Alternative Dispute Resolution (ADR) is not new to India. Arbitration as a form of ADR started in British India with passage of the Arbitration Act, 1940. Later, independent India thoroughly revised and reenacted the Arbitration and Conciliation Act, 1996 taking arbitration from the purview of courts and court-assisted arbitration centres.
However, it is strongly felt by people like none other than vice president Jagdeep Dhankar that the arbitration space in India resembles an “Old Boys’ club”; nowhere in the world is arbitration in such a “tight fist” control by former judges as in India. He has underlined the pressing need to reform the system. This is not for the first time that arbitration in India, that too institutional arbitration, has been under harsh criticism.
The Government of India, way back in 2017, appointed a committee under Justice B.N. Srikrishna to study the situation of arbitration in India and recommend reforms to the system. This committee’s recommendations led to amendments to the Arbitration and Conciliation Act 1996 in 2019. In 2022, the Government of India ushered in a new era in the arbitration system in India, which was hitherto limited to courts and individual choices.
Micro Small and Medium Enterprises (MSMEs) are eagerly awaiting the establishment of arbitration institutions and their designation by the high courts in the country. Under Section 18(3) of the MSME Act 2006, when a dispute of MSMEs fails to settle through conciliation, then the MSME Council shall either take up the dispute itself for arbitration or refer it to an arbitration institution for settlement.
The institution then conducts arbitral proceedings and passes an award which is binding on the disputing parties and equivalent to a court’s decree. Despite much publicity given to the institutionalisation of arbitration as an alternative dispute resolution (ADR) mechanism in India, it remains a nonstarter. The establishment of the Arbitration Council of India to regulate institutional arbitration in India is yet to materialise.
As the rights-based approach to justice delivery gains prominence on a global scale, access to justice is suffocated by bureaucratic processes. The increasing burden of over 4.9 crore pending cases in Indian courts prompted policymakers to consider strengthening ADR mechanisms.
With the passage of the Arbitration Act in 1940, pre-independent India recognised arbitration as one of its ADR mechanisms. With the enactment of the Arbitration and Conciliation Act of 1996 (The Act for short), Indian arbitration law radically altered its scope. However, it was not free from judicial interventions and interference. Courts utilised arbitration to shift some of their burden to arbitrators they appointed. Even today, the common belief is that arbitrators are appointed by courts. In fact it is not so. The Justice B N Srikrishna committee noted: “A key difficulty with assessing the performance of the arbitral institutions in India is the lack of publicly available information in relation to their functioning. A number of arbitral institutions do not have websites. For several of the ones that do, their arbitration rules are not available on their websites.
There is a dearth of information relating to caseload and functioning, particularly in the case of arbitration centres associated with trade and merchant associations and city specific chambers of commerce. In fact, information relating to caseload is available on the websites of only a few arbitral institutions.
Therefore, it was felt that sufficient data had to be collected in order to review the working and performance of arbitral institutions in India.” The only requirement for these institutions to take up a dispute for arbitration is the existence of an arbitration clause in contracts between the disputants or their mutual agreement for arbitration. Arbitrations are conducted in accordance with the institution’s rules and are supervised by the institution, which is responsible for various aspects relating to arbitral tribunal composition, administrative, financial, legal matters and ensuring the quality of an award passed by their panel arbitrator.
An arbitration award thus made is based on evidence and arguments, similar to a judicial proceeding, but without lengthy procedures, extended dates, or extensive arguments. Institutional arbitration is an opportunity for the disputing parties, for they are saved time, money and relationships. Property disputes, financial disputes, partnership disputes, franchisee disputes, construction disputes, and any other commercial or business disputes may be arbitrated if a contract specifies arbitration as a dispute resolution mechanism.
Even if no arbitration agreement exists, parties can initiate arbitration by submitting a mutually signed letter to an arbitration institution requesting appointment of an arbitrator. The institution handles the remaining tasks like a court. The arbitration institutions maintain absolute secrecy throughout the procedure. Small and Medium-Sized Enterprises, the construction industry, civil contractors, families seeking property division among siblings, and others with arbitrable cases can walk Into the offices of Arbitration Institutions and file their cases for arbitration without the assistance of lawyers or advocates, as opposed to a litigation.
The parties dissatisfied with an arbitrator’s award may petition a court under section 34 of the Act within ninety days to set aside the award. Institutional arbitration is not free from challenges. People continue to be unaware that court intervention is not required for the appointment of an Arbitrator. Likewise, many are unaware that the Arbitrators’ award is binding. Certain government officials, and bankers, are ignorant that an arbitration award by a party-appointed Arbitrator is equivalent to a court decree.
There are numerous instances of these officers mocking the institutional arbitrators’ awards. Section 11(3A) of the Act seeks that High Courts and Supreme Court designate arbitration institutions, which is still a non-starter. Four years after the passage of the law, the promised Arbitration Council of India to authorise and regulate Arbitration Institutions has yet to be established. It is still in the stage of developing work procedures, rules, and regulations. Except for a small number of arbitration institutions established and funded by well-known law firms, some state governments do not support other professionally established arbitration institutions.
Thus, there is an urgent need for the Centre and all the High Courts in the country to take note of the institutions operating in each state and designate them as arbitration institutions in order to alleviate the much-discussed burden on courts. It is hoped that the much awaited Arbitration Council of India will function soon, and regulate the Arbitration Institutions in India to function well and make India a hub of ARD in this part of the globe.
(The writer is former Senior Advisor, United Nations Development Programme)