Table of Contents
Why Arbitration is pivotal in India?
India has a long and diverse history of arbitration because the importance of alternative dispute resolution has always been realized, since ancient times. However, despite this protruding history of arbitration, there are various factors that have produced immense blockades to India becoming an arbitration hub. Like countries such as Singapore and Hong Kong, India too has the advantage of a smashing geography, but why is it that these countries (particularly Asian countries) have transformed into arbitration hubs whereas India is still too far away from that? Several factors, such as the absence of an Exclusive Arbitral Tribunal representing India as a whole, reluctance on the part of the Central Government and Supreme Court to popularise the concept of arbitration, the low rank of India in Ease of Doing Business etc., are responsible for this setback. This article aims to critically analyse the various factors responsible for the same. Besides that, the article also examines the various lessons that India can learn from its several neighbouring Asian countries to expedite the process of achieving a remarkable growth in arbitration in India.
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What are the loopholes characterized by arbitration in India?
India has given immense importance to ad-hoc arbitration, where parties do not refer their dispute to any arbitration institution per se. Rather, the parties resolve their disputes through independent arbitrators.[1] There is no doubt that ad hoc arbitration is one of the most reliable modes of arbitration, but turning a blind eye to institutional arbitration, which is practised by many arbitration-friendly countries, can harm India’s interests. Although institutional arbitration exists in India, it lacks statutory support. We have taken the initiative to establish an Arbitration Institution of India but that step emerged only in 2019. Furthermore, the Arbitration Institution of India has left a questionable trail, which raises concerns about the credibility and neutrality of the arbitrators, given that the Central Government has broad powers over the appointment of arbitrators.
Parties often hesitate, thinking that their freedom might be snatched away from them when they refer their dispute to arbitral institutions. However, arbitral institutions provide various benefits that are not present in ad hoc arbitration. For instance, arbitral institutions provide a good ambience and infrastructure for dispute resolution to take place, right from the appointment of arbitrators to the execution of arbitral awards. This provides economical guidance to the parties, and the absence of these benefits leads to various delays and high costs in ad hoc arbitration. Furthermore, because institutional arbitration is governed by written rules and regulations, there is no room for ambiguity. Arbitral institutions do appoint arbitrators who have expertise in their respective domains, thereby eliminating any doubt about the credibility of the arbitrator.[2] Thus, the involvement of arbitral institutions makes the entire process less cumbersome. Various countries, such as Singapore, Hong Kong, and China, have already adopted institutional arbitration. Owing to this reason, many parties are allured by institutions such as SIAC (Singapore International Arbitration Centre), HKIAC (Hong Kong International Arbitration Centre), SHIAC (Shanghai International Arbitration Centre), etc., which have made these countries arbitration-friendly. India should take inspiration from these countries and must profoundly promote institutional arbitration to make India a hub for arbitration.
Secondly, there is still no defined legal framework for third-party funding in India. Where countries such as Australia, Singapore, and Hong Kong have already adopted legislation on third party funding, India is reluctant to join them.[3] Indeed, the importance of third-party funding can never be underestimated. A good example to support this is the example of USA, which realised the importance of third party funding way back in 2008, when the world was engulfed in a horrific economic crisis. Third party funding comes into play when either one or both of the parties are bankrupt or impecunious. The mere presence of third party funding does not prove that the parties are bankrupt or are in a position where the financial strains are such that involving the third party is the only option. In the absence of any law clarifying the modalities of third part funding, engaging in third party funding becomes a herculean task. Additionally, the majority of the arbitration agreements have confidentiality clauses. In a situation where there is no regulation on how the funding takes place, the confidentiality might be done away with.
There are numerous ambiguities in the area of governing law. One of the main challenges that India faces in becoming a hub of arbitration is that, unlike other countries, there is no mention of the ‘seat’ of arbitration. This leads to a lot of hugger-mugger. It must be clear in our minds that there is a wide difference between the ‘seat’ of arbitration and the ‘venue’ of arbitration. The difference lies in the fact that a “seat” refers to the potentiality of the court to govern the arbitration proceeding right from the appointment of the arbitrator until the time the execution of the arbitral award takes place. Unlike the venue of the arbitration, which essentially has flexibility in terms of its place of hearing, a seat will always remain the same, i.e., the place where the arbitral proceedings are ordained. So, if it is directed that the venue of the arbitration be Mumbai, it only means that the hearing would take place in Mumbai and does not suggest that the seat for the proceedings is Mumbai. As a result, the question of where the arbitration would take place and what law would govern it is too hazy. This needs to be clarified with the utmost priority.
