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ARBITRATION IN INDIA THE ROAD AHEAD

OVERVIEW
For the smooth functioning of any State, three widely recognized organs required: legislature,
executive and judiciary. The tasks of these organs are extremely significant yet separate from
each other. In India, we follow a system of checks and balances, where each organ is in a way
'accountable' to the other. One of the most important tasks of the judiciary is the resolution of
disputes, however the backlog of pending cases in Indian courts is close to 32 million. This is
where alternate dispute resolution mechanisms matters most.
India, with its ever-rising population, happens to be the world's largest democracy. It is
evident, that a large number of disputes will arise: between private parties or others alike. The
judiciary, with its formal rules of procedure, and the system of appeals and review, drags
cases for an unusually long period of time. The need for a less formal system, yet one which
delivers a binding award is thus a strong one.
Fortunately, surveys have indicated that over 90% of the companies now have provisions for
alternate dispute resolution clauses in their policies. Arbitration in India is now a well-
recognised form of dispute resolution. And why wouldn't it be? It does away with the
formalities of procedure and evidence. The 'arbitrator' can completely focus on that single
dispute and adjudicate upon it, without being burdened by a pile of cases. What is even more
important is the recognition of the concepts like party autonomy, and minimum judicial
interference, by the new Arbitration and Conciliation Act of 1996. With the adoption of the
UNCITRAL Model Law, the Indian Act is now comparable to a large number of jurisdictions
across the world.
Unfortunately, arbitration still could not free itself from the flaws of delay and uncertainty.
Arbitration proceedings in itself started turning out to be marred with delay, and expenses.
This rendered the entire mechanism inefficient. Add to that, the problems created by some
unclear provisions in the Act itself, the interpretations of which rendered treatment of arbitral
awards by courts as if they were freshly being 'tried' again. These two problems, first with the
arbitral proceedings in themselves, and second created by unforeseen judicial interference,
need some introspection.
ARBITRAL PROCEEDINGS
With regard to the arbitral proceedings, some provisions of the Act need to be understood
first. The Act is rife with the concept of party autonomy. It is evident from the consistent
usage of phrases like unless otherwise agreed by parties. In fact, the one thing that arbitral
tribunals will always be bound by, is the agreement of the parties. The Act gives parties the
freedom to agree upon: challenge procedure for an arbitrator (S 13(1)), terminating mandate
of the arbitrator (S 15(1)(b)), restrict interim measures by the tribunal (S 17), rules governing
the procedure of tribunals (S 19(2)), place of arbitration (S 20(1)), date of commencement (S
21), language (S 22(1)), etc.
While theoretically party autonomy exists, it is practically unused in real life. Parties merely
subject the dispute to arbitration, and do not agree on any kind of procedure. As such, the
arbitrator is empowered to decide on all these issues. Often, parties fail to agree upon an
arbitrator and therefore courts appoint arbitrators for parties under S 11. These mostly happen
to be people with a background in judiciary, and therefore an arbitration proceeding turns
practically into a courtroom. Further, adjournments are often granted and there is no time
constraint on the tribunal to pass an award in such ad-hoc formats.
One of the top factors that contribute to delay in arbitral proceedings is the very formation of
arbitral tribunals. In ad-hoc arbitrations, such formations can take a lot of time.
In this regard, institutional arbitrations are much better. They are unique as arbitrations are
then subject to an institutions rules, which often prescribe a time limit to give the award.
Institutions like the Indian Council of Arbitration, even have provisions for fast-track
arbitrations. Further, finding experts in particular fields of the dispute, is the duty of the
institutions, and they abide by it. The new arbitration Act recognizes institutions, and gives
Courts the power to refer disputes to such institutions as well, however how often they
exercise this option is a matter of concern.
When parties opt for arbitration, they do so to ensure a timely award in a flexible manner.
Further, arbitration is perceived as an efficient form of dispute resolution, as it claims to be
cheaper than litigation. However, only institutions can be accountable as such, and not
members of an ad-hoc tribunal, who are almost always not subject to any rules.

JUDICIAL INTERFERENCE
S 5 of the Act envisages that arbitrations shall be free from judicial interferences, and only in
limited cases, can the court intervene. There have been several problems with the interference
of courts in the arbitration process historically, some of which have now been resolved and
some of which still remain.
The problem with the judiciary appointing arbitrators for an arbitration process is that whence
these arbitrators are picked by the judiciary they are mostly employees of the state holding
some sort of public office and therefore to some extent there is a loss of neutrality. Either that
or courts will appoint retired judges to arbitrate who find it difficult to get past the affinity of
lengthy court process and generally arent well versed with the intricacies of the arbitration
process.
Beyond this, the arbitration legal regime in India went through a world of hurt when the
Judgment of Supreme Court in Bhatia International v Bulk Trading SA stated that part I of
the act would continue to apply to part II unless it was expressly excluded by parties. This
allowed for international arbitrations to be heavily encroached upon especially in light of the
Judgment in ONGC v Saw Pipes which broadened the scope of a public policy challenge
under S 34 to an arbitration award to include patent illegality. This made it only easier to
issue a challenge. Powers of courts related to appointment of arbitrators and interim relief
also now became applicable to International Arbitration processes which had both its benefits
and its problems. The recent judgment of the Supreme Court in September 2012 in the
constitutional bench decision in Bharat Aluminum v Kaiser Aluminum overturned Bhatia
International to adopt a more seat-centered approach, divorcing from its previous position
of adopting an applicable law approach, therefore stating that part I would not apply to part
II.
Adding to this relief, in the recent judgment of the apex court in July 2013 in Shri Lal Mahal
ltd. v Progretto Grano SPA, the court overturned the ratio in ONGC, finally deciding that a
narrow approach to Public Policy was the proper approach to take, and therefore removed
the ground of patent illegality.
While it isnt advisable to have no recourse to the judiciary post an arbitration process or
during one, over the years excessive judicial intervention has indeed caused various fetters to
the arbitration process in India. However the recent changes in legal trends have restored
some measure of balance to the manner in which courts would have a say in arbitrations.

