Arbitration in India and Proposed Indian Arbitration Council

Successive governments in India have made efforts towards improving institutional arbitration in India. A few of them have also chased the ambition to make India a hub of international arbitration. The current government has been proactive towards the legislative and policy measures in this direction. It was instrumental in getting the Arbitration and Conciliation (Amendment) Act, 2015 enacted and has now proposed to establish an Indian Arbitration Council via a new Act. Such an effort is aimed to provide muscles to the government efforts to establish India as a global hub for institutional arbitration.

For your examinations, this is a broad topic having relevant for all stages. We try to cover it in Q+A here.

What are Arbitration, Conciliation and Mediation?

Arbitration, Conciliation and Mediation are three types of Alternative Dispute Resolution (ADR). Their objective is to resolve dispute through alternate to the traditional litigation in courts. Arbitration refers to hearing and determining of a dispute by persons / institution chosen or agreed to by the disputing parties. The object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay and expense. Conciliation is the process of facilitating an amicable settlement between the parties. Unlike the Arbitration there is no determination of a dispute. There need not be a prior agreement and it cannot be forced on a party not intending for conciliation. The proceedings relating to Conciliation are dealt under sections 61 to 81 of Arbitration and Conciliation Act, 1996. Mediation aims to assist two (or more) disputants in reaching an agreement. The parties themselves determine the conditions of any settlements reached— rather than accepting something imposed by a third party. The disputes may involve (as parties) states, organizations, communities, individuals or other representatives with a vested interest in the outcome. Mediators use appropriate techniques and/or skills to open and/or improve dialogue between disputants, aiming to help the parties reach an agreement (with concrete effects) on the disputed matter.

How Arbitration and Mediation are different in legal terms?

Mediation is a non-binding process in which a third party (mediator) assists the parties to reach a mutually acceptable solution in their dispute. On the other hand, Arbitration is a binding process in which a third party (arbitrator) is appointed, typically by the parties, to resolve their dispute through an enforceable decision.

It must be noted that for the success of arbitration or mediation, it is essential not only that the method chosen be appropriate to the needs of the parties, but also that the related rules be consistent with other relevant rules and regulations.

What are advantages of Mediation and Arbitration?

Cost and time efficient

Litigation which stands as an alternative to mediation and arbitration is both expensive and time-consuming. Mediation and arbitration has advantages of not only financial aspects of the process, but also other features such as the voluntary nature of the process as well as parties’ direct involvement in the proceedings.

Win-Lose vs. win-win

Litigation is considered a win-lose process. Need of the hour is to adopt a progressive approach which would rather be a win-win approach. Therefore, arbitration and mediation can be projected as better alternatives wherein both the parties are winners.

How pendency in courts makes arbitration and mediation important?

As per the National Judicial Data Grid, more than two crore cases are pending in various courts of India. This pendency spells out the importance of Arbitration as an effective and portent tool in order to change the litigation landscape of India.

Most importantly, it is the mind-set of all of us which must be changed and Arbitration, rather than being considered as an “alternate” tool be considered as “full-fledged dispute resolution system”, which is aimed at solution & resolution and not adjudication. Adjudication carries a portent seed of further litigation whereas solution & resolution minimize further litigation.

It is necessary that Arbitration and its orphan brother Mediation be made as mainstream dispute resolution mechanisms.

What is the history of Arbitration in India?

Arbitration is not new to India and has existed since time immemorial. Arbitration was a key function of the Panchayats in pre British India. British were also aware of the importance of arbitration and had brought Regulations of 1772, 1780 and 1781 that were designed to encourage arbitration. Similarly, the Bengal Regulations of 1787 & 1793, Madras Regulation of 1816 and Bombay Regulation of 1827 also recognized the process of Arbitration. Further, a significant step was taken by promulgating the Indian Arbitration Act, 1899.

With the enactment of Code of Civil Procedure, 1908, Arbitration was included as Second Schedule to Code of Civil Procedure.

