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Part I: Revamping the Arbitration Act 1996: Proposed Reforms for the Indian Arbitral Regime

Garima Dhankar (*)


 

Introduction

The Arbitration and Conciliation Act, 1996 (“Arbitration Act”) was enacted on August 16, 1996. Over these 26 years, India’s arbitral framework has shown tremendous progress, effectively contributing to the enhancement of the nation’s landscape of dispute resolution. Simultaneously, India has adeptly nurtured its growth as a rapidly progressing economic force, solidifying its role as a significant participant in international trade and commerce. Given these emerging circumstances, it becomes imperative that our arbitration regime not only continues to cater to the unique needs of Indian parties but also aligns itself with the internationally established best practices. To this end, the Government of India, on June 14, 2023, has constituted an expert committee led by Dr. T.K Vishwanathan soliciting inputs and recommendations from all relevant stakeholders, to comprehensively review and propose reforms to the Arbitration Act.

This blog sheds light on certain prevailing issues within India’s arbitration framework. These include, inter alia, the absence of robust institutions and well-defined regulations for ad-hoc arbitrations, an inefficient appellate mechanism, adherence to procedural and evidentiary norms akin to court proceedings, and undue judicial interference with arbitral awards. Resultantly, the paper presents a set of recommendations aimed at addressing these concerns, spanning institutional reforms to policy-oriented adjustments, and potential legislative reforms.


INSTITUTIONALIZING ARBITRATION IN INDIA


Arbitral Institutions play a pivotal role in ensuring the seamless operation of an arbitration system. These institutions provide essential support in terms of institutional, infrastructure, and technological resources, which are crucial for the effective conduct of arbitral proceedings. Various jurisdictions have cultivated robust arbitral regimes with the assistance of institutions like the Singapore International Arbitration Center (“SIAC”) in Singapore or the London Court of International Arbitration (“LCIA”) in London. India is now home to several arbitral institutions like the Delhi International Arbitration Centre (DIAC), the Nani Palkhivala Arbitration Centre (NPAC), and the Mumbai Centre for International Arbitration (MCIA), etc. which have created a favorable ecosystem for arbitration in India but are still not in the same league as SIAC, LCIA etc. As such, most of the arbitrations conducted in India are still ad hoc in nature and the proliferation of these arbitral institutions is still an ongoing process.

The lack of effective and efficient arbitral institutions discourages institutional arbitrations in India and drives prospective parties to resort to Singapore and London as their preferred seats of Arbitration. Notably, almost 88% of cases filed with SIAC pertain to international disputes, with India emerging as a prominent contributor. Institutionalizing arbitration in India would require a comprehensive overhaul of existing arbitral institutions in terms of, inter alia, institutional structures, infrastructure, human capital, and technological capabilities, as outlined in the recommendations set forth by Sri Krishna. A plausible solution is the establishment of a central arbitration hub adhering to international standards and infrastructure, akin to SIAC, for instance. Moreover, the augmentation of this framework could involve the creation of regional arbitration centers in diverse cities across the nation to propagate India as an accessible dispute-resolution mechanism for both domestic and international matters.

Another significant dimension involves establishing a distinct and dynamic arbitration bar. The legal professionals within the bar would collaborate with the institution to provide viable, competent, skilled, and timely assistance in matters about arbitration. For example, the International Bar Association (“IBA”) Arbitration Committee focuses on legislation, practice, and procedures relevant to transnational arbitrations. The Committee through its conferences, publications, and projects, seeks to share information about international arbitration, promote its use, and improve its effectiveness. It currently has over 3,000 members from over 130 countries, maintains standing subcommittees, and, as appropriate, establishes Task Forces to address specific issues. A Similar committee/group can also be created in India which aims to promote the concept of arbitration, improve its effectiveness, and facilitate the growth of the arbitrator’s community by conducting conferences, exchange programs, projects, etc.

Further, to create a vibrant arbitration bar, a departure from the prevailing trend of predominantly appointed retired judges as arbitrators is essential. This practice has garnered attention, even drawing remarks from the esteemed Honorable CJI DY Chandrachud, who likened India’s arbitration landscape to an exclusive circle primarily comprised of retired judges in arbitrator appointments, and consequently, this practice inadvertently side-lines numerous promising candidates (including lawyers and academicians). Hence, by appointing trained, young, and robust professionals as arbitrators and working towards continuously honing their skills by way of training, community engagement, and workshops, among others, India can take substantial strides in enhancing its arbitrator roster and cultivating more effective arbitration practices as a comprehensive whole.


