Arbitration Procedure in India and Institutional Arbitration

By Shivangi Dubey

Introduction

The procedure of resolving dispute outside the Court is not new. Since a long time in India societies have been using non-judicial and indigenous methods to resolve conflicts. With the passage of time there is an extensive promotion and use of Alternative Dispute Resolution. Arbitration was in practices even before the codified law came into force. Settling a dispute by referring to a third party was well known in ancient and medieval India.

According to Black’s Law Dictionary, “Arbitration in practice is the investigation and determination of a matter or matters of difference between contending parties, by one or more unofficial persons, chosen by the parties. Compulsory arbitration is that which takes place when the consent of one of the parties is enforced by statutory provision. Voluntary arbitration is that which takes place by mutual and free consent of the parties.”

India adopted the Arbitration and Conciliation Law in 1996. India is also a party to the New York Convention (on enforcement of arbitration award). Sec 89 of the Civil Procedure Court, 1908 also supports the Alternative Dispute Resolution system and urges parties to settle disputes outside the court. The Courts in India also fully support arbitration proceedings.

The Supreme Court gave a pro- arbitrational judgment in the judicial pronouncement of Sumitomo Heavy Industries Ltd. v. ONGC, 1998 1 SCC 305- Where it stated “….. If the conclusion of the arbitrator is based on a possible view of the matter, the Court is not expected to interfere with the award. The High Court has erred in so interfering Court while considering challenge to arbitral award does not sit in appeal over the findings and decision of the arbitrator…’’ This judgment also shows that the Courts are not very much inclined to interfere in the process of arbitration and thereby lends its supports to this system of Alternative Dispute Resolution.

Amendment of 2019

After the 2019 amendment to the Act, the Courts are left with no role in the aforesaid situations. Instead, the Supreme Court is to designate an arbitral institution to make appointments in relation to international arbitrations and likewise, the High Courts are to designate arbitral institutions to make appointments in relation to domestic arbitrations. The appointments thus are to be made by the designated institutions. The Act clarifies that there is no delegation of judicial power by the Supreme Court or High Courts to the arbitral institutions and hence (any challenge to an appointment would remain subject to any final order by the Courts).

Arbitral institution and amendment of 2019 [Eighth Schedule]

The Eight Schedule, as included in the Arbitration Act vide the 2019 Amendment Act provides objective clarity by way of standardized eligibility requirements for the appointment of an individual as an arbitrator.

General Norms

·         The arbitrator must be impartial and neutral.

·         The arbitrator shall be conversant with the Constitution of India, principles of natural justice, equity, common and customary laws, making and enforcing arbitral awards, domestic and international legal system on arbitration and international best practices.

·         The arbitrator should be capable of suggesting, recommending or writing a reasoned and enforceable arbitral award in any dispute which comes before him for adjudication.

Special Norms

o   The arbitrator must be an Indian qualified advocate or an Indian qualified Chartered Accountant or Cost Accountant or Company Secretary etc.

o   The panel of arbitrators maintained by these institutions (who will perform the default appointment role) necessarily excludes any foreign arbitrator.

o   The law does not prescribe any code of conduct or ethical duties for arbitrators.

o   It can be expected that Common Law standards of ethical duties for judges (or members of judicial tribunals) would apply equally to arbitrators.

o   The Act enables the arbitrator with the consent of parties to arrange for administrative assistance by a suitable institution or person.

o   There are no rules or regulations in this regard. Tribunal secretaries are more frequently being appointed.

o   The 2019 amendment introduced a confidentiality obligation for the first time. The obligation applies to the arbitrator, arbitral institutions and the parties and relates to “all arbitral proceedings”, except the award, where its disclosure is required for the purposes of implementation and enforcement.

