Arbitration is coming of age in India

It is often said that litigants experience ‘eternity’ when they go through courts seeking resolution for disputes. Cases keep getting moving to higher courts and the life of a dispute stretches to years, if not decades. Despite such delays, corporate executives prefer litigation in courts even when they have included an arbitration clause in the contract.

Ask a litigant why she has not resorted to arbitration as envisaged in the contract and she will come up with a number of reasons, such as that the lawyers do not advice arbitration and it may only be a replication of the court process. Also, they will tell you that the awards are disputed in courts and, therefore, approaching arbitration leads to further delays. The result: pending cases in courts continue to grow.

But all these changed with the report of the Law Commission, headed by Justice AP Shah, which paved the way for the amendment of the Arbitration and Conciliation Act, 1996. Parliament approved the changes in late 2015. Time frames for delivering the arbitral award was specified, costs were regulated and, importantly, the law made it very difficult to challenge the award in courts.

High Court Judges these days specifically recommend arbitration when commercial cases come up before them. We all know of the number of international arbitration cases being conducted in Singapore and London involving Indian parties, a situation which needs to change.

But has there been surge in arbitration proceedings in India after the amendment to the Act? Sadly, it is not so, mainly because the nature of arbitration in India is ad-hoc, which does not have pre-set rules and there is no institutional backing for enforcement of time schedules, cost and quality considerations. Also, the business community in India has not yet become familiar with the recent changes in the legal position on arbitration.

The arbitration Act contemplates two classes of awards: Domestic Awards (Part I of the Act) and Foreign Awards (Part II of the Act).

A domestic award is subject to a review before the courts which have jurisdiction over the venue of arbitration. A review is different from an appeal; a review is based on limited grounds such as non-adherence to principles of natural justice (where one party is not given equal opportunity); where the arbitration agreement is void in the first place; where the dispute adjudicated upon is beyond the scope of reference; where the arbitrators were not appointed as per the procedure agreed upon by the parties; where the arbitral award is against public policy of India, etc.

The last ground — against public policy of India — has been the most controversial and has been interpreted widely by the Supreme Court in ONGC v. Saw Pipes to include violation of any law. The argument in favour of this interpretation was that a majority of the Indian awards are ad-hoc awards and often delivered by arbitrators who are not specialised.

That being so, the SC felt one level of review, at the court level, is necessary in the case of domestic awards. The contrary view taken by another bench of the SC was that when parties choose arbitration, they want the courts to adopt a hands-off approach and consequently converting the “review” into an “appeal” is not justified.

In foreign awards, the enforceability of awards was clouded by the judgement in Bhatia International Vs. Bulk Trading S.A. The SC concluded that Indian courts were competent to provide interim relief pending arbitration, appoint arbitrators and set aside arbitral awards even if the arbitration was conducted outside India.

The Constitution Bench in Balco v Kaiser Aluminium overruled the position formulated in the Bhatia International case and ruled that for arbitration awards resulting from arbitration agreements entered into post-Balco, such a review is not possible. This judgement, which came only in 2012, improved the enforceability of foreign awards.

The amended Act has provided for a decrease in judicial intervention/misuse of the court process. It has narrowed down the scope of challenge to an arbitral award and has done away with the automatic suspension of the arbitral award till the review by Courts was complete. Judicial intervention has been reduced by restricting the scope of pre-arbitration review by courts to a ‘prima facie’ review of the existence of an arbitration agreement. Arbitration has to be completed within 12 months. In fact, the arbitrator has to give in writing a declaration at the time of appointment itself that he is able to devote sufficient time for arbitration and that he will be able to complete the arbitration in 12 months. The model cost table is provided making the arbitrator’s fees dependent on the stakes involved in the dispute. The amended Act has effective provisions to support international arbitration.

Each major commercial centre in India needs quality institutions supporting institutional arbitration. The Nani Palkhivala Arbitration Centre (NPAC) in Chennai was created for this purpose. The arbitration clause in the agreement should commit to abide by the rules of institutions such as the NPAC, which clearly define the process for conducting arbitration and have systems which will facilitate scheduling, submissions, on line transcriptions, work flow management etc.

They will have the capability to train and certify arbitrators and, through this process, create and maintain a panel of arbitrators who can be accessed by the parties. Assured process, defined fees, quality assurance and monitoring of time frame make institutional arbitration a very efficient mechanism.

Even with all these, there may not be much use of arbitration unless we actively promote this idea among the leadership team in organisations. The Government has to show the way by asking public sector organisations to resort to institutional arbitration.

The writer is director of Nani Palkhivala Arbitration Centre, and CFO Board

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