as disputed accounts, partnership disputes, debts, non-performance of contracts, etc.) were made. The most important feature of this Regulation was perhaps the introduction of a set procedure for reference of dispute to arbitration, award and the setting aside of awards. This Regulation also made recommendations of criteria for the appointment of arbitrators.
Regulation XXVII of 1814:
By this Regulation, Vakils were allowed to act as Arbitrators in disputes, removing an age-old bar on their acting as such.
Bengal Regulation VII of 1822:
Reference of rent and revenue disputes to arbitrators was enjoined upon Revenue Officers and Collectors. This provision formed the basis for several State Legislations regarding the reference of rent and revenue matters to arbitrators.
Regulations for Madras:
Coming to specific regulations for the Madras Presidency, the Madras Presidency Regulation, VII of 1816 authorized the District Munsif to assemble District Panchayats for administration of civil suits for real or personal property.
Regulations for Bombay:
Arbitration in Bombay was governed by the Bombay Presidency Regulation VII of 1827. By this regulation, amicable resolution of disputes of civil nature was facilitated by arbitration. However, the most important change brought about by this regulation was that reference of present as well as future disputes to arbitration was allowed by way of an agreement.
It, however, limited this power by requiring parties to name the arbitrator in the agreement itself. This Regulation also provided that the award made in such arbitrations would act as a Rule of the Court, and any breach thereof, will be regarded as contempt of Court.
The British also introduced a number of legislations which governed Arbitration in India. Some of them were:
Act IX of 1840:
In the year 1833, the Charter Act was passed. This incumbent Act established the Legislative Council for India, which was responsible for the passing of Act IX of 1840 which amended the law with reference to Arbitration, Damages and Interested Witnesses.
Act VIII of 1859, CPC:
While the whole legislation itself did not deal with Arbitration, Sections 312 to 327 of this Act related to Arbitration. The provisions dealt with a variety of things, including, reference to arbitration in pending suits, procedure for arbitration, arbitration without intervention of the courts. However, this Act was not applicable to the Supreme Court, the Presidency Small Cause Courts or nonregulation provinces.
Act X of 1877 and Act XIV of 1882:
The Code of Civil Procedure was amended in the year 1882 by way of Act XIV of 1882. The Amendment introduced the same provisions existing earlier relating to Arbitration in the Code of Civil Procedure in Sections 506 to 526 verbatim. Therefore, the consequence of these Acts was that no actual change was affected in the Law of Arbitration.
However, a progress was made in the interpretation of the Arbitration Law as it existed, when their Lordships of the Privy Council in Pestonjee v. Manockjee, were asked to decide whether a party having an Arbitration Agreement Section 323 could revoke their submission of disputes to arbitration at their own sweet will.
It was held that a proper interpretation of the Code provided that when the parties have agreed to submit disputes to arbitration, no party to such agreement can revoke the submission, unless the revocation is for a good cause. Therefore, an arbitrary revocation of the authority of an arbitrator was not permitted.
Act 9 of 1872: The Indian Contract Act, 1872.
The Indian Contract Act of 1872 codified the Law of Contracts in India. Section 28 of this Act provided two exceptions as to the agreement in restraint of legal proceedings. This Act was the first legislation to recognize that present, as well as future disputes can be referred to arbitration. It provided that if the parties have an agreement to refer disputes to arbitration, and if any of the parties file a suit in contravention to such agreement, then the other party can plead the existence of such agreement as a bar to this suit. It further provided that agreements to refer any disputes which had already arisen between parties, are valid in nature.
Specific Relief Act, 1877.
This Act further strengthened the view that reference of future disputes to Arbitration is permissible. It provided that, even though Section 21 of the Code of Civil Procedure under Section 21 does not permit future disputes to be referred to Arbitration, parties which entering into a contract to the contrary, allows the same.
Act IX of 1899: The Indian Arbitration Act
This Act was based on the English Arbitration Act of 1889. While the Act was the first Act on Arbitration in India, it was applicable only to the Presidency Towns of Calcutta, Bombay and Madras. It was also the first arbitration-specific Act which recognized the reference of present as well as future disputes to arbitration. The Act also made provisions for recognition of Arbitration Agreements whether or not they named the Arbitrators.
It was the first proper law on Arbitration. It was the first legislation in India, that was completely devoted to Arbitration. This particular piece of legislation was important as it resolved the difficulty faced with the previous legislations, that is, those legislations provided for no provisions for reference of future disputes to arbitration.
