History of Arbitration in India

Arbitration has a long history in India. In ancient times, people often voluntarily submitted their disputes to a group of wise men of a community called the panchayat for a binding resolution.

The Arbitration law in India was constructed by the Bengal Regulations in 1772, during the British rule. The Bengal Regulations provided for reference by a court to arbitration, with the consent of the parties, in lawsuits for accounts, partnership deeds, and breach of contract, amongst others. Until 1996, the law governing arbitration in India consisted mainly of three statutes: (i) the 1937Arbitration (Protocol and Convention) Act, (ii) the 1940 Indian Arbitration Act, and (iii) the 1961 Foreign Awards (Recognition and Enforcement) Act. The 1940 Act was the general law governing arbitration in India along the lines of the English Arbitration Act of 1934, and both the1937 and the 1961 Acts were designed to enforce foreign arbitral awards (the 1961 Act implemented the New York Convention of 1958).

In 1899, a separate Act for Arbitration was enacted by the Indian legislature namely Indian Arbitration Act of 1899 which was later followed by the passing of Codified Law, Civil Procedure Code. Thereafter, the government enacted the Arbitration and Conciliation Act, 1996 (the 1996 Act) in an effort to modernize the outdated 1940 Act. The 1996 Act is a comprehensive piece of legislation modelled on the lines of the UNCITRAL Model Law. This Act repealed all the three previous statutes (the 1937 Act, the 1961 Act and the 1940 Act). Its primary purpose was to encourage arbitration as a cost-effective and quick mechanism for the settlement of commercial disputes. The 1996 Act covers both domestic arbitration and international commercial arbitration. However, the 1996 Act was highly criticised as Judicial Intervention was not included which hampered the arbitration practice. Hence the need to re-look into the provisions of the Act arose and based on the 246th Law Commission Report, suggestions were given which lead to the enactment of the Arbitration and Conciliation (Amendment) Act, 2015 which is the present Arbitration Law of the country.

Today arbitration is a very popular mode of alternate dispute resolution in the commercial world and one can find an arbitration clause incorporated in the majority of business contracts. In India, the most popular form of arbitration (between 90-95%) is ad hoc arbitration wherein parties regulate the arbitration proceedings themselves. In contrast, though various arbitral institutions have been set up in India, especially in the last five years, ad hoc arbitration continues to be the preferred mode of arbitration with very less to no importance to institutional arbitration.

Ad hoc Arbitration and Institutional Arbitration

Parties in India prefer ad hoc arbitration and regularly approach courts to appoint arbitral tribunals under the relevant provisions of the Arbitration and Conciliation Act. A 2013 survey by PricewaterhouseCoopers showed that there was a strong preference for ad hoc arbitration amongst both Indian companies that had experienced arbitration and Indian companies that had no experience of arbitration1. This is contrary to global practice – a 2008 worldwide survey of corporate preferences in dispute resolution by PricewaterhouseCoopers and Queen Mary University of London (“QMUL”) showed that: (a) 86 per cent of arbitral awards given during the preceding ten years were given in arbitrations administered by arbitral institutions and not ad hoc arbitrations; and (b) 67 per cent of

1 ‘Corporate Attitudes & Practices towards Arbitration in India’, Pricewaterhouse Coopers (2013), available at https://www.pwc.in/assets/pdfs/publications/2013/corporate-attributes-and-practicestowards-arbitration-in- india.pdf (accessed on 03.02.2017).

arbitrations that states or state owned enterprises were a party to, were institutional arbitrations2. 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. In 2001 alone, 54,000 crores of capital was blocked in construction sector disputes3. Dispute resolution in this sector consists mostly of ad hoc arbitration.

However, is ad hoc arbitration really preferable to institutional arbitration, particularly in the Indian context?

Ad hoc Arbitration Vs Institutional Arbitration in India

“The difference between an ad hoc arbitration and an institutional arbitration is not a difference between one system of law and another; for whichever is the proper law which governs either proceeding, it is merely a difference in the method of appointment and conduct of arbitration.”

