Rangoli Nagendra 18LLM010

INSIGHT OF ARBITRAL INSTITUTIONS IN INDIA AND

THEIR EFFECTIVENESS
“INTERNATIONAL COMMERCIAL ARBITRATION”

RESTPECTFULLY SUBMITTED TO:

COURSE INSTRUCTOR: MS. PALLAVI BAJPAI

SUBMITTED BY: RANGOLI NAGENDRA

[18LLM010 LLM Batches 2018-19]

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ACKNOWLEDGEMENT

I take this as an opportunity to put efforts in this project. However, it would not have been
possible without the kind support and guidance of my faculty of this subject

Ms. Pallavi Bajpai, I would like to extend my sincere thanks to all of them.

I am highly indebted to for their guidance and constant supervision as well as for providing
necessary information regarding the project & also for their support in completing the project.

I would like to express my gratitude towards my friends& other classmates for their kind co-
operation and encouragement which help me in completion of this project.

I would like to express my gratitude and feelings towards my faculty who has enabled me in my
better understanding to this subject and also providing me such attention and time.

My thanks and appreciations also go to my colleague in developing the project and people who
have willingly helped me out with their abilities.

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CONTENTS

ABSTRACT 4
INTRODUCTION 4-6
SIGNIFICANCE OF ARBITRAL 6-
INSITUTIONS IN INDIA
CURRENT SITUTIONS 8-9
CHALLENGES OF ARBITRAL 10-11
INSITUTIONS
PERFORMANCE OF ARBITRAL 11-13
INSITITUTION IN INDIA
CONCLUSION WITH NEW 14-16
REFORMS UNDER ACA, 1996
REFERENCES 17

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ABSTRACT

THE CRUX

In the past decade, it has been observed that parties are hesitating in choosing India as a preferred
seat of arbitration and moving towards international arbitral tribunals such London Court of
International Arbitration or Singapore arbitral institutions. These institutions provide better
facilities and quick disposal of dispute. On the other hand, the concept of arbitration has
completely destroyed the very essence of alternative dispute resolution it neither cheap nor
competent enough to resolve a dispute.

INTRODUCTION

India is slowly moving towards a modern economy. As per the OECD 2017 economic survey
India’s growth was marked at 7.5% which made India the fastest growing G20 economy. 1 Its
GDP (Gross Domestic Product) is expanding rapidly. Since two decades it has been a priority for
policymakers to provide better investment opportunities and a hassle free trade mechanism. 2 At
the same time, Indian lawmakers are focusing to provide better provisions of enforcing contracts
and quick and easy of means for resolution of disputes.

 Even after prioritizing all the reforms India still has a less effective legal system. It is a
known fact that India has huge pendency of cases in various courts. As of 10.02.2018,
there are more than 25 million cases pending.3 As a World Bank’s study, India is ranked
as 164 on the ease of enforcing contracts and still takes 1,445 days to resolve a dispute.
The cost for dispute resolution is 31% of the Claim value. The quality of judicial process

1
OECD Economic Surveys: India. (Feb. 9, 2018), http://www.oecd.org/eco/surveys/economic-survey-india.htm
2
Report of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India (2017)
p. 3. (Further The Report)
3
National Juridical Data Grid ( Feb. 10, 2017 ), http://njdg.ecourts.gov.in/njdg_public/main.php

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which includes court structure and proceedings, case management, court automation and
alternative dispute resolution is also poor it is indexed at 10 out of 18.4

 The then Arbitration Act of 1940 was discouraged heavily on the ground of too much
judicial intervention and lack of smooth proceedings.5 Consequently, the Arbitration and
Conciliation Act, 1996, based on the 1985 United Nations International Commission on
International Trade Law (UNICTRAL) model law and rules, was enacted.

 Due to its flexibility and unique process, arbitration becomes the celebrated dispute
resolution mechanism in international trade disputes. India now is aiming to encourage
arbitration and starting to make efforts to become a hub for international arbitration.
Further to reach the desired goal the 1996 Act which led to various practical problems,
crucial changes were brought by Arbitration and Conciliation (Amendment) Act, 2015. In
addition to this amendment, a new statute came into existence which was aimed at
revitalizing India’s commercial dispute resolution ecosystem.