However, this particular difficulty was resolved in Bombay by a Full Bench of the Bombay High Court from holding that future disputes could be made the subject matter of arbitration, provided that the arbitrator was named in the agreement.
One of the other drawbacks of the 1899 Act was that its application was only limited to the Presidency Towns, which invariably meant it only covered a minor part of India. Due to the limited jurisdiction of the Act, Arbitration in other places was covered under the prevailing Code of Civil Procedure. Because of these reasons, and more, the Arbitration Act of 1899 was not satisfactory in resolving disputes and therefore a sorry state of affairs with respect to arbitration prevailed.
Code of Civil Procedure, 1908:
The Second Schedule of the 1908 Code focused exclusively on Arbitration. This Code provided exhaustive provisions for the reference of disputes to arbitration with and without the intervention of the courts. It also provided for arbitration in respect of the subject-matter of suits.
The Indian Arbitration Act, 1940
The Indian Arbitration Act of 1940 repealed the Arbitration Act of 1899 as well as the provisions relating to arbitration provided in the Second Schedule of the Code of Civil Procedure, 1908. This Act was based on upon the (English) Arbitration Act of 1934 and continued to govern the Arbitration Law of India till the introduction of the Arbitration and Conciliation Act of 1996.
Present Day or Post-British Era
The Arbitration and Conciliation Act, 1996.
The Indian Arbitration and Conciliation Act of 1996 was introduced to consolidate and amend the law relating to Arbitration in India, International Commercial Arbitration, the Enforcement of Foreign Awards and Conciliation into one Act. This Act was brought about to bring India up to the standards of the UNCITRAL Model Law of Arbitration and Rules of Conciliation. It came into force on August 22, 1996 but it was made effective to cases where the arbitral proceedings commenced from 25th January, 1996.
The present Act was introduced after it was felt that the previous Act, that is, the Arbitration and Conciliation Act, 1940; was inadequate to deal with the ever-evolving law of arbitration. The Statement of the Objects and Reasons attached to the Bill stated that it was widely felt that the 1940 Act had become outdated and that India’s economic reforms will not come into effect fully if the law dealing with the law in Commercial Dispute Settlement remained the same.
The 1996 Act was notified on 16th January 1996 when the President of India promulgated the Arbitration and Conciliation Ordinance of 1996. This Ordinance was one of the steps that led to the introduction of a new era in Arbitration in India, as well as extended India’s new market friendly policies and reforms of the 1990’s.
The primary purpose of the introduction of the 1996 Act was to encourage arbitration as an alternate to litigation which is both, cost effective and time saving. This Act was even more important for the settlement of commercial disputes in the international as well as national spheres, in India.
Another reason for the introduction of the 1996 Act was that internationally, it was felt that the arbitration law need to be consolidated, and amended to reduce disparity between various national laws. This was particularly important as different states had different laws on International Commercial disputes, therefore leading to a wide variety of problems. The UNCITRAL Model law, was therefore, enacted by the United Nations Commission on International Trade Law, for the harmonization of the various arbitration regimes persisting throughout the world.
The Arbitration and Conciliation (Amendment) Act, 2015.
This Amendment of 2015 amended the Arbitration and Conciliation Act of 1996 and brought about major changes in the arbitration law of India. It is deemed to have come into effect on 23rd October, 2015 by virtue of Notification No. 3 of 2016 dated 01.01.2016.
The Amendment brought about a host of changes, some of the most notable one’s being the change in the definition of “Court” with respect to domestic and international commercial arbitration, reference of disputes to arbitration unless the Court finds that no valid Arbitration Agreement exists and the Appointment of Arbitrators.
The Arbitration and Conciliation (Amendment) Act, 2019.
The Arbitration and Conciliation (Amendment) Act, 2019 came into effect on August 9, 2019. This Act provides for a number of key amendments to the Arbitration and Conciliation Act, 1996. Some of them are:
The designation and grading of Arbitral Institutions.
Timely conduct of proceedings: By way of this Amendment, S. 23(4) was introduced, which provides that the Statement of Claim and Defence shall be completed within a time period of 6 months from the date of appointment of the Arbitrator(s).
Confidentiality: The Amendment provides that the Arbitrators, the Parties to the Arbitration Agreement and the Arbitral Institution shall maintain confidentiality of the arbitral proceedings, except the arbitral award, the disclosure of which is necessary for its enforcement.