In India, ad hoc arbitration is riddled with problems of delayed proceedings, unprofessional arbitrators and poor quality of awards. These issues make ad hoc arbitration vulnerable to excessive court intervention at all stages of the arbitration proceedings. Broadly, it has been accepted that ad hoc arbitration is more effective in cases where parties to a dispute cooperate with each other, and can mutually agree to constitute a tribunal and select arbitrators to resolve their dispute4. However, typically once a dispute reaches arbitration, it is highly likely that parties do not want to cooperate any longer. In such a case, ad hoc arbitration is vulnerable to the risk of dilatory tactics, increasing delays and costs. A developed arbitral institution can handle these challenges adequately. Moreover, where parties are not sophisticated and do not have sufficient knowledge regarding arbitration proceedings, institutional arbitration is decidedly preferable5.

Key issues in Ad hoc Arbitration which is very often overlooked by Parties

  • Parties wishing to include an ad hoc arbitration clause in the underlying contract between them, or seeking to agree the terms of arbitration after a dispute has arisen, have the option of negotiating a complete set of rules which meet their needs. However, this approach can require considerable time, attention and expense with no guarantee that the terms eventually agreed will address all eventualities. Furthermore, if parties have not agreed on arbitration terms before any dispute arises they are unlikely to fully cooperate in doing so once a dispute has arisen.
  • Parties in ad hoc arbitrations normally have to rely on their own good judgment as to the identity and quality of the individual arbitrator.

2 International Arbitration: Corporate attitudes and practices 2008, Queen Mary University of London and PricewaterhouseCoopers (2008), available at http://www.arbitration.qmul.ac.uk/docs/123294.pdf (accessed on 03.02.2017).

3 Krishna Sarma et al., ‘Development and Practice of Arbitration in India –Has it Evolved as an Effective Legal Institution ‘, Working Paper 103, of the Center on Democracy, Development, and The Rule of Law Freeman Spogli Institute for International Studies (2009), available at https://cddrl.fsi.stanford.edu/sites/default/files/No_103_Sarma_India_Arbitration_India_509.pdf (accessed on 28.02.2017).

4 See Edlira Aliaj, ‘Dispute resolution through ad hoc and institutional arbitration’, Academic Journal of Business, Administration, Law and Social Sciences, Vol. 2 No. 2 (2016), p.241-250, available at http://iipccl.org/wp- content/uploads/2016/07/241-250.pdf (accessed on 28.02.2016). See also Norton Rose Fullbright, ‘A basic guide to international arbitration’ (February 2015), available at http://www.nortonrosefulbright.com/files/arbitration-a-guide-to- international-arbitration-26050.pdf (accessed on 02.03.2017).

5 Id Edlira Aliaj (2016) at p. 247.

  • Ad hoc arbitration completely depends on the full effectiveness and upon the spirit of cooperation between the parties. If the parties do not cooperate in facilitating the arbitration, there could be loss of time in resolving the issues. There may be repeated recourse to the courts to determine contested interlocutory issues which may delay the arbitration proceedings.
  • In ad hoc arbitrations, progressing with the proceedings in the absence of one of the parties may be somewhat riskier, given that the absent party may later challenge the award on the grounds that the arbitral tribunal has not given him a fair opportunity to be heard
  • Costs: Ad hoc arbitration may not prove to be a less expensive affair than the institutional process. Firstly, the parties are required to make arrangements to conduct the arbitration but they may lack the necessary knowledge and expertise. Arbitrations are generally conducted by people who are not lawyers – however, this may result in misinformed decisions especially in international commercial arbitration. Secondly, where there is lack of cooperation between the parties or delay on the part of the tribunal conducting the arbitration or writing the award, a party may need to seek court intervention. Litigation costs would not only negate the cost advantages of ad hoc arbitration, but also the parties’ intention to avoid the courts through alternative dispute resolution methods. Thirdly, in complex cases the tribunal may seek to appoint a secretary to deal with the considerable administrative work involved. The additional costs of the secretary’s fees will add to the cost burden of the arbitration.

Although ad hoc arbitration is more flexible and often best suited to the parties’ individual needs, it will be cost effective only where:

  • there is the required cooperation between the parties;
    • the parties understand arbitration procedures; and
    • the arbitration is conducted by experienced arbitrators.

