At a time when India is being viewed with suspicion about its desire to attract foreign investment and having also recently been placed on the US priority watch list of countries with insufficient intellectual property protection, it’s encouraging to hear about efforts to make India a lucrative venue for international transactions and business.
And so at a recently held symposium on “What ails arbitration in India?” in Hyderabad, it was heartening to find that serious efforts are being made to make India an attractive destination for international arbitration. However, that goal has some interesting obstacles.
Chief Justice of the Andhra Pradesh High Court, Madan Lokur, delivered the keynote address at the symposium to a mostly male audience. He spoke about how the Lok Adalat system is an alternate system of dispute resolution that has gained acceptance and has caught the people’s “fancy and imagination” while arbitration as an alternate dispute resolution method has failed to gain acceptance. Drawing parallels in this way though is like comparing apples and oranges. The garden variety issues that arise in the Lok Adalat system are very different from the ones that crop up in commercial disputes that contain arbitration clauses.
It’s not surprising that the Lok Adalat system is successful. The vast majority of Indians don’t even access the Lok Adalat let alone the courts for resolving disputes. Most Indians live in rural India and are accustomed to resolving disputes via the Village Panchayat system. The Lok Adalat system could be viewed as a logical extension of the Panchayat system that has a long history of acceptance in India and one that delivers speedy justice as opposed to the courts.
The court system has collapsed observed a prominent lawyer in a recent conversation. However, Justice Lokur stated that the public has great faith in the court system as they keep coming to the courts despite the many problems that ail the courts like inordinate delays, lengthy procedures, inadequate counsel, lack of infrastructure, judges, toilets, furniture, shelter from the elements, etc. Small wonder then that the Lok Adalat system finds more takers. Many people also just let things go and I know of lawyers who dissuade parties from trying to seek legal recourse via the court system citing that it is better to just cut your losses and move on rather than to get entangled in the courts.
Arbitration is meant to be a cost-effective alternative to litigation. However it does not appear to be so in India. Justice Lokur rightly laid out some of the problems that plague arbitration in India like the expenses involved, lack of professionalism on the part of lawyers and the many problems related to arbitrators who delay proceedings, their lack of accountability, transparency and impartiality, failure to disclose interests in disputes, etc.
The fundamental problem though appears to be that arbitration has been hijacked by mainly public sector undertakings that resort to “ad hoc” as opposed to “institutional” arbitration. The Indian Council of Arbitration (ICA) appears to be comprised of highly dedicated individuals who have done their homework and seek to bring best practices to the institution of arbitration. The ICA provides the framework for institutional arbitration however only 20% of cases have availed this method while a whopping 80% have preferred ad hoc arbitration.
Parties with greater bargaining power and influence such as public sector entities prefer the ad hoc system simply because they can control the process and essentially stomp on the opposing party. Arbitrators can be bought, delays can be bought and expenses can be made to sky rocket. In other words, the many problems that make litigants miserable in the regular courts are foisted upon parties in arbitration in India via ad hoc arbitration.
Judicial interference continues to be a key problem and takes away from the spirit of alternative dispute resolution. The 1996 Arbitration and Conciliation Act had sought to do away with judicial interference in arbitration proceedings but it appears to have had the opposite effect and judicial intervention continues to be a persistent problem.
Arbitration awards are also set aside if they are found to be in “conflict with public policy” in India. This as anyone can see pretty much leaves things wide open. The definition of conflict with public policy needs to be very narrowly tailored and there should be a mechanism beforehand to evaluate if such matters are within the realm of the dispute to begin with. I fail to see how something can become a public policy issue post award unless there is some clearly illegal or fraudulent method that crept in during arbitration proceedings.
One major challenge that everyone is in agreement on though is the need for training of arbitrators. Justice Lokur rightly pointed out that this is an area that needs to be looked at seriously. Most arbitrators tend to be retired judges. Many are reluctant to take courses and bring the baggage of the court system to the arbitration proceedings. The ICA is working toward establishing a certification course to streamline these issues. Lawyers too need to be trained and parties need to be very careful when choosing their lawyers and should avail the services of the ICA to ensure that their interests are protected.
Both the courts and the arbitration systems need fixing. The court system is old and decrepit. And many things need to be done on a war footing to get it streamlined for the benefit of litigants.
The arbitration system though is very much within grasp. The ICA appears willing to do its part to facilitate the goal of making India an international arbitration venue. The ICA should be supported in its efforts and encouraged at every step. This will lend credibility to India’s image globally; it will ease the pain of litigants locally and abroad and reinstate some of the lost trust in the Indian way of doing business as usual.