All of the changes brought about by the Arbitration and Conciliation (Amendment) Act, 2019 have been introduced in order to make India a more arbitration friendly country, and in turn, a Global Arbitration hub.
3. Challenges against the growth of Arbitration in India.
3.1 Judicial Intervention and the differing view of Courts.
Judicial intervention into Arbitral Proceedings is one of the most major challenges that is hampering the growth of Arbitration in India. Under the Arbitration and Conciliation Act, the Courts have been provided a limited scope for intervention, they still provide for immense litigation and are outlined below as follows:
For interim protection:
The parties may approach the Court under Sections 17 for interim protection to be granted. The scope of the interim protection itself is also limited and may only be awarded in certain cases.
Appointment of Arbitrators:
The Parties may approach the Court for the appointment of Arbitrators when either party fails to appoint their respective arbitrator within 30 days of the request being made, or when the two appointed arbitrators fail to appoint the third Presiding Arbitrator. This provision has recently been amended to provide for the Court to direct an Arbitral Institution to make the requisite appointment.
Assistance for taking of Evidence:
Section 27 of the Act provides that the Court may intervene into the Arbitration in order to provide assistance during the stage of Evidence.
Challenge of Arbitral Award:
The Arbitration and Conciliation Act provides for the challenge of an Arbitral Award, on certain grounds which are envisioned in the Act. Apart from that, it also provides for the enforcement and execution of awards, which only acts in prolonging the time period of arbitration.
Even though the intent of the Arbitration and Conciliation Act, 1996 is to reduce the intervention by Courts, frequent intervention and conflicting decisions have become a cause for misery to many parties, thus leading to a number of decisions by parties to not hold their Arbitrations in India. The Courts have time and again recognized the principle of non-intervention of Courts, with the Supreme Court even vacating a stay given by a High Court on the ground that the party which sought to invoke arbitration with regards to certain shares, would be able to take control of a telecom company, which would be contrary to the scheme of Indian Law.
The Supreme Court, however, that this plea was entirely on merits, and a question that ought to be raised before the Arbitral Tribunal itself, and that the Court was not the appropriate forum to decide the issue. Therefore, the stay granted by the High Court was vacated, and the parties were referred to Arbitration, with the Supreme Court going as far as barring the Respondent filing any further applications which would interfere with the process of arbitration.
However, Judicial Intervention has been a persistent problem in the arbitration regime of India. The Court has expanded the scope of challenge of Arbitral Awards through its interpretations, such as in the case of Oil and Natural Gas Commission v. Saw Pipes, where the extent of the phrase ‘Public Policy’ was explored, explained and expanded. The case of Hindustan Zinc Ltd. v. Friends Coal Carbonisation is another such example where the Court further expanded the scope of Judicial Review of Arbitral Awards by stating that the Arbitral Award can be set aside if it goes against the terms of the contract itself.
Instances like these have only opened up Arbitral Awards to more challenges, and have, in effect, prolonged the Arbitral process, thus making Arbitration in India a tedious process.
Limiting the scope of practice for foreign lawyers:
The Supreme Court, recently, in the case of Bar Council of India v. A.K. Balaji on the issue of entry into and practice of foreign lawyers and law firms in India, and the establishment of initiatives like the Mumbai Centre for International Arbitration and the introduction of the NDIAC Bill, stated that it is important to keep into perspective and analyse the likelihood of India’s success as the “seat of arbitration”, the law governing the arbitration and India as a preferred venue for conducting arbitration proceedings administered by Indian arbitral institutions.
Even though the Supreme Court ruled in favour of the “fly-in, fly-out” principle, it added the stipulation that the visit must be “casual” and must not amount to “practice” and the same will be determined on a case-by-case basis. The Court further ruled that foreign lawyers had “no absolute right” to conduct international commercial arbitration proceedings. This judgement further limited the scope for International Commercial Arbitration, more specifically so for parties who are willing to invest in India, but are hindered due to judicial challenges like this one.
Another problem that has arisen with regards to foreign lawyers is that due to an inconsistency in the statute, the Eighth Schedule can be interpreted to say that a foreign lawyer may not act as an Arbitrator in India. All of these inconsistencies must be addressed by the Legislature or the Courts at the earliest, if India is to gain the status of a Global Arbitration Hub.
Reduced flexibility due to the Arbitration and Conciliation (Amendment) 2019 Act.