While the Arbitration Act gives sufficient powers to the arbitral tribunal to reduce delays, arbitration proceedings in India are still long-drawn and take years to conclude. In this regard, changes were made by the 2015 Amendments whereby time limits were set out for arbitration proceedings6. Further, a provision was inserted that empowered courts to reduce the fees of arbitrators for delays attributable to the arbitral tribunal7. While these amendments can help set fixed standards and solve problems of delays and costs to some extent, it requires changes in attitudes and practices. There needs to be a change in India’s arbitration culture, encouraging parties and arbitrators to resolve disputes efficiently and follow guidelines when conducting arbitration. Institutional arbitration where the progress of the arbitration is monitored by the arbitral institution is one such answer and therefore, should be encouraged where appropriate.

Snapshot of the Advantages of Institutional arbitration

  • availability of pre-established rules and procedures which assure that arbitration will get off the ground and proceed to conclusion within the time schedule.
  • list of qualified and professional arbitrators, often broken out by fields of expertise are available
  • appointment of arbitrators by the institution should the parties request it
  • administrative assistance from the institutions providing a secretariat or court of arbitration
  • physical facilities and support services for arbitrations
  • assistance in encouraging reluctant parties to proceed with arbitration

In continuation to the above advantages, under Institutional arbitration the parties and their lawyers save the effort of determining the arbitration procedure and also the effort of drafting an arbitration

6 Section 29A, ACA.

7 Section 11(14), ACA.

clause which is provided by the institution. Once the parties choose the institution, all they need to do is incorporate the draft clause of that institution into their contract. This expresses their intention to arbitrate under the institution’s rules, which provide for every conceivable situation that can arise in an international commercial arbitration.

Another merit of the draft clause is that it s revised periodically by the institution, drawing on experience in conducting arbitrations regularly and approved by arbitration experts, taking into account of the latest developments in arbitration practice. This ensures that there is no ambiguity in relation to the arbitration process. On the other hand, defective or ambiguous arbitration clauses in ad hoc arbitration require parties to seek court intervention in order to commence arbitration.

Another significant benefit under institutional arbitration is selection of arbitrators. In institutional arbitration, the arbitrators are selected by the parties from the institution’s panel of arbitrators. Usually, this panel of arbitrators comprise of expert arbitrators from various regions of the world and from across different locations. This ensures selection of arbitrators possessing requisite experience and knowledge to resolve the dispute, thereby facilitating quick and effective resolution of disputes.

In contrast, the appointment of arbitrators under ad hoc arbitration is generally based upon the parties’ faith & trust in the arbitrators and not necessarily on the basis of their qualifications and experience. Thus an incompetent arbitrator may not conduct the proceedings smoothly and this could delay the dispute resolution leading to undesirable litigation and increased litigation costs.

Lastly, it is also highly beneficial under institutional arbitration that the parties and the arbitrators can seek assistance and advice from the institutional staff, responsible for administering international commercial arbitrations under the institutional rules. Thus, doubts can be clarified to avoid deadlocks with court intervention. Also, the institutional staff constantly monitors the arbitration to ensure that the arbitration is completed and an award is made within reasonable time and without undue delay. On the other hand, in cases of deadlock situation the parties would be compelled to approach the courts which could result in delay and added costs of litigation.

Challenges to Institutional arbitration in India

Setting up of arbitration institutions with international standard with hearing centres on widened jurisdiction of India is one of the foremost challenges.

Primarily, there are four major reasons as to why institutional arbitration is not the preferred mode of arbitration in India:

  1. Higher cost of Institutional Arbitration – A ‘Misconception’

Parties consider institutional arbitration to be substantially more expensive than ad hoc arbitration, primarily because of the administrative fees payable to arbitral institutions. 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; and (c) the costs of an ad hoc arbitration can easily exceed the costs of an institutional arbitration in case of additional procedural hearings, adjournments, use of per-hearing fees, litigation arising from procedural infirmities in ad hoc arbitrations etc.

