By Shruti Desai
Arbitration and Mediation are para-legal alternative to resolve dispute. Though purpose of Arbitration was to provide speedy and less expensive legal platform it failed due to equal amount of time consumed and heavy cost. The Arbitrations were governed by Arbitration Act,1940 ( “Said 1940 Act”)
Thereafter in the year 1996 (“the said 1996 Act”) the said 1940 was repealed and the new Act came into effect from 16th August,1996 . The object and reasons says its and
Act to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards as also to define the law relating to conciliation and for matters connected therewith or incidental thereto.
In the year 2015 again the said 1996 Act was amended. The Bill No 252 of 2015 in its objects and reasons say : ( Extract Only)
“2. The Act was enacted to provide for speedy disposal of cases relating to arbitration with least court intervention. With the passage of time, some difficulties in the applicability of the Act have been noticed. Interpretation of the provisions of the Act by courts in some cases have resulted in delay of disposal of arbitration proceedings and increase in interference of courts in arbitration matters, which tend to defeat the object of the Act. With a view to overcome the difficulties, the matter was referred to the Law Commission of India, which examined the issue in detail and submitted its 176th Report. On the basis of the said report, the Arbitration and Conciliation (Amendment) Bill, 2003 was introduced in the Rajya Sabha on 22nd December, 2003. The said Bill was referred to the Department-related Parliamentary Standing Committee on Personnel, Public Grievances, Law and Justice for examination and Report. The said Committee, submitted its Report to the Parliament on 4th August, 2005, wherein the Committee recommended that since many provisions of the said Bill were contentious, the Bill may be withdrawn and a fresh legislation may be brought after considering its recommendations. Accordingly, the said Bill was withdrawn from the Rajya Sabha.
3. On a reference made again in pursuance of the above, the Law Commission examined and submitted its 246th Report on “Amendments to the Arbitration and Conciliation Act, 1996” in August, 2014 and recommended various amendments in the Act. The proposed amendments to the Act would facilitate and encourage Alternative Dispute Mechanism, especially arbitration, for settlement of disputes in a more user-friendly, cost effective and expeditious disposal of cases since India is committed to improve its legal framework to obviate in disposal of cases.
4. As India has been ranked at 178 out of 189 nations in the world in contract enforcement, it is high time that urgent steps are taken to facilitate quick enforcement of contracts, easy recovery of monetary claims and award of just compensation for damages suffered and reduce the pendency of cases in courts and hasten the process of dispute resolution through arbitration, so as to encourage investment and economic activity.
5. As Parliament was not in session and immediate steps were required to be taken to make necessary amendments to the Arbitration and Conciliation Act, 1996 to attract foreign investment by projecting India as an investor friendly country having a sound legal framework, the President was pleased to promulgate the Arbitration and Conciliation (Amendment) Ordinance, 2015”
So the main reasons of 2015 amendment were three fold
a. Interference of courts and long drawn out process defeating its main object.
b. Law commission Report suggest that Alternative Dispute Redressal System must be introduced;
c. Speedy recovery in Commercial Disputes would attract more foreign investment in India.
Thereafter High Level Committee ( the said HLC) was set up under Chairmanship of Justice B.N.Srikrishna to review Institutional Arbitration, who submitted its report on 30th July,2017 .
As far as Institutional Arbitration is concerned its observed by the said HLC , “Despite the existence of numerous arbitral institutions in India, parties in India prefer ad hoc arbitration and regularly approach courts to appoint arbitral tribunals under the relevant provisions of the ACA. A 2013 survey 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 arbitration. 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 arbitrations to which states or state-owned enterprises were a party were institutional arbitrations.
9.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 disputes. Dispute resolution in this sector consists mostly of ad hoc arbitration.”
On a question ‘ Is ad hoc arbitration necessarily better than institutional arbitration, particularly in the Indian context?’
The said HLC observed that, Parties and arbitrators should be incentivised to resolve disputes efficiently and follow guidelines when conducting arbitrations. Institutional arbitration where the progress of the arbitration is monitored by the arbitral institution assumes importance in this context.
Reasons behind parties’ choice of ad hoc arbitration the said HLC observed that:
Why is it that parties do not opt for institutional arbitration despite the long delays and higher costs that often accompany ad hoc arbitrations? Literature on this issue points to the following factors: (a) lack of credible arbitral institutions; (b) misconceptions relating to institutional arbitration; (c) lack of governmental support for institutional arbitration; (d) lack of legislative support for institutional arbitration; and (e) judicial attitudes towards arbitration in general.