 To encourage the dispute resolution through arbitration there is need to promote

institutional arbitration in India. It is well-known fact that arbitration in India is
predominantly conducted through the ad-hoc method and institutional method is not
preferred. In the year 2016 out of 307 cases administered by Singapore International
Arbitration Centre (SIAC) 153 involved Indians.6

 In the recent times, there are steps being taken to promote institutional arbitration. In a
recent discussion in the 8th BRICS summit at Goa, a creation of BRICS-Centric

4
Supra Note 3
5
India Council of Arbitration, (Feb. 10, 2018),
http://www.icaindia.co.in/icanet/rules/commercial arbitration/arbitration conciliation/chapter1a.htm.
6
Mridul Godha, Kartikey M. The New-Found Emphasis on Institutional Arbitration in India, Kluwer Arbitration
Blog.(Feb. 12, 2018) ,http://arbitrationblog.kluwerarbitration.com/2018/01/07/uncitral-technical-notes-online-
dispute-resolution-paper-tiger-game-changer/?print=print.

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arbitration centre was deliberate, with the aim of offering services on arbitrating
international commercial disputes between BRICS countries.7

 In December 2016, a High-Level committee to review the institutionalization of

arbitration mechanism in India was created under the chairmanship of Justice (Retd.)
B.N. Srikrishna. The objective of this committee was to identify issues in the arbitration
process and to find out the challenges faced in the development of institutional
arbitration.8 The committee has submitted a report titled “Report of the High-Level
Committee to Review the Institutionalization of Arbitration Mechanism in India” on
August 3, 2017 suggesting reforms to the arbitration in India.

SIGNIFICANCE OF INSTITUTIONAL ARBITRATION IN INDIA

1. Meaning of Institutional Arbitration

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 the in case of any dispute arises in the period of
contract the dispute would be solved through institutional arbitration.

 In the case of Nandan Biomatrix Ltd. V D 1 Oils ltd 9it was agreed between the parties
agreed to the resolve the dispute through institutional arbitration. The issue arose whether
not providing specific name of the arbitral institution and only agreeing to resolve the
dispute through institutional arbitration would make the arbitration agreement invalid. It
was held that as the parties unequivocally agreed to settle the disputes through

7
http://www.financialexpress.com/opinion/brics-dispute-resolution-mechanism-challenges-ahead-but-promises-
much/428845/
8
Press Information Bureau Press Release, ‘Constitution of high level committee to review Institutionalization of
Arbitration Mechanism in India’, Dec. 29, 2016, (Feb. 9, 2018)
http://pib.nic.in/newsite/PrintRelease .aspx?relid=155959.
9
Nandan Bio matrix Ltd. V D 1 Oils Ltd, (2009) 4 SCC 495.

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institutional arbitration and not though ad-hoc arbitration. Therefore, there existed a valid
arbitration agreement between the parties.

2. Issues with Arbitral Institutions in India

 It has been a decade since policymakers had dreamed of making India a hub international
commercial arbitration. But still the dream could not be fuelled; there are several reasons
for this. The former chief justice of the Supreme Court of the United States of America
Warren E. Burger while addressing the American Bar Association said that:

“The entire legal profession has become so mesmerized with the stimulation of the
courtroom that we tend to forget that we ought to be healers of conflicts. For many
claims, trials by adversarial contests must in time, go the way of the ancient trial by battle
and blood. Our system is too costly, too painful” 10

 To address the same a High Level Committee was set up by an order dated on January
13th, 2017 by the Ministry of Law and Justice, Government of India. The committee was
chaired by Justice B.N. Srikrishna (Retired judge, Supreme Court of India). The object of
the committee was to11

1. To identify issues those are affecting the current arbitration mechanism in India.
2. To create a roadmap for making India a hub for international and domestic
arbitrations.

10
Burger The State of Justice 70 ABAJ (1984), (Feb. 19, 2018) http://www.nytimes.com/1984/02/13/us/burger-says-
lawyers-make-legal-help-too-costly.html.
11
The Report page 8.

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Current Situation of Arbitral Institution in India

As per the report the of Arbitral tribunal present in India:

 International Centre for Alternative Dispute Resolution (ICADR), Indian Council of

Arbitration (ICA), Delhi International Arbitration Centre (DIAC), and recently added in
the list the Mumbai Centre for International Arbitration (MCIA), Construction Industry
Arbitration Council (CIAC)- New Delhi and Council of Arbitration, Kolkata West
Bengal.