While the Arbitration and Conciliation Amendment Act of 2019 is majorly considered to be a positive step, at the same time, the introduction of the Arbitration Council of India has also raised questions. This is because of the fact that the Arbitration Council of India, with a number of members forming the Council are either part of the Central Government, or appointed by them. This allows the Government to exercise major control over the Council, and in effect, may have reduced the independence of arbitrators.
Another issue which the Amendment Act of 2019 faces is that while the Act provides for maintenance of confidentiality, it has missed the boat on providing necessary exceptions to that confidentiality requirement. These necessary exceptions may include situations where a third-party expert is necessary to give evidence among other things. Since the Act fails to provide for the necessary exceptions, the breach of confidentiality, though not intended, may be used as a dilatory tactic by either party.
Finally, another infirmity that this Amendment Act is faced with is the inconsistency in the Statute due to which the Eight Schedule of the Act may be interpreted as barring foreign lawyers from practicing as arbitrators in India. This, of course, will act to negate the Indian arbitration practice and might hamper India’s aim to become a Global Arbitration Hub.
Should even greater party autonomy be given to parties to an arbitration?
The Indian Arbitration Act already provides for a great amount of Party Autonomy. This can be inferred from Part I itself of the Act, which provides that the parties can designate the rules of law applicable to the dispute. Where the parties fail to make such designation, the arbitral tribunal has the authority to make such designation. At the first instance, it is clear that the parties have not only the authority to choose the place of arbitration, but also the seat of arbitration, that is the law governing their dispute.
This in itself is a step up from litigation, where jurisdiction of courts is clearly defined by way of Statutes. The Act also the parties to choose their arbitral tribunal, which must be an odd number, thus giving them control over who adjudicates their dispute. Not only that, the parties also have the freedom to choose the procedure and manner in which the Arbitration is to be carried out.
The Indian Arbitration Scheme already provides for a great amount of party autonomy as parties have the freedom to choose the place of arbitration, the law governing the dispute, the arbitrators, i.e. the adjudicators of the dispute, apart from the procedure itself that is to be followed. Any further control over the proceedings will only do more harm than good.
Arbitration disputes in India have been rampant, with commercial disputes being arbitrated with increasing frequency. With the increase in preference for arbitration and the general decreasing preference towards litigation, India is all set to become a global arbitration hub in the near future.
This has been reiterated in practice with Prime Minister Narendra Modi making the intention of the government with regards to arbitration clear through his valedictory speech at the Niti Aayog conference on ‘National Initiative towards Strengthening Arbitration and Enforcement in India.’ The same was also reiterated by the Union minister of Law and Justice at an international forum – the BRICS summit in 2016.
Arbitration in India has evolved a great deal over the ages, and has made leaps and bounds over the years. The Indian Administration has worked very hard to stay in touch with the prevailing International position of Arbitration and has even reformed its Arbitration Act in 1996 to bring it in line with the UNCITRAL Model Law. Due to this, even though the Indian Arbitration Law has more or less been in line with the prevailing international position, a long way yet is to be covered.
India is a fast-growing economy which requires a stable arbitration law in order to become a global arbitration hub. In order to achieve this target, it is important to maintain a balance between keeping the arbitration law updated and establishing arbitration centre capable of resolving and handling commercial disputes efficiently. With Courts and legislators taking a pro-arbitration approach, and the Amendment Act in place, the adoption of best practices is vital in the near future.
In order to make India a global arbitration hub, even more measures need to be taken. An important step would be to consider signing and ratifying International Conventions, such as the ICSID Convention, and further to extend the scope of recognition of Arbitral Awards to non-reciprocating countries. This would allow a greater number of parties to engage in commercial trade in India as ease of dispute resolution is considered an important factor while choosing commercial relationships.
The Arbitration law of India has seen great progress, right from the Arbitration Act of 1940 to the current Arbitration Act of 1996 which has seen amendments from time to time, the most recent one being in 2019. These Amendments have played a major role in keeping the Arbitration Scheme of India up to date with the rest of the world and have been highly topical.
It is important to note here that the Indian scheme of Arbitration, though indirectly, provides for the substantive review of arbitral awards under S. 34 of the Act, a practice which many leading arbitration jurisdictions are wary of, and have put restrictions on the power to do so. This substantive review can act as another discouraging factor for many foreign parties looking to establish commercial relationships in India, and thus, a change must be brought about in this regard.
Written By: Vinay Mishra