The principle behind arbitration proceeding is to provide parties an opportunity to resolve a dispute mutually, especially in commercial sector, without going through arduous judicial proceedings thereby saving time and money, and enhancing efficiency, with minimal interference of courts. In India, where ad hoc arbitration is much more in practice than institutional arbitration, parties, counsels and arbitrators have begun to recognize ad hoc arbitration as a completely scrutiny free procedure causing delay in resolving dispute, ultimately defeating the entire purpose of arbitration. Considering this scenario and worldwide approach towards arbitration proceeding, India legislature has taken measures to develop arbitration institutions by amending the present act.
What is an institutional arbitration? It is a procedure where arbitral proceeding is undertaken according to a set of rules and administered by a particular arbitration institution, whereas, an ad-hoc arbitration proceeding provides liberty to parties to decide the rules to govern their own arbitration proceeding and to appoint arbitrator of their choice. Following are key difference between both the procedures:
Establishment of the Arbitration Council of India by the 2019 Amendment - An attempt to make India a hub of institutional arbitration for both domestic and international arbitration
"There are over 35 arbitral institutions in India. These include, domestic and international arbitral institutions, arbitration facilities provided by various public-sector undertakings, trade and merchant associations, and city-specific chambers of commerce and industry."1
Despite the existence of various arbitral institutions in India, parties opt for ad hoc arbitration instead of arbitral institution, and parties regularly approach courts to appoint arbitral tribunals under the relevant provisions of the Arbitration Act. The preference for ad hoc arbitrations by Indian parties is not limited to arbitrations where the amounts in dispute are small. For instance, construction and infrastructure, one of the fastest growing sectors in the Indian economy, spends crores of rupees on resolution of disputes. Dispute resolution in this sector also consists mostly of ad hoc arbitration instead of institutional arbitral.
The promotion of institutional arbitration in India by strengthening Indian arbitral institutions has been identified as critical to the process of dispute resolution through arbitration. Though arbitral institutions have been working in India, they have not been preferred by parties, who have leaned in favour of ad hoc arbitration or arbitral institutions located abroad. Therefore, in order to identify the roadblocks to the development of institutional arbitration, examine specific issues affecting the Indian arbitration landscape and also to prepare a road map for making India a robust centre for institutional arbitration, both domestic and international, the Central Government constituted a High Level Committee under the Chairmanship of Justice B. N. Srikrishna, Former Judge of the Supreme Court of India.
The High Level Committee submitted its report on July 30, 2017. With a view to strengthen institutional arbitration in the country, the said Committee, inter alia, points out certain reasons behind parties' choice of ad hoc arbitration. The Committee recommended for the establishment of an independent body for grading of arbitral institutions and accreditation of arbitrators, etc. The Committee also recommended certain amendments to the Arbitration Act to minimize the need to approach the courts for appointment of arbitrators. After examination of the said recommendations with a view to make India a hub of institutional arbitration for both domestic and international arbitration, it was decided to amend the Arbitration and Conciliation Act, 1996.
REASONS BEHIND PARTIES' CHOICE FOR AD HOC ARBITRATION
- Lack of credible arbitral institutions;
- Misconceptions relating to institutional arbitration;
- Lack of governmental support for institutional arbitration;
- Lack of legislative support for institutional arbitration; and
- Judicial attitudes towards arbitration in general. These are discussed in detail in the following sub-sections.
The Committee identified six points to improve the performance of Indian arbitral institutions:
- Accreditation of arbitral institutions
- Accreditation of arbitrators
- Creation of a specialist arbitration bar and bench
- Amendments suggested to the Arbitration and Conciliation Act and other laws
- Role of the government in promoting institutional arbitration
- Changes in arbitration culture
Accordingly, on the basis of the above recommendations and to become international hub for arbitration, an amendment was made in the Arbitration Act in 2019 which inserted new sections 43A to 43M in the Arbitration and Conciliation Act, 1996, which established Arbitration Council of India (ACI).
The ACI has been created by virtue of Section 43B of the Amendment Act, 2019, where sub-section (1) provides for the establishment of the Arbitration Council of India. Sub-section (2) provides that the Arbitration Council of India shall acquire, hold and dispose-off property, both movable and immovable and sub-section (3) of the said section provides that the head office of the Council shall be at Delhi. Subsection (4) provides that the Council may, with the prior approval of the Central Government, establish offices at other places in India.
Sub-section (3) of section 43C provides that the salaries, allowances and other terms and conditions of the Chairperson and Members of the Council shall be prescribed by the Central Government and sub-section (4) provides for entitlement of travelling and other allowances of the Part-time Members, to be prescribed by the Central Government.
Sub-section (1) of section 43D provides that it is the duty of the Council to take all measures necessary to promote and encourage arbitration, mediation conciliation or other alternate dispute resolution mechanisms, and for that purpose to frame policy and guidelines for the establishment, operation and maintenance of uniform professional standard in respect of all matters relating to arbitration.
Section 43I provides that the Council shall make grading of arbitral institution on the basis of criteria relating to infrastructure, quality and caliber of arbitrators, performance and compliance of time limit for disposal of domestic and international commercial arbitration.
Section 43J provides that qualification, experience and norms and accreditation of arbitrators shall be governed by the Schedule Eight.
Sub-section (2) of section 43M provides for the qualifications, appointment and other terms and conditions of service of the Chief Executive Officer which shall be prescribed by the Central Government. Sub-section (4) of the said section also provides that the Council shall have a Secretariat consisting of such number of officers and employees as may be prescribed by the Central Government. Sub-section (5) of the said section provides that the qualifications, appointment and other terms and conditions of the service of the employees and other officers of the Council shall be prescribed by the Central Government.
Further, sub section 2(ca) provides that arbitral institution means an arbitral institution designated by the Supreme Court or a High Court; sub section (3A) of section 11 provides that the Supreme Court or High Court shall have power to designate, arbitral institution. Sub section (6) of section 11 provides that "the appointment shall be made, on an application of the party, by the arbitral institution designated by Supreme Court, in case of international commercial arbitration, or by the High Court, in case of arbitration other than international commercial arbitration"
Now the parties in the absence of a procedure to appoint an arbitrator or failure of such procedure under the agreement, can approach arbitral institution designated by the Supreme Court or the High Court for the appointment of Arbitrator.
Further, Section 42A of the Amendment Act, 2019, lays down the conditions of confidentiality to be extended to the arbitrator, the arbitral institution, and the parties to the arbitration agreement in all matters of arbitration proceedings, save for wherever disclosure may be necessary.
The provision of Section 42A of Arbitration Act is a welcome change. Confidentiality of arbitration proceedings is a hallmark of international arbitration tribunals and is enshrined in the rules of almost all such international tribunals, forming one of the fundamental reasons why they remain the preferred destinations of parties and arbitrators alike.
India, with its latest Arbitration and Conciliation (Amendment) Act, 2019, seeks to tackle the problem of a lack of specialized arbitrators, but the problem extends further. In India, it has been noted that arbitration is inextricably tied with court litigation, a relation which might hint at the lack of specialisation and subsequently, a considerably limited number of arbitrators. Again, the establishment of the ACI as proposed in the Amendment Act, 2019, should prove a handy tool in overcoming this hurdle.
It is evident from 2019 Arbitration Amendment Act that it is the focus of the government of India to make India a hub of institutional arbitration for both domestic and international arbitrations.
However, the amendment lacks any specific procedure or standard that the courts have to meet in order to designate such arbitration institutions, and only provides general conditions for such appointment, and in time, need may arise for further amendments.
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