In the case of Perception v. Reality, Bar and Bench, 7th October 2019- It was made clear that foreign lawyers were not debarred from presiding over Indian-seated international arbitration. This observation when read in consonance with the neutral nationality prospect under Section 11(9) of the Arbitration and Conciliation Act suggests that there is no bar with respect to appointing an arbitrator of any nationality.
Types of Arbitration Procedures

 

Ad-Hoc Arbitration

Ad-Hoc Arbitration can be defined as a procedure of arbitration where a tribunal disputed parties will come together and conduct arbitration between the parties, following the rules which have been agreed by the party beforehand or by following the rules which have been laid down by the tribunal, in case the parties do not have any agreement between them. However, there are no hard and fast rules, as different parties may choose to follow different rules, for instance, the rules laid by the trade union which the disputing parties belong.

Institutional Arbitration

Meaning of Arbitration Institutions

Sec. 1(ca) of the new law has been introduced to define an ‘arbitral institution’ as an arbitral institution designated by the Supreme Court or a High Court. It is that method of arbitration where the whole arbitration is conducted by an established arbitral institution or organization. The arbitration agreement itself provides for appointment arbitral institution. The parties specifically provide that in case of any dispute arises in the period of contract the dispute would be solved through institutional arbitration.
India has more than 35 arbitral institutions. Some of the prominent Indian arbitral institutions are the Indian Council of Arbitration (ICA), the Delhi International Arbitration Centre (DIAC), the Mumbai Centre for International Arbitration (MCIA) and ‘The International Centre for Alternative Dispute Resolution’ ICADR. While ICADR was envisaged as a model arbitral institution, it failed miserably at achieving its objectives, which included promotion of ADR, providing administrative and logistical support for ADR, appointment of arbitrators and providing training in ADR.

Not only did ICADR fail in keeping pace with the developments in arbitration law worldwide, it was also unable to market itself as a credible alternative to ad-hoc arbitration. Plagued by inefficiency, the ICADR had a large and ineffective governing council.  However, the biggest cause for ICADR’s demise was its failure to address and market itself to prospective parties at the stage of contract formation. Further, not just private sector entities, but even public sector bodies (including public sector undertakings) were reluctant to submit to ICADR managed arbitrations. The demise of ICADR finally sounded after more than 23 years of its birth with the passing of the New Delhi International Arbitration Centre Act, 2019 (the NDIAC Act, 2019). The NDIAC Act, 2019 replaces the ICADR with a modern arbitral institution which shall be called the New Delhi International Arbitration Centre (NDIAC).

Institutional arbitration

 

The concept of institutional arbitration, though gradually creeping in the arbitration system in India, has yet to make an impact. The advantages of institutional arbitration over ad hoc arbitration in India need no emphasis and the wide prevalence of ad hoc arbitration has its ramifications in affecting speedy and cost-effectiveness of the arbitration process.

 

Institutional arbitration is arbitration conducted under the Rules laid down by an established arbitral organization. Such Rules are meant to supplement provisions of the Arbitration and Conciliation Act in matters of procedure and other matters the Act permits. The rules may provide for domestic arbitration or for international arbitration or for both and the disputes dealt with may be either general in character or specific.

 

In an institutional arbitration, the arbitration agreement may stipulate that in case of dispute or differences arising between the parties, they will be referred to a particular institution such as:

 

·         Indian Council of Arbitration (ICA)

·         International Chamber of Commerce (ICC)

·         Federation of Indian Chamber of Commerce & Industry (FICCI)

·         World Intellectual Property Organization (WIPO)

·         The International Centre for Alternative Dispute Resolution (ICADR)

·         London Court of International Arbitration (LCIA)

 

All these institutions have framed their own rules of arbitration which would be applicable to arbitral proceedings conducted by these institutions. Such rules supplement provisions of the Arbitration Act in matters of procedure and other details as the Act permits. They may provide for domestic arbitration or for international commercial arbitration or both and the disputes dealt with by them may be general or specific in nature.

 

 

 

 

Indian Council of Arbitration [ICA]

 

The Indian Council of Arbitration, being the apex body in arbitration matters in the country, has handled the largest number of international cases in India. The Arbitral Institutions have fixed arbitrator’s fees, administrative expenses, qualified arbitration panel, rules governing the arbitration proceedings etc., which help in the smooth and orderly conduct of arbitration proceedings.

