Going outside courts
Arjavi Indraneesh writes on how becoming an arbitration hub is a long shot for India with legacy issues impeding the alternative dispute resolution mechanism
The Modi government's plan to make India an international hub of arbitration may be well-meaning and sincere but it is too ambitious to be realistic. Arbitration as a means of dispute resolution has not progressed beyond the rudimentary stage in the country. It is not possible for any centre to become a hub without a certain context and India scores very poorly on this count.
Of course, the government has initiated moves to somewhat address the issue but the results so far have not been exemplary. Arbitration continues to be a costly and time-consuming affair in India and compares poorly to the judicial processes. Also, there are a number of legacy issues that prevent arbitration as an effective means of dispute resolution from gaining ground.
The high-level committee set up by the government to review the institutionalisation of the arbitration mechanism in India itself considered a number of issues that are limiting the scope of arbitration in the country. According to the findings of the committee, the efforts to encourage dispute resolution through arbitration and to make the country a major arbitration hub had long been impeded by the judicial interpretation of certain provisions of its arbitration legislation and excessive court involvement in the arbitral process.
This was sought to be corrected through the 2015 amendments to the Arbitration and Conciliation Act 1996 which focused on undoing the effect of such judicial precedent and limiting judicial intervention. The committee proposed several measures to improve the situation, including amendments to the existing laws, but these have not produced the desired results. Parliament also passed the Arbitration and Conciliation (Amendment) Bill, 2019 with a view of fixing loopholes made by the 2015 Amendment Act. The Act talked about setting up an Arbitration Council of India for promotion of alternative dispute resolution mechanisms in the country. Further, the Supreme Court and the High Courts have been given the power to appoint arbitral institutions in specific cases, if the need arises.
And yet, arbitration continues to be a time-consuming affair and takes years to conclude, which also implies additional costs. Also, despite a number of institutions, ad hoc arbitration dominates the scene which by itself poses a number of problems. First, ad hoc arbitrations tend to be protracted and costly in some cases in the absence of monitoring. One of the reasons for these delays and costs is that the fees of arbitrators are charged on a sitting-by-sitting basis without any regulation. Costs and delays in ad hoc arbitration also mount in case of additional procedural hearings, adjournments, litigation arising from procedural defects in ad hoc arbitrations.
Another serious issue is the lack of expertise and quality as well as exposure to international best practices. For this reason, the rules and practices followed by these arbitral institutions are often outdated and inadequate. Also, the infrastructure and support provided by arbitral institutions are largely inadequate.
The committee identified a lack of sufficient government backing as another major reason for a weak institutional arbitration framework in India. While the government is the most prolific litigant in India, it can do more in this capacity to encourage institutional arbitration. The general conditions of contract used by the government and PSUs often contain arbitration clauses but these usually do not expressly provide for institutional arbitration.
Further, government policy on arbitration requires a relook if institutional arbitration is to become the norm, particularly for disputes valued at large amounts. For instance, if the government, being the biggest litigant, were to adopt institutional arbitration as a regular practice, the sheer volume of cases moving to arbitral institutions would provide a powerful impetus to institutional arbitration.
Also cited is the non-cooperation from the judiciary. The appointment of mostly retired judges brings with it the ways of the judiciary, which is by itself dogged by long delays and adjournments, mostly forced by one of the parties to the dispute. They tend to add to a lot of avoidable delay in the award of the arbitration.
Another major impediment is the absence of a regulatory body to accredit or approve arbitrators, or oversee their professional conduct or certify their level of expertise. There is no official code of conduct or rules, which means the arbitrators enjoy unprecedented autonomy and have a lot of opportunities to indulge in corruption or unethical and unprofessional behaviour.
(The views expressed are strictly personal)