Parties also often believe that institutional arbitration is inflexible because arbitral institutions follow rules that take away exclusive autonomy of the parties over arbitration proceedings. However, most arbitral institutions that exist in the international scenario have made an attempt to balance institutionalisation with party autonomy – they only keep those issues which deal with the legality and integrity of proceedings out of the purview of party autonomy. These misconceptions could be due to a general lack of awareness regarding institutional arbitration and its advantages. This could also be due to the lack of initiative on the part of arbitral institutions to promote their work and facilities as well as on the part of lawyers to properly advise parties about the advantages of institutional arbitration. Even

when there is awareness on the existence of institutional arbitration as an option, there is often the misconception that this option is only available to bigger businesses and/or high value disputes.

  • Support by the Indian Government for promoting 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. Further, the government policy on arbitration requires a relook if institutional arbitration is to become the norm, particularly for disputes valued at large amounts. For instance, if the government, being the biggest litigant, were to adopt institutional arbitration as regular practice, the sheer volume of cases moving to arbitral institutions would provide a powerful impetus to institutional arbitration.

There have recently been discussions and initiatives on the part of some state governments as well to promote institutional arbitration, citing that it would be more organised and cost-effective.13 One of the recommendations made by the Law Commission of India14 was that trade and commerce bodies must establish chambers with their own rules. However, effectively, the government has so far focussed its attention on arbitration in general. To encourage institutional arbitration, special action aimed at the development of arbitral institutions is required.

  • Lack of statutory backing for institutional arbitration

The Arbitration 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. 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.15 The merits of such a view require examination in light of the endemic problem of delays plaguing arbitration in India.

  • Excessive judicial involvement in arbitration leading to delays

Arbitration in India is known to be a timely and lengthy alternative to litigation. The backlog of Indian court system does not help the arbitration practice despite their “independence” under Section 5 of the Arbitration Act. 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. Parties often delay arbitration proceedings by initiating court proceedings before or during arbitration proceedings, or at the enforcement stage of the arbitral award. The high pendency of litigation before Indian courts means that arbitration-related court proceedings take a long time to be disposed of. The

Commercial Courts Act sought to remedy this situation by setting up commercial courts at the district level or commercial divisions in high courts having ordinary original civil jurisdiction. These commercial courts / divisions hear arbitration matters involving commercial disputes, amongst other commercial matters. However, an examination of the recent roster of the Bombay High Court, for example, indicates that commercial division judges often hear matters other than commercial matters, such as family law matters, juvenile justice-related matters etc.16 If commercial division judges are tasked with hearing matters other than commercial matters, it would detract from the legislative intent of speedy disposal of commercial matters, including arbitration matters. Additionally, we noted that the rotation policy of these High Courts was also applicable to commercial division judges. An excessively

frequent rotation might hinder the creation of specialist arbitration judges who are well-versed in arbitration law and practice. Indian courts’ tendency to frequently interfere in arbitration proceedings have also contributed to India’s reputation as an ‘arbitration-unfriendly’ jurisdiction. It is a well-known fact that courts in India are generally interventionist when it comes to regulating arbitration proceedings, whether it is at an initial stage of arbitration proceedings (such as the appointment of arbitrators, referral of disputes to arbitration or grant of interim relief) or at the enforcement stage.17 They have, despite good intentions and justifications, often misjudged the course to take, doing justice in the case at hand but laying down questionable precedent for the future.18 Further, inconsistent judicial precedent on several crucial issues19 has contributed to uncertainty regarding the law, with severe consequences for India’s reputation as a seat of arbitration.

Indian arbitration law jurisprudence has been criticised20 particularly with regard to its interpretation of legal provisions concerning setting aside of domestic arbitral awards (section 34 of the ACA) and refusing enforcement of foreign arbitral awards (Section 48 of the ACA). For instance, the expansive interpretation given to the “public policy” ground for setting aside of domestic arbitral awards21 and its extension to foreign arbitral awards22 created a climate where parties seeking to enforce arbitral awards in India had no certainty as to its enforcement. Recent judicial decisions23 which have restricted the use of the “public policy” ground to undertake a review on merits appear to have changed this perception to some extent. Further, the 2015 Amendments have underlined the legislative intent of limited judicial interference in the enforcement of foreign arbitral awards. Thus, while steps have been taken to ensure minimisation of court interference, India continues to be viewed largely as an arbitration-unfriendly jurisdiction.