 

History of the Institution

ICA is India’s premier arbitral institution, is a registered society under the Societies Registration Act, 1860, operating on a not-for-profit basis with its head office in New Delhi and ten branches in a pan-India network. It was established in 1965 as a specialized arbitral body at the national level under the initiatives of the Government of India.

Gradually, it attained an autonomous status and became an independent body. The main objective of ICA is to promote amicable, quick and inexpensive settlement of commercial disputes by means of arbitration, conciliation, regardless of location.

It is one of the most important arbitration centers in the Asia Pacific, handling more than 200 domestic and international arbitration cases each year. It also provides the commercial world with unrivalled and time-tested Maritime Arbitration services and imparts education and training in alternative dispute resolution mechanisms.

Core function of ICA

Administration of arbitration proceedings is the core function of ICA. It has its own set of procedural rules which govern the conduct of the entire arbitration proceedings, from its commencement to its termination. It aims at promoting and building capacity in the area of ADR (Alternative Dispute Resolution). In its continuous effort in capacity building and disseminating information on ADR, the ICA organizes various courses and forums on the different avenues of ADR.

Summary Rules of ICA

The ICA Rules of Arbitration subscribe to international standards for conduct of arbitration proceedings-

o   Where the claim is below Rupees one crore, a sole arbitration is appointed, unless the two parties agree for appointment of three arbitrators.

o   For claims above Rupees one crore, three arbitrators are appointed, unless the parties agree that a sole arbitrator be appointed.

o   The sole arbitrator is appointed by consent of the parties and, failing such consent, the Council appoints the sole arbitrator.

o   Where three arbitrators have to be appointed, each of the parties appoints one arbitrator and the Council appoints the Presiding Arbitrator of the Arbitral Tribunal.

o   Under institutional arbitration in India, the parties are free to choose their arbitrators from the panel of arbitrators established by the institution.

o   The arbitrators are empanelled by the Arbitration Committee after the latter is satisfied about their competence, integrity and impartiality.

Detailed Rules of Arbitration
Registration for arbitration
A written application to the registrar, asking for arbitration, has to be initiated by the parties. Registrar, as deem fit, may reject the request on reasonable grounds. Such grounds will be subject to judicial scrutiny. Following documents must be attached-

·         Names and full addresses of the parties to the dispute.

·         Statement of the claim and facts supporting the claim points at issue and relief sought.

·         Copies of the arbitration agreement, any contract or agreement regarding dispute resolution.

·         Registration Fees of INR 1000.

Issues that are arbitral in nature
·         Disputes relating to commercial matter including shipping, sale, purchase, banking, insurance, building construction, engineering, technical assistance, know-how, patents, trademarks, management consultancy, commercial agency or labor are taken up by the Indian Council of Arbitration.

·         Parties to arbitration can be a resident of India or foreigner. Even two or more foreign parties might enter into arbitration under the rules of Indian Council of Arbitration. What is required is their mutual consent.

 

Binding effect

 

Rule 8 of ICA provides that the decision of the arbitrators over any dispute will be final and the parties to the arbitration are bound to follow it.

 

Qualifications of arbitrators

 

·         A register is maintained by the registrar of ICA which includes the name and other details of the arbitrators.

·         The panel of arbitrators includes both Indian and foreign arbitrators.

·         Where a party to dispute asks for an arbitrator living in the foreign land, it will be the duty of the party to dispute to accommodate the arbitrator he demanded. Subject to certain exceptions, all the expenses will be incurred by the party demanding such foreigner arbitrator.

·         Retirement age of an arbitrator is 80.

 

Arbitration process

·         Party can directly approach the registrar by making an application, after the application is accepted, then a notice is sent to the other party.

·         Notice will include a copy of the claim statement and the attached documents and a time period of 30 days or as the time period set up by the registrar will be given to the other party to the dispute to show cause of their side of the case.

·         If the opposite party refuses to take the notice then a counterclaim can be made by the respondent, provided the counterclaim arises from the same transaction as the original claim. It must be support with relevant documents.

·         Three copies of all statements, replies and other documents and papers, as well as appended documents, must be supplied to the registrar.