THE ROAD AHEAD; THE ROAD NOT TAKEN
The Finance Minister of India, reportedly told in an interview that International Arbitrations
are hijacking the domestic legal system. While he may have been referring to the
unfortunate White Industries case, where a commercial arbitration ended up being an
investment arbitration, it only highlights the problems that are being faced by our system
today. It may seem normal for us, as we have grown up in such a system, but it is worth
pondering that internationally, delays in enforcing awards (especially arbitral awards) are
considered absolutely unacceptable to the extent that they are considered violations of
investment treaties.
Some multinational firms like EY and PWC have concluded that the future of arbitration in
India, looks cautiously optimistic. This may seem true, considering the recent trend in case
law, making India a more international-arbitration-friendly country.
SETTING UP SPECIAL BENCHES
The need of the hour has already been echoed by many people. To quote one, Chief Justice of
India P. Sathavisam suggested recently that courts must have unique benches specialising in
arbitration matters to dispose of such cases exclusively. This is an extremely sound
suggestion because if the legislature intended to create a fast, alternative mechanism to
resolve disputes, the judiciary must take it up as their duty to ensure that such processes are
facilitated, strengthened and quickened. This can be done by ensuring that cases are dealt
with by the bench in a particular time frame, and the bench in fact consists of arbitration
experts.
INCENTIVISING ADR MECHANISMS
Moreover, courts are empowered under S 89 of the CPC, to refer disputes to alternative
mechanisms like arbitration, if they believe that the parties can settle such disputes. While the
Supreme Court has made it clear in decisions like Jagdish Chander v. Ramesh Chander and
Afcons Infrastructure v. Cherian Varkey Construction, that parties must consent to such a
dispute resolution mechanism, the courts must also make sure that there is no blind and
unreasonable refusal of such ADR mechanisms. In fact, courts must incentivise such
mechanisms by ensuring that parties who unreasonably refuse to consent to such
mechanisms, if successful, are not awarded costs, or, if unsuccessful, are imposed actual
and realistic costs, rather than whimsical or fanciful costs (Sanjeev Kumar Jain v.
Raghubir Saran Charitable Trust and LCI Report no. 240). A similar approach is already
well recognized now in the UK under the name of Halsey principles where courts must
encourage (and not force) parties to enter into ADR mechanisms (although robustly where
appropriate). The court's power to have regard to the parties' conduct when exercising its
discretion as to costs includes the power to deprive the successful party of some or all of its
costs on the grounds of its unreasonable refusal to participate in ADR; and for that purpose,
the burden is on the unsuccessful party to show that its opponent's refusal was unreasonable
(that is, there is no presumption in favour of ADR).
THE ROLE OF INSTITUTIONS
Facilitation must be built by building confidence in ADR mechanisms, and this is where the
duty of arbitral institutions comes into play. India lacks the proper awareness and
infrastructure to deal with issues, but it has the potential to develop these with ease. One of
the primary duties of a tribunal is to give an award that is enforceable.
On the domestic level, for an award to be enforceable it must be capable of passing the test
under S 34 along with other relevant provisions in the Act. Ad-hoc arbitrations, with the
arbitrator not subject to a scrutinizing authority, or any kind of rules, are more likely to end
up giving awards that are set aside by courts. The judiciary cannot be expected to look for
experts in subject matters of the dispute, in fact it does not even have to. An institutions job
is to ensure both accountability, and technical expertise of the matter.
Ad-hoc arbitrations still account for 80% of the arbitrations in the country. Jurisdictions like
US, Singapore, Belgium, France and UK have some of the most efficient arbitral dispute
mechanisms in the world. The success of these countries in arbitration is explained not by
their legislations, but by the productive role institutions like AAA, SIAC, CEPANI, ICC and
LCIA, have. This role is facilitated by parties choice and awareness about the benefits of
institutional arbitration. Such role of institutions in India is yet to get recognition.
In an era where jurisdictions and institutions are framing rules on the new-age Online Dispute
Resolution mechanisms, it is unfortunate that the concept of ideal arbitrations is still at its
primitive stage in India. However, it wouldnt be wrong to call this the nascent or rather
promising stage, especially in light of the latest trends in both arbitral practices and judicial
interventions. The road ahead is almost clear, but yet to be taken.