Suggestions to improve the performance of Indian arbitral institutions
(a) Better facilities, infrastructure and expertise in institutions
The responses revealed that there should be a minimum standard according to which arbitral institutions function. Further, respondents expressed the need for institutions to perform better, with an emphasis on ensuring professionalism of staff and proper administration of the arbitral process. In this regard, suggestions were made for appointment of an independent board for each institution, with at least one member who had experience working with a reputed international arbitral institution.
(b) Panels of arbitrators
Respondents felt that the lists of arbitrators of almost all existing institutions require a relook.
The criteria for inclusion of arbitrators on panels must be made more stringent. Responses emphasised the need for transparency in the appointment of empanelled arbitrators to arbitral tribunals. Empanelment of arbitrators must be based on domain knowledge and expertise in a particular trade / industry. There should also be an emphasis on including non-lawyers with technical knowledge in various sectors rather than including only retired judges and lawyers.
(c) Role of the government
A number of responses suggested that the Government must give a big push to institutional arbitration by requiring disputes arising out of government contracts to be resolved by arbitration administered by an arbitral institution.
The Committee has identified the following areas for suggesting reform measures:
• Establishment of a body for grading arbitral institutions
● Accreditation of arbitrators
● Creation of a specialist arbitration bar
● Creation of a specialist arbitration bench
● Amendments to the ACA
● Other legislative / non-legislative measures that can promote arbitration practice in India
● Enhancing the role of the government and the legislature in promoting institutional arbitration
● Changes in ADR culture
For Alternative Dispute Redressal the said HLC recommended as under:
1. The DEA may be appointed as the Designated Representative of the Government in existing BITs by annexing an Additional Protocol to such BITs / issuing a unilateral interpretative statement which clearly mentions that the DEA is the authority for the receipt of notices and other documents under such BITs.
2. The Government may create the post of an International Law Adviser (“ILA”) who shall advise the Government and coordinate dispute resolution strategy for the Government in disputes arising out of its international law obligations , particularly disputes arising out of BITs. The ILA may be appointed / designated by the Government in consultation with the Attorney General for India. The ILA should have the rank of an Additional Solicitor General and should possess substantial knowledge and expertise in international law. The ILA may be assisted by a team of lawyers with knowledge and expertise in international law and investment law.
3. The ILA may maintain a panel of Indian and overseas lawyers / law firms with experience in investment treaty arbitrations who may be engaged to represent the Government in BIT arbitrations. Counsel may be engaged on the basis of their expertise and experience in handling investment treaty disputes and their reputation / standing, rather than on the basis of a low fee quote. The ILA may be consulted by the DEA at the time of negotiating and entering into BITs.
6. A 5-member permanent Inter-Ministerial Committee (“IMC”) may be set up in order to ensure effective management of disputes arising out of BITs entered into by the Government. The IMC may consist of 1 member each from Ministries of Finance, External Affairs, and Law and Justice, not below the rank of Joint Secretary or equivalent. The ILA shall be the member-secretary of the IMC.A representative of the concerned ministry / department / state government ministry or department whose action / decision is challenged by the investor, not below the rank of Joint Secretary (in case of Central Government ministries / departments) or Principal Secretary (in case of state government ministries / departments) or their respective equivalent, may be the fifth member of the IMC.
7. Once a notice of claim is received under a BIT, the DEA shall communicate the receipt of such notice to the ILA as well as the concerned ministry / department / state government ministry or department that has triggered the dispute.
8. Upon receipt of the notice, the ILA shall promptly convene a meeting(s) of the IMC to formulate the strategy to be adopted in defending the Government, appoint its counsel and make preparations for the defence. The IMC may be responsible for ensuring that adequate funds are available to the ILA to coordinate the defence and appoint lawyers. The ILA shall be responsible for day-to-day management of the dispute and may coordinate with the IMC to take decisions.
9. The Government should look at building in-house expertise in investment law and investment treaty arbitrations by hiring consultants or lawyers who have prior work experience and knowledge about the subject in an advisory role, without limiting it to bureaucrats who might not have the requisite capacity to handle such complex issues.
10. The Government may consider creating a separate fund under the control of the Ministry of Finance for defending investment treaty claims and making any payments required under an investment treaty award made against the Union of India. Allocations may be made in the Union Budget to this fund. While the fund may initially bear the costs of arbitration proceedings and amounts awarded to the claimant, it may later be allocated to the ministry / department that has triggered the investment dispute.