Number of Arbitrators to Settle the Dispute

·         If the disputed amount is > or = to INR 1 crore then single arbitrator will be appointed.

 

·         If the disputed amount is < INR 1 crore and > or = to INR 15 Crore, the ICA will be duty bound to provide the parties with three arbitrators.

 

·         If the parties fail to agree on the person to be appointed as sole arbitrator within the time granted by the Registrar, the Registrar in consultation with the Chairman of the Committee and in his absence in consultation with the member of the Governing Body designated by the Chairman, shall appoint the sole arbitrator from among the Panel of Arbitrators.

 

·         In the cases where one party to a dispute is a foreign national- In such cases, the registrar will appoint an arbitrator who does not belong to any country as the proposing parties do.

 

·         Where parties are not satisfied with the selection of arbitrator by the registrar-The Challenge of an arbitrator shall be made within 30 days after his appointment has been communicated to the challenging party or within 30 days of his becoming aware of the reasons for which the challenge is made. The judge will be members of ICA committee.

 

If party fails to cooperate

If claimant fails- In depositing of the requisite documents, papers, or appropriate fees, the arbitration procedure will come to a halt.

If respondent fails- The arbitration proceedings will proceed as it is assuming the presence and awareness of the respondent.

Place of Arbitration
If both the parties are from India
The place or venue of arbitration shall be India. The Arbitration proceedings shall be held at such place or places in India as the arbitral tribunal may determine to have regard to the convenience of the arbitrators and the parties.

Parties from overseas [Either one or both]

The arbitration proceedings may also be held at any place outside India at the discretion of the arbitral tribunal.

Party unsatisfied with Arbitration Process
Only in special circumstances the parties are free to approach the Court. A procedure is to be followed for the same where an application has to be forwarded to the registrar who in turn will forward it to arbitration tribunal and if the arbitration tribunal is satisfied, an appeal may lie in the Court.

International and domestic institutions

Large commercial disputes continue to be referred to well-known international institutions such as the:

o   International Chamber of Commerce (www.iccwbo.org).

o   Singapore International Arbitration Centre (www.siac.org.sg).

o   London Centre of International Arbitration (www.lcia.org).

o   Hong Kong International Arbitration Centre (www.hkiac.org).

 

 

Domestic arbitration institutions include-

·         Mumbai Centre for International Arbitration (www.mcia.org.in). This is the most popular arbitration institution based in India for large commercial disputes. It was set up in 2016 and is led by a very competent and internationally renowned board of arbitration practitioners from across the globe, has received significant traction, but does not yet have a notable list of administered matters.

·         Nani Palkhivala Arbitration Centre (www.nparbitration.com). This is another institution which has seen significant growth in recent years. It has been formally recognised by the Madras High Court to render assistance in arbitration matters by its Order dated 21 September 2005. The Centre has a panel of arbitrators comprising retired judges, lawyers, chartered accountants and civil servants among others.

·         Some High Courts in India have also set up arbitration centres affiliated with such High Courts, such as the Delhi International Arbitration Centre (www.dacdelhi.org) and the Arbitration & Conciliation Centre – Bengaluru (Domestic & International) (www.arbitrationcentreblr.org), an initiative of the High Court of Karnataka.

Concept of Institutional arbitration
It is important to understand that parties are free to choose the method of arbitration. It depends upon the facts and circumstances of their dispute. These intuitions are preferred by the international business community as it provides them various services. Such as providing a specific arbitration procedure, experienced panel of arbitrators and expertise that provide a quick and effective dispute resolution process. Some of the famous arbitral centers are The London Court of International Arbitration (LCIA), The Chartered Institute of Arbitrators UK, The National Arbitration Forum USA and The International Court of Arbitration Paris Singapore International Arbitration Centre, Hong Kong International Arbitration Centre (HKIAC).

