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April 11, 2013

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Institutional Arbitration Knocking On Indian Doors?


- Renu Parekh, Partner [ Clasis Law ]

Renu Parekh

Arbitrating disputes as a means of resolution has always existed in India. In earlier times, people from villages would refer their disputes and differences to their community leaders or 'Panchayats' for a binding resolution.

These Panchayats are popular even today and continue to arbitrate differences within community members. An early reference to the history of statute relating to arbitration is found in the regulations instituted by the East India Company for the presidency towns of Bengal, Madras and Bombay. These regulations were later expanded by the Civil Procedure Act of 1859 and Indian Arbitration Act, 1899. Thereafter, the Indian Arbitration Act, 1940, was passed for the whole of British India and subsequently in 1950, extended to the whole of India except the Part B states.

The 1940 Act was repealed by the Arbitration and Conciliation Act, 1996, which came into force on 25th January, 1996, as a comprehensive piece of legislation modeled on the lines of the UNCITRAL Model Law. This Act also extends to the whole of India with specific applicability to the states of Jammu and Kashmir. The Act of 1996 brings within its ambit, both domestic as well as international arbitration and also recognizes conciliation as a mode of dispute resolution.

The statutory recognition of alternative means of resolution is echoed by the insertion of Section 89 in the Code of Civil Procedure, 1908, whereby a right has been conferred on the courts to refer the parties to a settlement either by way of arbitration, conciliation, mediation or judicial settlement, including settlement through LokAdalat, if the court is of the view that elements of an out-of-court settlement exist in a case.

Arbitrations conducted in India are mostly in the nature of ad hoc arbitrations. The concept of an Institutional Arbitration, though gradually making inroads into the arbitration system in India, is still relatively new, untapped, and has yet to make a significant impact. One of the primary reasons for this lack of momentum in the growth of Institutional Arbitration is the lack of its statutory recognition in the texts of the Act of 1996 and the Code of Civil Procedure, 1908.

An Institutional Arbitration is one in which an institution with a permanent character assists with the arbitral process by providing administrative, secretarial and other assistance in accordance with the rules framed or adopted by that institution. Normally, such institutions are specialized institutions. However, in India, we also have various chambers having such specialized chapters exclusively dealing with various mechanisms of alternate dispute resolution including arbitration. It is critical to understand that the institutions do not arbitrate the dispute, it is the arbitrators who arbitrate and thus the institutions are facilitators and not adjudicators.

The overwhelming popularity of ad hoc arbitration in India has had its ramifications in terms of time and cost effectiveness, the basic premise for which arbitration was proposed as an alternative means of resolution. There has been, in addition, a plethora of cases challenging the awards, based on impartiality of the arbitrators, thus defeating the premise of party au-tonomy. Gross delays, huge backlogs, time consuming and cost unfriendly processes, etc. have led to the woes of litigants without providing quick relief and remedies. In such prevalent circumstances, the edge that an Institutional Arbitration would impart needs no emphasis.

Institutional Arbitration seeks to negate the most glaring lacuna of ad hoc arbitration by providing speedy and cost effective remedies to the arbitration process. A quick overview of the numerous benefits of an Institutional Arbitration is highlighted below.

  • One of the most striking features of Institutional Arbitration is that each of the institutions has in place pre-established rules of procedure, in accordance with which, the arbitral proceedings are conducted. These rules of procedure are well within the framework of law and are binding on the parties to the arbitration proceedings. These rules and regulations assure smooth and successful functioning of the arbitral process, minimizing delays.
  • A ready, infrastructure to conduct arbitrations, which includes Secretariat providing administrative/ secretarial support to the arbitration process. This adds an element of professionalism in conducting the arbitration proceedings, and ensures that the involvement of parties and their counsel is confined towards the more critical areas of the arbitration proceedings.
  • A suggested arbitration clause is recommended by the institution, which the parties can incorporate in their agreements. In view of the wide variety of institutions catering to different areas of operation, resolution methods and disputes; the parties have a larger scope of identifying their individual needs and suitably choosing an appropriate institution.
  • The arbitral institutions maintain a panel/ roster of arbitrators, along with their profile from which the parties can choose the arbitrators. Such arbitral institutions also provide for 'specialized arbitrators', where the subject matter of the proceedings requires special knowledge in order to enable effective adjudication. Institutions also help in appointment of arbitrations where the parties so request.
  • Some of the arbitral institutions also assist in appointing a Presiding Arbitrator/ Chairman or an Umpire when any deadlock situation arises in case of a conflict of opinion between the appointed arbitrators thereby preventing wastage of time in resolving such situations.
  • The fees of the arbitrators are pre-fixed by the institution and are normally related to claim amounts, thus keeping in check the costs irrespective whether the fees are charged per session or otherwise.
  • Akin to a roster of arbitrators, the institutions typically maintain a list of experts from different fields and walks of life (with their profiles), whose services can be availed as expert witnesses or in the area where such expertise is required.
  • Time lines for passing the award are fixed or prescribed by the Rules and hence, ensuring timely delivery of awards. In addition, many institutions have an experienced committee to scrutinize and review the awards passed by the arbitrators before the awards are finalized and given to the parties. This review by the experienced committee minimizes the possibilities of the court setting aside the award on the grounds of possible technical flaws and defects in the award.
  • Most institutions periodically review and revise and update the Rules, taking into account growing and changing needs of various industries, developments in the field etc.
  • The professionalism in conducting the proceedings and passing of the awards strengthens the credibility of the awards, narrowing down the scope of their challenge and the courts are more likely to enforce the awards passed by institutions.
  • Most information regarding the institute enumerated above besides its past performance, awards passed and challenged, pendency or backlog if any, is available online through websites and various other brochures/material, thus ensuring transparency in the functioning of the institute, whereby trust and faith in the institution and its processes stands enhanced. This material is normally shared whilst maintaining the confidentiality related to the actual arbitration proceedings.
  • Arbitrators, experts, parties and even their counsel can seek assistance and advice from institutional staff where necessary.
  • Pre-litigation advisory facility is offered by few institutions, outlining the merits and demerits of a dispute before it is subjected to any form of adjudication.