11. While negotiating future BITs, the Government may consider alternatives to investor state arbitration such as state-state arbitration, mediation as a precursor to BIT arbitration etc. The incorporation of appellate mechanisms for dispute resolution in BITs may also be considered.
12. In order to prevent disputes under BITs from arising, the DEA may be made responsible for: (a) liaising with foreign investors to identify areas where disputes may arise and attempt to resolve problems; (b) engaging with state governments and various branches of the Government to examine the possible BIT implications of policy decisions; and (c) providing information and training to government officials to foster greater understanding of how policy decisions can affect India’s investment treaty commitments.
Then came Commercial Court Ordinance dated 3rd May,2018 setting up Commercial Courts in India. Now the Bill is pending in Parliament
Highlights of the Bill as per official government website:
• The Commercial Courts Act, 2015 provides for commercial courts and commercial divisions of high courts to adjudicate commercial disputes with a value of at least one crore rupees. The Bill reduces this limit to three lakh rupees.
• The Bill allows state governments to establish commercial courts at the district level, even in territories where high courts have ordinary original civil jurisdiction.
• In areas where high courts do not have original jurisdiction, state governments may set up commercial appellate courts at the district level to consider appeals from commercial courts below the level of a district judge.
Key Issues and Analysis
• The Bill reduces the pecuniary jurisdiction of commercial courts from one crore rupees to three lakh rupees. It may be argued that the transfer of all commercial disputes above three lakh rupees may overburden the commercial courts and defeat the objective with which they were established.
My Notes and Suggestions:
By said HLC clearly divides two sets of Arbitration. “Ad-Hoc and Sophisticated Institutional Arbitration.” The wordings are very clear that ad hoc arbitration is vulnerable to the risk of dilatory tactics, which increases 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 arbitral proceedings, institutional arbitration is decidedly preferable. Of course every professional whatever work he does has to be very particular and professionally updated and sound. By recommending strict parameters the said HLC nowhere recommended bar on membership in any Arbitration Institution. Under the garb of maintaining standard the Arbitration Centers are set up with concentration of Specialised Lawyer where admission to others are not permitted. It has also recommended government support to ADR/Mediation/Arbitration Centers. If a person is not given an opportunity at all how he is going to prove himself?
There seems to be apparent divide in the lawyers ad-hoc and sophisticated. It is not correct to judge professional acumen from sophistication when in daily life we see even junior lawyer sometimes get best orders. This may lead to constitution of collegium or sort of monopoly. Yes agreed that those who are ahead of knowledge and privileges must be given their status but it cannot totally exclude of rest of professional brothers who are otherwise qualified to handle the matters. These Centers are NGOs enjoying various Tax benefits under the various laws.
To correct the lacuna I suggest there should be two tired Arbitration and Mediation Centers.
(1) International Arbitration Center :
(2) National Arbitration Center:
• In International Arbitration Center alongwith Senior level Arbitrator one junior and a trainee arbitrator must be mandatory. The fee structure and his rights and duties may be specified by government Rules and not by Center.
• The same shall be applied to International Mediation.
• Membership Fee structure also to be regulated by Government
• In case of National Arbitration and Mediation Centers it shall be divided in to three structures
• In this three structure qualifications may be laid down for membership on Panel of Mediation and Arbitration by Government itself.
• It is observed that many Senior professionals are either in Committee or on Panel of such Arbitration Centers. There should be limit to such membership.
• If a lawyer/professional has under gone training in any institution an obligation must be cast upon such institution to involve the trainee as per seniority. A guidelines and Rules must be framed by Government.
• In default of such compulsions all the privileges enjoyed by Arbitration Center must be scrapped.
• For example there are Rules and Guidelines for Auditors and Chartered Accountants.
If this is not regulated the main purpose of getting more investments may be defeated. These suggestions are based on experience and if any error in understanding may comment accordingly.
The vision of the government to achieve “Make In India” “Stand-Up Start-Up” and to have more FDI investment must not be affected or become redundant for any reason. The same is also revamp at the recommendation of World Bank for “Ease of Doing Business”. Present Act sufficiently safeguards the Cost and time even in ad-hoc arbitration.
— ADV SHRUTI DESAI 🇮🇳 (@aakuraj) April 10, 2017