 Some of these institutions have their own set of arbitral rules or administer under United
Nations Commission on International Trade Law (UNCITRAL Arbitral Rules). It is
worthwhile to mention that there is an increase in the number of the institution but still
the parties are not approaching these institutions at this level. Even the popular
institutions like International Chamber of Commerce (ICC) and the SIAC. Recently the
LCIA India has even closed its office in India due to insufficient caseload.

 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 among Indian parties. The report suggested that there is need to
change the structure these institutions are working in India.

REASONS FOR THE EFFECTIVENESS OF THE ABOVE INSITUTIONS

The report by the High-Level Committee discusses in detail regarding the development of the
above mentioned Arbitral Institutions and the reasons why these institutions are the most
preferred among the parties. Briefly, the reasons are

 Efficient Governance: This is probably the major reason why they are most preferred
arbitral institutions. All these institutions have modern and updated rules which allow
them to offer parties more flexibility. Services like scrutiny of the draft arbitral award and
other potential defects make them more preferable.

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 Adequate Support from the government: The foremost reason given by the committee
was that among two of the top five arbitral intuitions namely the SIAC and the HKIAC
were immensely supported by their respective governments. The governments provided
them adequate financial and infrastructural support as well as playing an important role in
promoting them to international level. Maxwell Chambers was also established through
the government support. This indeed is a problem in India.

Though, the New Delhi International Arbitration Centre (NDIAC) Bill 2018 which was recently
introduced in Lok Sabha 12 a positive step toward institutionalizing arbitration in India. The bill
provides for the takeover of the existing International Centre for Alternative Dispute Resolution,
also proposes to set up an arbitration chamber.

 Supportive Arbitration Jurisdiction: The popularity of these institutions is due to the

supportive legislative system. These jurisdictions such as Singapore, Hong Kong, and
London are completely arbitration friendly seats. They have the better business-friendly
environment and also provide for better legal services. The local legislative framework
provides priority to party autonomy, the efficacy of proceedings, the sanctity of arbitral
awards and the provision of ample court assistance in arbitrations.

12
PRS Legislative Research, (Feb. 9, 2018) http://www.prsindia.org/billtrack/the-new-delhi-international-
arbitration-centre-bill-2018-5036/.

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Challenges to Institutional arbitration in India

Misconceptions regarding institutional arbitration

There are several misconceptions relating to institutional arbitration that exist among parties.
One of these is related to costs. Parties consider institutional arbitration to be substantially more
expensive than ad hoc arbitration, primarily because of the administrative fees payable to arbitral
institutions.13 This assessment is largely misconceived because:

(a) Numerous arbitral institutions charge very reasonable fees; (b) the use of an arbitral
institution helps avoid disputes over procedural matters resulting in cost savings

Governmental support for institutional arbitration

 One of the reasons for a weak institutional arbitration framework in India is the lack of
sufficient governmental support for the same over the years. While the government is the
most prolific litigant in India, it can do more in this capacity to encourage institutional
arbitration. The general conditions of contract used by the government and public sector
undertakings often contain arbitration clauses, but these clauses usually do not expressly
provide for institutional arbitration.

Lack of statutory backing for institutional arbitration

 The ACA Act has been arbitration-agnostic, with no provisions specifically geared
towards promoting institutional arbitration. This is in contrast with jurisdictions like
Singapore, where the Singapore International Arbitration Centre (“SIAC”) is the default
appointing authority for arbitrators under the International Arbitration Act, 1994 (“IAA”)
which governs international arbitrations.

13
See Gary Born, ‘International Arbitration: Law and Practice’, 2012 Ed. p. 13. See also ‘The pros and cons of
arbitration’, A Lexis PSL document produced in partnership with Mayer Brown International LLP.

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 In fact, one of the provisions of the ACA, section 29A which was inserted by the 2015
Amendments, is perceived to have made arbitral institutions wary of arbitrations in India.
Section 29A provides for strict timelines for completion of arbitration proceedings. This
has been criticised as unduly restrictive of arbitral institutions which provide for timelines
for different stages of the arbitration proceedings.

Problems with delays and excessive judicial involvement in arbitration

Delays in Indian courts and excessive judicial involvement in arbitration proceedings have
resulted in India not being favoured as a seat for arbitration, and consequently stunted the growth
of international arbitration (including institutional arbitration) in India.