Essential features of institutional arbitration

o   The arbitration agreement designates an arbitral institution to administer the arbitration.

o   The parties here submit their disputes to the institution which then administers the arbitral process as provided by the rules of that institution.

o   The institution does not arbitrate the dispute.

o   It is the arbitral panel which does. The parties may stipulate the institution to be referred to in the arbitration agreement itself.

o   Institutional arbitration is prohibitive due to the administrative charges levied by the institution, and this usually is correlated to the amount in dispute.

o   Institutional arbitration is time bound arbitration and is supervised in nature.

o   The rules for arbitration set out clearly.

o   The parties who chose to agree to submit any dispute to arbitration in accordance with the rules of institution.

o   This automatic incorporation of the rules is the principal advantage in institutional arbitration as it leads to effective enforceability.

Advantages of Institutional Arbitration
1. Reputation
One of the biggest advantages of opting for institutional arbitration is the reputation of the institution. Decisions given under the name of any prestigious institution is easier to enforce as it is accepted by a majority of other bodies.
2. Efficient Administration
One more advantages of going for institutional arbitration is that such institutes provide trained staff to the parties for administering the whole process. The administrative staff will lay down the rules, ensure that the time limits are being complied to, and the process is going ahead as smoothly as possible.
In the case of ad-hoc arbitration, when the arbitrator himself has to do all the administrative work, it may distract him from his primary objective.
3. Clear Rules
In the case of institutional arbitration, the rules of the arbitration are generally fixed by the institution. There is no further dispute between the parties regarding the rules of the procedure, which might happen in the case of ad-hoc arbitration. Also, the rules are framed keeping all eventualities in mind, as these institutions have an experience of going through various arbitration proceedings and know what eventualities may arise. Also, the rules are flexible in nature. There is a mechanism to oppose any part of the process which is not consistent.

4. Quality of Arbitral Panel
One of the major advantages of institutional arbitration is that they have an extensive panel of experts, who acts as arbitrators. These institutions also have arbitrators who specialize in different areas, so that any type of dispute can be resolved.
Big institutions like ICC also have a network of national committee for appointment of arbitrators to ensure that there is no bias based on the country to which the parties belong.
5. Supervision
Apart from the administration of the arbitrational process, some institute also supervises the process, i.e., examine the award or penalty sanctioned ensuring that due process of law has been followed, and proper reasoning has been given to the parties for taking that particular decision.
6. Remuneration of the Tribunal
In the case of institutional arbitration, the remuneration to be paid to the arbitrators is already fixed. The disputing parties do not have to haggle with the arbitrators to decide the terms and amount of remuneration. The remuneration of the arbitrators in case of institutional arbitration is based on a fixed scale. The money is paid to the arbitrators without involving them directly.
7. Default Procedure
Many institutional arbitrators expressly provide the rule that the proceedings will continue and not stop in between, even if one of the parties defaults in the course of the proceedings. For instance, Article 21(2) of the ICC Rules states that if any party fails to appear for the proceeding without giving any valid excuse, even after it has been duly summoned by the institution, the Tribunal will proceed with the proceedings.
Challenges of institutional arbitration in India
1.  Issues relating to administration and management of arbitral institutions.

2.  Perceptions regarding arbitrators and expertise issues relating to resources and government support, lack of initial capital, poor and inadequate infrastructure, lack of properly trained administrative staff, lack of qualified arbitrators, etc.

3.  Issues in developing India as an international arbitration seat.

To address the challenges and shortcoming of the Institutional arbitration, a High-Level Committee (HLC) to Review the Institutionalization of Arbitration Mechanism in India under Mr Justice B N Srikrishna was constituted in 2016. The committee submitted its report on 3 August 2017.

Conclusion

Even after having an edge over the ad-hoc form of arbitration in India the parties do not prefer the institutional arbitration. There are certain reasons why these institutions are not gaining popularity, there is need to change the structure these institutions are working in India. The 2019 Amendment Act is a step forward in promoting the institutional arbitration in India along with streamlining and overcoming some of the challenges faced after the enactment of the 2015 Amendment Act.

However, there are still certain loopholes in the Amendment Act of 2019, which did not take into consideration some recommendations by the Committee notably on incorporating the International Bar Association (IBA) Rules on evidence. There is a long way to go while dealing with the scope, composition, functioning of Arbitration Council of India (ACI). India has laws and regulation regarding arbitration but there is need for implementing the same.

 

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