BETTER MECHANISM FOR CONDUCTING AD-HOC ARBITRATIONS


While institutional arbitration stands as the prevalent preference for arbitration in most countries, India is an exception. Almost 85-90% of arbitrations in India are ad-hoc, which means that parties to the dispute decide the rules/standards for the arbitral proceedings themselves. Despite Section 19 of the Arbitration Act stipulating that the tribunal is not bound by the Code of Civil Procedure 1908 (“CPC”) and the Indian Evidence Act 1872 (“Evidence Act”), there arises a situation where, in the absence of mutually established procedural or evidentiary standards, tribunals often resort to CPC and the Evidence Act as guiding principles. This results in unwarranted delays, morphing the process into a quasi-court proceeding. Arbitration serves as an alternative dispute resolution mechanism intended to avoid the rigor and time-consuming process of court proceedings. When the principles of the CPC and the Evidence Act infiltrate the arbitration process, it results in procedural delays, running counter to the very essence of arbitration’s purpose: speedy resolution of disputes. Hence, along with institutionalizing arbitrations, it is of utmost necessity to construct a robust framework encompassing rules, legislative guidance, and more, designed to proficiently facilitate the ad hoc arbitrations method.

Ad-hoc arbitrations should not be completely ruled out since it raises a concern about party autonomy and would also discourage parties from opting for arbitration as a means of dispute resolution which is completely against the purpose of the Arbitration Act. A Model Set of procedures is required to efficiently determine the evidentiary and procedural loopholes that exist in Ad Hoc Arbitrations. For example, devising protocols for document discovery and production, allowing arbitrators to direct the recording of witness testimony, and determining the admissibility or denial of documents, among others, need not necessarily mirror the standard prevailing in civil courts.

A potential source of inspiration for constructing this Model Set of Procedures could be drawn from the UNCITRAL Notes on Organizing Arbitral Procedures (UNCITRAL Notes), which were created to serve as guidelines for arbitral proceedings in terms of evidence recording, conducting hearings, administrative support to the tribunal, etc. Similarly soft law instruments such as the IBA Rules for taking evidence or CIArb Protocol for the use of party-appointed expert witnesses, which although possess a general nature, they could be adapted to serve as guiding principles for formulating suitable rules and guidelines.


CREATING A SOUND APPELLATE MECHANISM


At any stage, judicial intervention in arbitration causes undue delay however, it cannot be denied that an appellate mechanism is the backbone of the arbitration. Thus, courts should be vested with the power to modify - the awards in circumstances where a ‘mere’ modification can settle the dispute in finality.

In the recent case of Project Director, NHAI v. N. Hakeem, the Supreme Court suggested that the Parliament could consider amending Section 34 of the Arbitration Act to bring it at par with jurisdictions like the USA, Singapore, Australia, etc. that permit modification of the award. This would allow the settlement of disputes in finality by modification in selected suitable instances rather than setting aside the award as a whole. In circumstances where the errors are minute or where the award is imperfect as to a matter of form not affecting the merits or where it would be more practical and efficient in practice etc., allowing modification would help in avoiding the hassle of going through the entire arbitral process again if the award is set aside because of such error. Therefore, the objective is to strike a balance between either completely setting aside an award or merely modifying “curable defects” (interest rates awarded, lack of reasoning, gaps in reasoning, etc.).

Multi-tiered arbitration regime is also the need of the hour. In this arbitral process, parties can opt for different dispute resolution mechanisms like mediation, negotiation, etc., before initiation of the actual proceedings. In Centrotrade Minerals v. Hindustan Copper Ltd., the Supreme Court upheld the legality of multi-tiered arbitration arrangements. This decision should be granted legislative recognition to provide due legitimacy to multi-tiered arbitration agreements thereby allowing parties to seamlessly choose an arbitration clause/arbitration institution that provides a multi-tiered arbitration mechanism to mitigate the negative impact of poor-quality or imperfect arbitral awards. Such multi-tiered arrangements are prevalent in common law countries like the UK and Australia, among others.





 

* Garima Dhankhar graduated from the Jindal Global Law School (JGLS) in 2022 and has been working as a legal researcher under a Judge at Delhi High Court. Her interests lie in Dispute Resolution, Arbitration and Legal Research. For any discussion related to the article, she can be contacted via mail through: garima.dhankhar765@gmail.com.

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