PERFORMANCE OF ARBITRAL INSTITUTIONS IN INDIA

 Currently, Arbitral institutions in Indi include, in addition to domestic and international

arbitral institutions, the arbitration facilities provided by various public sector
undertakings, trade and merchant associations and city-specific chambers of commerce
and industry. A large number of these arbitral institutions administer arbitrations under
their own rules or under the UNCITRAL Arbitration Rules.

 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 them
do not have websites. For several of the ones which 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. Subject to the caveats above, secondary
literature and anecdotal evidence have shed some light on the state of functioning of
arbitral institutions in India.

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 While several arbitral institutions appear to have an established presence, a number of

them do not have sufficient caseloads. Infrastructure and support provided by several
arbitral institutions is largely inadequate. Most arbitral institutions can only provide
hearing venues with basic facilities and lack more advanced facilities such as multi-
screen video conferencing, sound-proof caucus rooms, audio / video recording, court
recorders, etc. Where the arbitral institutions provide facilities for hearing, they are far
too few in comparison to their caseload, forcing parties to book hotels or clubs with
limited facilities for holding hearings.

 Further, because arbitral institutions are staffed mostly by persons without adequate
knowledge and experience of arbitration, the quality and range of support available from
arbitral institutions to parties and arbitrators is invariably limited – even in matters
relating to the interpretation and application of the rules and practices followed by
arbitral institutions.

 They are unable to monitor arbitration proceedings and ensure adherence to timelines in
the same way that international arbitral institutions located outside India can.14 The lack
of oversight over procedural aspects of arbitrations has often resulted in arbitral awards in
arbitrations administered by such institutions being vulnerable to challenge in court.15

LESSONS TO BE LEARNT FROM INTERNATIONAL ARBITRAL INSTITUTIONS

 One of the foremost reasons why parties choose a particular arbitral institution is the
arbitration rules that apply as a result of such choice. Therefore, arbitral institutions
which provide for rules which are clear, efficient and flexible to accommodate parties’

14
Dipak Mondal, ‘Making India an Arbitration Hub: A Long Haul’, Business Today, 25.10.2016, available at
http://www.businesstoday.in/current/corporate/making-india-an-arbitration-hub-a-longhaul/story/238932.html
(accessed on 01.03.2017)
15
Speech by Dr. Justice S. Muralidhar at the Nani Palkhivala Arbitration Centre 9th Annual International
Conference on Arbitration on Current Issues in Domestic and International Arbitration, 18.02.2017. 28 Supra n. 26.

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needs and expectations tend to be favoured.16 However, several other factors such as
geographical location, reputation, neutrality, quality of the legal system where the arbitral
institution is located, the panel of arbitrators and pricing policy are considered by the
parties when selecting an arbitral institution

 A 2015 survey conducted by the School of Arbitration at the QMUL in collaboration

with White & Case LLP that sought responses from a variety of stakeholders in
international arbitration across the world (“QMUL Survey”) reported that parties
generally considered the following factors in decreasing order of importance while
choosing an arbitral institution:

 a high level of administration (i.e., the proactiveness and responsiveness of the arbitral
institution; b. perceived neutrality or ‘internationalism’ of the arbitral institution ability
of the arbitral institution to administer arbitrations across the world / its global presence;
and ; c. free choice of arbitrators (no exclusive list of arbitrators maintained by the
arbitral institution).17

16
Elvira Gadelshina, ‘What plays the key role in the success of an arbitration institution?’, Financier Worldwide
(2013), available at https://www.financierworldwide.com/what-plays-the-key-role-in-thesuccess-of-an-arbitration-
institution/#.WK5vClV96M8 (accessed on 23.02.2017).
17
‘2015 International Arbitration Survey: Improvements and Innovations in International Arbitration’, Queen Mary
University of London and White & Case LLP (2015), available at
http://www.arbitration.qmul.ac.uk/docs/164761.pdf (accessed on 16.02.2017).

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CONCLUSION

THE WAY FORWARD FOR INDIA

Various reasons contribute to the sustained popularity of ad hoc arbitration over institutional
arbitration in India. Some of the reasons that can be identified for this are related

 to the lack of sufficient supporting infrastructure for institutional arbitration, such as

skilled and experienced arbitrators, a well-qualified arbitration bar, and internationally
and domestically recognized arbitral institutions that cater to parties’ needs adequately.