Institutional Arbitration retains the most fundamental tenet of arbitration, i.e. party autonomy, by granting to the parties, the right to choose the 'forum' and the 'judge' of their choice to conduct the arbitral proceedings. Typically, in litigation, the jurisdiction of the court is invoked based on the nature of the case and various ingredients laid down in law, with a restriction on the litigants' power to choose their own judge/arbitrator.

Institutional Arbitration offers an unrestricted right to the arbitrating parties to choose the 'forum' as well as the arbitrator, coupled with prior clarity regarding the fees proposed to be charged and the potential time period within which a decision would be arrived at, thus making itself a highly favorable means of dispute resolution.

An arbitral award passed by an arbitral institution is enforceable in a court of law, acquiring the status of a decree passed by a civil court. Globally, it has been observed that courts are more receptive towards enforcing awards passed in an Institutional Arbitration, since international arbitration institutions enjoy worldwide recognition and their professional expertise adds to the certainty and finality of the proceedings.

Some of the specialized institutions in India are Indian Council of Arbitration (ICA), Indian Institute of Arbitration and Mediation (IIAM), ICC Council of Arbitration and Construction Industry Arbitration Council (CIAC).Few commercial chambers offering Institutional Arbitration are the Indian Merchants' Chambers (IMC) and FICCI Arbitration and Conciliation Tribunal (FACT).

As the Indian economy has been growing exponentially with a consistent inflow of foreign investment, the need for Institutional Arbitration is at an all-time high and cannot be over emphasized. In the circumstances, encouraging signs for the development of Institutional Arbitration can be seen with the London Court of In-ternational Arbitration (LCIA), one of the longest-established arbitral institutions in the world, launching its first independent subsidiary in India in April 2009.

The Arbitration and Conciliation (Amendment) Bill 2003, has recognized the importance of Institutional Arbitration. One of the proposed changes is the ability of the court to appoint an institu-tion under Section 11 of the 1996 Act. The Committee to whom the Bill was referred to has emphasized upon the need for establishing an institution in India, which would measure up to international standards and for popularizing institutionalized arbitration.

The concept of Institutional Arbitration, although at a nascent stage, is showing enormous signs of growth, which will lead to infusing of a greater sense of discipline in the arbitration system in India. Concluding with a quote of famous Noble Peace Prize winner 1927, Ludwig Quidde, which squarely covers the ethos of an institutional arbitration..."Great progress was made when ar-bitration treaties were concluded in which the contracting powers pledge in advance to submit all conflicts to an arbitration court, treaties which not only specify the composition of the court but also its procedure".

Summarizing, Institutional Arbitration is more likely to ensure that not only the arbitration takes off but also lands with an award being passed! Concluding with a quote of famous Noble Peace Prize winner 1927, Ludwig Quidde, which squarely covers the ethos of an institutional arbitration..."Great progress was made when arbitration treaties were concluded in which the contracting powers pledge in advance to submit all conflicts to an arbitration court, treaties which not only specify the composition of the court but also its procedure".

Disclaimer - "The views expressed in this article are the personal views of the author and are purely informative in nature. The author does not guarantee the accuracy or currency of the data included in this article and accepts no responsibility for any consequence of their use."

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