On the recommendation of the Ratan Mohan Chatterjee Committee 1938, the British Government then enacted a revised Arbitration Act,1940. This law was repealed in 1996 only and replaced by Arbitration & Conciliation Act, 1996. The current government had further amended this act in 2015 to suit to current and future requirements. The 2015 amendment was based on the 246th report of The Law Commission.

In the landmark case of Tamil Nadu v. Union of India, the Supreme Court of India stated that reference to mediation, conciliation, and arbitration was mandatory for court matters. That means that not only the parties may choose to resort to ADR, but also the Court may decide to refer the parties to mediation, conciliation, arbitration, Lok Adalat, or litigation.

What were key changes in 2015 amendment act?

The Arbitration and Conciliation (Amendment) Act, 2015 has come into force on January 1, 2016. The act has amended the Arbitration and Conciliation Act, 1996 based on the recommendation of Law Commission of India (LCI) to make India a hub of international commercial arbitration. The key changes were as follows:

For early settlement of the disputes:

It was provided that the arbitrators would settle a dispute within 12 months of time period. After 12 months, the case can be extended but then some restrictions would apply. A provision to fast track the settlement of disputes was included. High courts will dispose the application to appoint arbitrator within 60 days.

Appeal against arbitral award

If arbitral award is challenged in court, court has to dispose the case within one year. The amended act has changed the circumstances in which an arbitral award can be challenged in court. These grounds include – if the award is against public policy; if it is induced or affected by fraud or corruption, or is in contravention with the fundamental policy of Indian Law; conflict with the notions of morality or justice and those in violation of confidentiality and admissibility of evidence provisions in the Act.

High Courts as relevant courts for international arbitrations

The amended act also provided that in case of international arbitration, the relevant court would be the relevant high court. While the amendments are welcomed, there is one problem for investors, especially from abroad, is that the tax issues are kept out of the purview of the arbitration process.

Other key changes

• Now the arbitration agreement contained in form of communication through electronic means shall also be treated as an arbitration agreement in writing.
• Appointment of arbitrators shall be made by the Supreme Court or High Courts, as the case may be instead of the Chief Justice of India or Chief Justice of High Court.
• To ensure neutrality of arbitrators, when a person is approached in connection with possible appointment as arbitrator, he is required to disclose in writing, the existence of any relationship or interest of any kind.
• Now the arbitration tribunal shall have power to grant all kinds of interim measures which the court is empowered to grant.

What is proposed Indian Arbitration Council?

The Government of India had established the International Centre for Alternative Disputes Resolution (ICADR) in 1995 to promote alternative dispute resolution mechanism and providing facilities for the same. It was given land, funds and other facilities by the central government but has remained a non-starter. It was neither able to actively engage and embrace the developments in arbitration ecosystem nor was able to keep pace with the dynamic nature of arbitration.

The current government has proposed to establish an Indian Arbitration Council via a new Act towards establishing India as a global hub for institutional arbitration. The government has currently drafted the Indian Arbitration Council Act, 2017 for creating an independent and autonomous regime for institutionalized arbitration.  The Indian Arbitration council will be a statutory body and an institution of “national importance headquartered in New Delhi. It will acquire the functions and undertakings of the existing International Centre for Alternative Dispute Resolution (which was established under 1996 act but has been a non-starter). ICADR will be replaced by IAC.

What can be further steps to promote institutional arbitration?

The major steps that can be taken in order to promote institutional arbitration in India are as follows.

• There has been a need to create / establish a strong Arbitration Council or commission. The proposed arbitration council is a correct step in that direction.
• There is a need of proactive role of higher judiciary towards promoting ADR.
• Government, particularly state government support is needed to provide finance, land and offices to arbitration institutions.
• A major problem is the lack of awareness in the public of the advantages of institutional arbitration. An active role can be played by the Government, Bar Associations and media in order to create awareness of the advantages of institutional arbitration.
• There is a dearth of strong credible Indian international arbitration institutions. Hence, setting up more arbitration institutions in India can help regulate and streamline the arbitration process and thereby allow more people to use institutional arbitration.

Lastly, the trade and business community may take a lead and come forward to set up arbitration centres all across India. A good example is to be found in the stock exchange arbitration mechanism in India.