Indian parties prefer choosing foreign arbitral institutions for resolution of disputes

It is widely accepted that India prefers ad hoc arbitration. Though various arbitral institutions have been set up in India, especially in the last five years, ad hoc arbitration continues to be the preferred mode of arbitration. Moreover, a large number of international arbitrations involving Indian parties are seated abroad and administered by foreign arbitral institutions (SIAC and LCIA) due to lack of institutional emphasis and awareness. In 2016 statistics shows that 153 of 307 cases administered by the Singapore International Arbitration Centre (SIAC) involved Indian parties. India has been plagued by factors like lack of a credible arbitral institution, excessive judicial intervention, absence of a dedicated arbitration bar and lack of clarity on the concept of public policy, making it and unfavourable place of arbitration.

Arbitral Institutions in India

In India a number of arbitral institutions are operation. Foremost there is the International Centre for Alternative Dispute Resolution (ICADR) having its head office in Delhi and two regional offices in Hyderabad and Bangalore. In Southern India, the Nani Palkhiwala Arbitration Centre in Chennai and the Indian Council for Arbitration (ICA) which was set up in 1965 at the national level under the initiatives of the Govt. of India and apex business organizations like FICCI. Recently, the Government of Maharashtra and the domestic and international business and legal communities have set up a non profit centre called the Mumbai Centre for International Arbitration (MCIA). International Institutions, SIAC, LCIA, ICC and KLRCA also have set ups in India. SIAC has a liaison office in Mumbai and ICC in Delhi. LCIA did start a facility in India but recently its closure was announced. There are other micro level institutions as well functioning to promote arbitration. However, there is no single arbitral seat or institution in the country which is a centre with global repute.

Statistics of the International Arbitral Institutions

While the Indian arbitral institutions are yet awaiting the daylight for recognition, the International arbitral institutions have been steadily gaining recognition and number of references for resolution year after year.

ICC (International Chamber of Commerce)8759767791801966
DIS (German Institution of Arbitration)9121121132134166
SCC (Stockholm Chamber of Commerce)10177203183181199
VIAC (Vienna International Arbitration Center)117056564060
SCAI (Swiss Chamber’s Arbitration Institution)12926810510081
LCIA (London Court of International Arbitration)13277301296326303
ICDR (International Center for Dispute Resolution)149961165105210631050
SIAC (Singapore International Arbitration Centre)15235259222271343
CIETAC (China International Economic and Trade Arbitration Commission)16  1060  1256  1610  1968  2183
HKIAC (Hong Kong International Arbitration Centre)17  293  260  252  271  262
ICSID (International Centre for Settlement of Investment Disputes)18  50  40  38  52  48


India needs a robust arbitration framework to resolve the issues inundating the current system. The creation of a strong arbitration institution, replete with its own rules, guidelines, and facilities would allow for consistency in procedure and keep the mainstream judiciary out of arbitration disputes. In order to promote institutional arbitration in India, it is imperative that: (a) Indian parties involved in domestic and international arbitrations are encouraged to shift to institutionally administered

8 https://iccwbo.org/media-wall/news-speeches/icc-reveals-record-number-new-arbitration-cases-filed-2016/.

9 http://www.disarb.org/upload/statistics/DIS%20Statistics%202016.pdf.

10 http://www.sccinstitute.com/statistics/.

11 http://www.viac.eu/en/service/statistics/89-service/statistiken/327-viac-statistics-2016.

12 Wilske/Markert/Bräuninger, German Arbitration Journal (“SchiedsVZ”) 2017, 49 (52).

13 Email C. Alberti to the authors dated 22 June 2017.

14 http://lcia.org/LCIA/reports.aspx.

15 http://www.cietac.org/index.php?m=Page&a=index&id=24.

16 http://www.siac.org.sg/2014-11-03-13-33-43/facts-figures/statistics

17 http://hkiac.org/about-us/statistics

18 https://icsid.worldbank.org/en/Pages/resources/ICSID-Caseload-Statistics.aspx

arbitrations rather than resort to ad hoc arbitrations; and (b) India becomes a favoured seat of arbitration for international arbitrations, at the very least in matters involving Indian parties.

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