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Lastly, although the government has taken a good initiative to frame the Arbitration and Conciliation (Amendment) Act, 2019, there are certain loopholes embedded in it that nullify this endeavour of the government. Firstly, the Central Government is given unfettered and overarching powers in the matters that are concomitant with the composition of the Arbitration Council of India. This power can erode the neutrality of the arbitrators, who are to be appointed by the government. This issue cannot be given the cold shoulder, especially when the country’s biggest litigant is the government itself. Secondly, the category of arbitrators to be appointed is of utmost importance. It has been observed that various arbitration-friendly countries are the ones that have appointed arbitrators from diverse fields and backgrounds, not just within their national boundaries but even beyond that. It indeed acts as an incentive that allures the parties towards these countries. However, in India, the situation is different owing to the selective approach to appointing arbitrators as is enumerated in the eighth schedule of the Amendment Act of 2019. This acts as a disincentive and fails to give the opportunity to the arbitrators, who are actually very qualified and well versed in the concept of arbitration.
So far, we have critically assessed the disadvantages that exist in the Indian framework and are impeding India’s growth as an arbitration centre. Now, let’s just understand what lessons India can learn from some of its neighbouring countries about adopting an arbitration-friendly regime.
[4]Many Asian countries have the concept of emergency arbitrators. The modus operandi is the creation of a database that contains the list of all the emergency arbitrators. So, for example, if a matter of extraordinary urgency arises, emergency arbitrators can be of great assistance. Not only this, but many countries have a provision whereby, even if an emergency arbitrator cannot turn up, there is a leeway given to the arbitrator to inform in advance to save time and increase the efficiency of the procedure. This indeed allures a lot of investors to these countries, which ultimately leads to the success of the arbitration procedure.
One of the reasons behind the immense popularity of the SIAC is a provision that unequivocally states that even after a tribunal is constituted, an individual can file a motion for the quick dismissal of the claim on certain specified grounds. The explicit mention of the grounds makes it very clear and unambiguous for the tribunal to address the dismissal of the claim. Grounds include the provisions where there is no legal merit for the demanded claim and it is manifestly arbitrary in nature or where the tribunal itself does not have the requisite jurisdiction to take up the matter. The procedure for dismissal is generally time-barred. For instance, in the case of SIAC, this time limit is 60 days, which increases the efficiency and productivity of the procedure. When compared to bringing a proceeding before the arbitral tribunal, this saves a significant amount of time and money. India must not shy away from adopting a similar framework.
India also does not actively promote the Arb-Med-Arb Protocol. This protocol aims to combine the efficiency of both arbitration and mediation.[5] So, when two parties have referred their case to arbitration and they feel that the process has become somewhat cumbersome and that mediation would help in the interim, they can refer their case to mediation. If the dispute is resolved at the mediation stage, that is well and good, but if it is not resolved, they can again refer their case to arbitration. This saves a lot of time because all three stages are quite interlinked, which often reduces the number of intricacies and formalities. Also, it reduces the cost to a greater extent. This is because an individual is required to file only one case file fee for the process, and repetition is avoided. This again increases efficiency. Although, the protocol is not completely absent in India, it is often given the cold shoulder. For instance, the Indian courts generally refer the disputes to arbitration under this protocol in the evening hours, at a time when almost everyone gets tired out of immense fatigue, which ultimately leads to the inefficiency of the arbitration process, which has ultimately led to a sharp decline in the popularity of the Arb-Med-Arb Protocol in the Indian context.
Way Forward
In a nutshell, certain measures that might seem idiosyncratic in the context of India have become the norm in various countries that have proven to be arbitration hubs. It is high time that India take inspiration from its neighbours to boost an already existing arbitration framework in India, which has proven to be fragile in contemporary times.
This article is authored by Harshit Lashkari, a 2nd year law student at Dharmashastra National Law University, Jabalpur
[1] RAJINDER KAUR & SUKHSIMRANJIT SINGH, INTERNATIONAL COMMERCIAL ARBITRATION WITH REFERENCE TO INDIA AS AN EMERGING HUB 176-187( Thomas Reuters, 2021).
[2] Id at 1.
[3] Supra note 1 at 1.
[4] Cavinder Bull, An Effective Platform for International Arbitration: Raising the Standards in Speed, Costs and Enforceability, BRILL, 2019, at Pg. 11-20.
[5] Id at 4.
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