Responding to the claims of inefficiency and unpredictability of the Arbitration Act, 1940, the Indian Government enacted the 1996 Arbitration and Conciliation Act based upon the UNCITRAL Model Law. The new Act reflected the Parliament’s will to expedite the arbitration process, modernize the arbitration regime, increase acceptance to party autonomy and to create uniformity in the arbitration process while keeping judicial intervention to a bare minimum. During its lifetime, the act culminated into the Arbitration and Conciliation (Amendment) Act, 2015 which transfigured the Arbitration Act of 1996. The primary purpose of the Amendment Act was to encourage arbitration as a cost-effective and time-efficient alternative to the adversarial system.
Just as the proof of the pudding lies in the eating, the efficacy of any legislation must be judged by its implementation. Unfortunately, the reality has been far removed from the ideals professed by the legislation. Despite delays, most of the parties opt for arbitration outside the country, or even choose litigation in Indian courts as an alternative to having an arbitration clause in their contracts. Lack of adequate emphasis on Institutional Arbitration has forced Indian parties to conduct their arbitration with a seat in Singapore or London. In 2016, out of 307 cases administered by the Singapore International Arbitration Centre, 153 involved Indian Parties. India is still plagued by factors like the lack of credible arbitral institution, excessive judicial intervention, absence of a dedicated bar, lack of progressive standards, procedural delays amongst other factors, making it an unfavourable place of arbitration.
Even though the last two decades have been spent in pushing forward a permissive party autonomy arbitral regime which lays down an effective and expeditious framework for arbitration and at the same time allows the wishes of the contracting parties to mould internal procedure to suit them, the plight of arbitration in our country still remains grimly satisfying.
In India, arbitration is skewed towards Ad-Hoc rather than an Institutional setup. Ad-Hoc Arbitration includes “only” the tribunal and the parties to the disputes and the parties and the tribunal alone are responsible for organizing their procedure and determining all aspects of the arbitration – such as, the number of arbitrators, theirappointment, the laws applicable and the procedures for overseeing the arbitration. Institutional Arbitration includes one additional “participant” (i.e, a formally recognised arbitral institution) and the institution aids and administers the arbitral process. Essentially, the contours and the procedures of the arbitral proceedings are determined by the institution designated by the parties. Each institution follows its own rules, provides its pre-determined arbitration framework, and has its own method of administration to facilitate the process. While the former is considered to be more flexible, cheaper and faster if administered in a spirit of co-operation, the latter is deemed to be based on expertise, efficiency and an organized set up. As a result of the structured procedure and administrative support provided by institutional arbitration, it provides distinct advantages, which are unavailable to parties opting for ad hoc arbitration.
A survey conducted by Price water house Coopers in 2013 showed that there was a strong preference for Ad-Hoc arbitration amongst both Indian companies that had experienced arbitration and Indian companies that had no experience of arbitration. Even as a part autonomy legislation, the act inadvertently favours Ad-Hoc Arbitration. The spread of Institutional Arbitration is minimal and has unfortunately not really kick-started. In India, Ad-Hoc Arbitration is riddled with its own set of problems. Apart from delays, unprofessional and unskilled Arbitrators and poor quality of awards; Ad-Hoc Arbitration tends to be protracted and costly mostly because of absence of monitoring and because fees of arbitrators are charged on a sitting-by sitting basis without any regulation. These issues further make Ad-Hoc Arbitration vulnerable to excessive court intervention. Therefore, the panacea to the diminishing future of Arbitration in India is to promote Institutional Arbitration in India. Parties which opt out of specialized institutional arbitration miss out the benefits of fixed procedures, specialized administrative and secretarial support, resources and infrastructure, internal reviews and the advantage of being globally recognized. Institutional Arbitration outweighs Ad-Hoc Arbitration in many aspects. Firstly, Ad-Hoc Arbitration heavily relies on Arbitration done by the High Court judges and, unlike arbitrators from institutions who are both trained and specialized in the subject matter, High Court Judges are not trained in speedy disposal of disputes. In cases where courts are requested to choose the arbitrators, the judges have limited experience, expertise and resources for selecting a suitable arbitrator. Institutions have access to a pool of highly qualified arbitrators. Further, in Institutional Arbitration the possibility of choosing a partial adjudicator is almost negligible as the institution verifies and prevents the existence of any biases or similarities between the parties and the arbitrator.
In Ad-Hoc Arbitration, the onus is on the parties to formulate the rules applicable to them. Failure to consider every possible contingency that can arise, might give rise to procedural difficulties. In Institutional Arbitration, the institution, its administrative staff and its rules on the matter are available to provide every assistance. However, the only recourse available to parties entering Ad-Hoc arbitration is to approach the national courts. Approaching courts will result in delay and defeat the very purpose of entering into an arbitration.
Institutional Arbitration is less time consuming and hassle free as all the administrative matters which range from fixation of arbitrator’s fee, fixing time limit for disposal of disputes, administrative fees are dealt by administrative secretariat. In Ad-Hoc Arbitration, parties are required to settle these matters with the administrator which can lead to uncomfortable situations and unwanted burden.
Ad-Hoc system faces inordinate and incessant delays on account of its procedural inefficiencies and lack of co-operation. On the other hand, institutional arbitration confers a specific time limit on the tribunal for disposal of the cases. This prescription of deadline curtails delays and encourages speedy redressal of cases.
Institutional Arbitration also saves both time and money by negating the parties from approaching the court once the award has been passed. Institutional arbitration involves a screening and scrutiny process before the finality of the award is declared. The screening process done by the institution panelists ensures that no injustice has been done in order to save the parties’ money and time by preventing the necessity to take award to the court.
India’s poor record in enforcement of contracts is not surprising given the 2015 World Bank Report ranking India 186th out of 189 countries in contract enforcement. This trend persists as revealed by The World Bank’s Ease of Doing Business ranking for 2017 that India now takes an average of 1,420 days to enforce a contract. Absence of effective means for enforcement is a serious impedes economic growth and development.
Despite its numerous pitfalls, parties choose Ad-Hoc arbitration believing that they can mutually cooperate with each other throughout the proceedings and dispute will be resolved in an amicable manner without bearing hiked fees of arbitration institutions. However, typically once a dispute reach arbitration, it is likely that parties no longer want to cooperate. In such a case, Ad-Hoc arbitration is vulnerable to the risk of dilatory tactics, which increases delay and costs. The plight of our overburdening judicial system and the long and arduous nature of our dispute resolution machinery is an alarming reminder that out dispute resolution tactics need to change. Given the measures taken by the Indian government in support of the ‘Ease of doing business in India’ and the demand for a speedy and effective method of dispute resolution which could posit itself as an alternative to endless litigation in courts, there is no better time like the present, to shift towards Institutional Arbitration.