 Other reasons are related to the perception of India as a seat that is ‘arbitration-
unfriendly’, although that perception is slowly changing. In order to encourage
arbitration, and particularly institutional arbitration, there needs to be a change on both
these fronts.

 The following are some suggestions for the way forward in encouraging and
strengthening arbitration practice and in particular, institutional arbitration in India

a) Creation of an autonomous regulatory body for evolving common standards for

arbitral institutions. While there are over 30 arbitral institutions in India, the quality of
these institutions vary greatly. This has directly impacted the efficiency and speed of the
arbitration process as well as the quality of the arbitral awards made in arbitrations
administered by them. Therefore, the creation of a regulatory body at the national level,
which shall evolve certain minimum standards for arbitral institutions in India may be
considered. The regulatory body may consider minimum standards for accrediting
arbitral institutions on the basis of criteria governing:

I . G overnance structure; ii. Arbitration rules; iii. rules concerning conflicts of interests
by arbitrators; iv. oversight by the arbitral institution over the arbitration proceedings; v.
expedited procedures for arbitration; vi. data management; vii. Infrastructur etc.

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 This may be set up either by mutual agreement or by statute. The nature,

composition, organizational structure and financing of the regulatory body and the
method of accreditation followed by it need to be considered in more detail.

 Issue for consideration: Should there be a regulatory body for accrediting arbitral
institutions? If so, what should the nature (statutory or self-regulatory), composition,
governance structure, financing model, powers, areas for setting minimum standards and
method of accreditation of such a body be?

b) Creation of a body for accreditation of arbitrators: The accreditation of arbitrators provides a

reliable and objective benchmark for arbitrators and is perceived as an assurance of their
competence, professionalism and experience. It is critical to the creation of a pool of skilled
arbitrators in India who have substantive knowledge of arbitration law and practice, and sector-
specific expertise.

 Creation of a specialist arbitration bar and bench the creation of a specialist arbitration
bar is critical to improving the quality of the existing arbitral institutions, and arbitration
practice in India in general. This would also ensure that these lawyers can dedicate more
time and resources to arbitration alone, which would promote its use as a dispute
resolution mechanism. Therefore, there is a need to consider measures that can encourage
the creation of an arbitration bar in India. This would involve better interaction with some
of the existing international arbitral institutions, to understand how best to train counsel
to create a pool of lawyers especially for this purpose. The provision of education and
training to lawyers in collaboration with professional institutes and strengthening the
teaching of arbitration law in the curriculum of law schools may also be considered.

Issue for consideration: What measures need to be taken to: (a) encourage the creation of an
arbitration bar in India; (b) strengthen teaching of arbitration in law schools and colleges; and (c)
encourage the creation of specialist arbitration judges?

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 Further amendments to the ACA the 2015 Amendments made substantive changes to
the ACA with a view to making arbitration more speedy and efficacious and improving
India’s reputation as a seat of arbitration. However, more may need to be done in this
regard in clarifying ambiguities brought by the 2015 Amendments which have led to
conflicting judicial interpretations, such as the prospective applicability of the 2015
Amendments;

 Addressing concerns that the 2015 Amendments have thrown up, particularly related to
the provision imposing strict timelines for the conduct of arbitration proceedings; and iii.
Bringing Indian legislation in line with international practices, including by providing for
legal provisions concerning the following:

 Third party funding, immunity to arbitrators, confidentiality of arbitration proceedings

and related court proceedings, Indian parties having a foreign seat of arbitration 5.
Indemnity costs for court proceedings intended to frustrate arbitration proceedings 6.
Tightening grounds for challenge to enforcement of foreign arbitral awards.

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REFERENCE

 INTERNET SOURCES

http://www.legalserviceindia.com/legal/article-200-an-insight-into-2015-amendment-act-
and-2018-amendment-bill-arbitration-and-conciliation-act-1996.html

http://www.mondaq.com/india/x/494184/Arbitration+Dispute+Resolution/Critical+Analysi
s+Of+The+Arbitration+And+Conciliation+Amendment+Act+2015

http://www.icaindia.co.in/HLC-Working-Paper-on-Institutional-Arbitration-Reforms.pdf

https://blog.ipleaders.in/promoting-institutional-adr-to-make-india-a-hub-of-arbitration/

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