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Business News/ Opinion / Pushing institutional arbitration in India

Pushing institutional arbitration in India

Institutional arbitration is the norm for commercial dispute resolution in most advanced jurisdictions. India must follow suit

Ad hoc arbitration is riddled with delays, unprofessional arbitrators and poor awards. Photo: iStockPremium
Ad hoc arbitration is riddled with delays, unprofessional arbitrators and poor awards. Photo: iStock

The World Bank’s Ease of Doing Business ranking for 2017 reveals that India continues to fare badly on enforcement of contracts, with an average of 1,420 days taken for enforcement. The absence of effective means for enforcement of contracts is a serious fetter on the legal system and impedes economic growth and development.

India’s poor record in enforcement of contracts is not surprising given the notoriously high pendency of cases and endemic delays in Indian courts. Therefore, there is a need to provide viable alternatives to litigation. Arbitration is often the first alternative amongst these—it holds the promise of flexibility, speed and cost-effectiveness. However, arbitration in India is often far removed from these ideals.

The most popular form of arbitration (between 90-95%) is ad hoc arbitration wherein parties regulate the arbitration proceedings themselves.

In contrast, institutional arbitration involves the regulation of arbitration proceedings by an institution, which applies its rules of procedure. In return for some loss of autonomy, parties expect to benefit from the expertise of the arbitral institution, access to a panel of arbitrators usually maintained by the institution, and good quality infrastructure.

In India, ad hoc arbitration is riddled with problems of delayed proceedings, unprofessional arbitrators and poor quality of awards. These issues make ad hoc arbitration vulnerable to excessive court intervention at all stages of the arbitration proceedings.

The state of institutional arbitration in India is no better. Despite the existence of several arbitral institutions, institutional arbitration in India remains in a nascent state. Most arbitral institutions provide little besides rudimentary physical infrastructure for arbitration hearings. Many arbitral institutions have outdated rules of procedure, inadequately trained staff, and poorly staffed panels of arbitrators. Therefore, parties are reluctant to approach these arbitral institutions. Additionally, misconceptions persist regarding institutional arbitration, particularly its supposed inflexibility and high costs. This, coupled with a lack of awareness about the advantages of institutional arbitration and the existence of certain institutions, leads to parties avoiding institutional arbitration or preferring foreign arbitral institutions over Indian ones.

In contrast, institutional arbitration has become the norm for commercial dispute resolution, particularly for high-value disputes involving international parties, in most advanced jurisdictions. The existence of competent arbitral institutions, such as the Singapore International Arbitration Centre, the Hong Kong International Arbitration Centre, International Court of Arbitration of the International Chamber of Commerce and the London Court of International Arbitration, has enabled the sustained growth of institutional arbitration. These arbitral institutions have gained the trust of parties through their modern rules, the organized structure of proceedings, excellent administrative support and infrastructure.

Further, parties are well aware of their advantages, such as the expertise on their panels of arbitrators, fixed fee structures, and organized and timely conduct of arbitration proceedings. Almost all these institutions benefit from government support to different degrees and have gradually developed through healthy competition. Considering its success in other jurisdictions, the time is nigh to encourage and promote institutional arbitration in India.

The creation of the Mumbai Centre for International Arbitration and the Maharashtra arbitration policy are bold steps in this direction. The government of India, in line with its goal to make India a hub for institutional arbitration, had in January constituted a high-level committee, which the authors assisted, with the mandate of suggesting measures to promote institutional arbitration in India.

The committee’s report, which was submitted to the government early this month, identifies several critical areas for improvement and reform, such as the need for minimum standards for arbitral institutions, the accreditation of arbitrators, and the creation of a specialist arbitration bar and bench. The committee has also identified specific amendments to India’s arbitration legislation aimed at promoting India’s prospects as a preferred arbitration destination. These suggestions for reform, if implemented effectively, can go a long way in strengthening arbitration practice in India.

The challenge now is to substantially increase awareness about institutional arbitration in India so that efforts being taken to reform institutional arbitration are supported by an increase in usage. Arbitral institutions must themselves take the lead by increasing awareness about their services and benefits. In addition, they must adopt best practices from around the world which will encourage parties to use their services over foreign arbitral institutions. The government must assist by creating state-of-the-art physical infrastructure for the conduct of arbitration.

However, the most important role is that of the bar. The members of the bar must make the effort to increase awareness amongst their clients about institutional arbitration. They must also foster innovation among arbitral institutions to help realize the flexibility, speed and cost-effectiveness promised by institutional arbitration.

Anjali Anchayil and Medha Srivastava are advocates practising in India.

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Published: 17 Aug 2017, 04:34 AM IST
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