Strengthening arbitration institutions enabling them to appoint the arbitrator as requested by the parties will not only address the issue of unilateral appointment of Arbitrators by some interested parties and institutions but also reduce the burden on courts, and support the Government’s endeavours to popularise Alternative Dispute Resolution (ADR) mechanisms in India.

The Supreme Court of India has recently held that unilateral appointment of an arbitrator by one party is unconstitutional, as it may violate the private party’s right to a fair and impartial tribunal. On 8 November 2024, the Supreme Court issued a historic decision in Central Organisation for Railway Electrification vs. M/s ECI-SPIC-SMO-MCML (JV) regarding the unilateral appointment of arbitrators.

A five-judge bench considered whether an arbitration clause that allows one party to create a panel of arbitrators from which the other party selects them complies with the principle of impartiality under the Arbitration and Conciliation Act of 1996 (Arbitration Act). This decision has major consequences for party autonomy and equality in arbitration agreements, ultimately emphasising the idea that party autonomy in arbitration is contingent on fairness and impartiality.

Not only the public sector organisations, even some private financial institutions are found to have an arbitration clause in the agreements between them and parties, enabling them to appoint an arbitrator of their choice from among the panel maintained by them. The Arbitration Act does not explicitly permit this, but clearly states that the parties should appoint an arbitrator on their own which was being conveniently used by these entities to appoint an arbitrator from among the panel maintained by them without the express consent of the other party.

Arbitration is a process by which parties settle their disputes through the intervention of third person, known as the Arbitrator governed by the Arbitration and Conciliation Act of 1996. The mounting pendency in courts and increasing demand for speedy disposal required faith in the Indian judiciary for fair and cost-effective dispute resolution systems demanded by international investors. This prompted the Central government to pay special attention to bringing in changes in arbitration approaches, institutionalisation of arbitration, establishment of the Indian International Arbitration Centre (IIAC), Delhi by the Government of India, and amending the Arbitration Act.

The government envisions an environment conducive to doing business in the country, as well as reducing the burden of civil and commercial disputes on courts, as the National Judicial Data Grid shows that 1.08 crore civil cases and 3.36 crore criminal cases are pending in Indian courts, with justice taking anywhere from one day to over thirty years.

The Expert Committee on Arbitration Law, led by Dr. T.K. Vishwanathan, a former law secretary, was established by the Government of India on 12 June 2023, to examine and recommend reforms to the Arbitration & Conciliation Act, 1996. The committee’s report, submitted on 7 February 2024, recommends implementing systems for faster resolution of arbitration matters and amending the Act.

Earlier, on 17 July 2017, the High-Level Committee on Arbitration, chaired by Justice B.N. Srikrishna Retired Judge, Supreme Court of India, submitted a report recommending the institutionalisation of arbitration in India and making India a hub for international arbitration. Both reports strongly recommended that judicial intervention in arbitration be kept to a minimum.

The Government of India is planning to bring in some more amendments to the Arbitration Act with a view to easing up the arbitration process in the country.

The Act and proposed amendments already recommend that arbitration institutions be recognised by the Arbitration Council of India (ACI). However, designation by courts following ACI recognition dilutes ACI’s authority resulting in duplication of work, and invites unnecessary judicial intervention, all of which violate ADR principles.

The already functioning arbitration institutions like Amila Arbitration and Mediation Council, Hyderabad, Indian Institute of Arbitration and Mediation, Kerala, Indian International Arbitration Centre, New Delhi, Mumbai International Arbitration Centre, Mumbai, Camp Arbitration and Mediation Practice Bangalore are already extending their services to the satisfaction of many clients.

Therefore, the designation clause after recognition by the Arbitration Council of India requires a revisit and warrants removal from the Act.  Every state has a high court, and each court has its own administrative system, no matter how efficient it is. The institutions must work tirelessly to become recognised and designated by the courts. As a result, a single statutory authority, such as the ACI, is adequate to govern the formation and operation of arbitration institutions.

The proposed amendments must clarify the procedure of appointing arbitrators and classify it into three modalities. One is the process of appointing arbitrators by the parties themselves, rather than from a panel maintained by one interested party, followed by the appointment of arbitrators by neutral arbitration organisations, and ultimately by the courts if the other two fail.

Since 2016, successive committees appointed by the Government of India have repeatedly advised the government to institutionalise arbitration in the country, and as a result, several amendments to the Arbitration and Conciliation Act, 1996, have been made in 2019 and 2021. Another amendment is on the way. However, notwithstanding these adjustments, the planned changes have not been notified.

The Arbitration Council of India, which was established through a gazette notification on 12 October 2023, is still inactive one year later and five years after the act was amended. The rapidity with which the Act was modified is not evident in giving effect to the changes made.

Allowing neutral arbitration institutions to appoint and administer arbitrators will help to address the challenges of unilateral arbitrator appointment by interested organisations, reduce the additional burden on courts to appoint arbitrators, and eliminate our arbitrators’ bias in awards issued by arbitrators appointed by financial institutions.

(The writer is a former International Senior Adviser, UNDP.)