“While arbitration is the end of litigation in other countries, it’s the beginning of it in India.”
So sayeth Justice Ramasubramanian of the Madras High Court. Indian businessmen would nod their heads in agreement as arbitration — an alternate form of dispute resolution — is beset with a variety of problems in this country.
“Arbitration in India is plagued with loopholes and problems,” says D. Sengupta, additional director of the Indian Council of Arbitration (ICA), an arm of the Federation of Indian Chambers of Commerce and Industry. “There are problems with the Arbitration and Conciliation Act, 1996, and there are problems with the arbitration culture in India.”
This has prompted Hiroo Advani, one of India’s leading experts on arbitration, to set up the Indian Arbitration Forum (IAF), which proposes to bring the country’s arbitration standards on a par with those of other countries.
Advani hopes that IAF will help improve the practice and generate greater awareness of better ways to arbitrate. “We will also provide advice and recommend people as arbiters,” he says.
Arbitration involves dispute resolution that takes place outside of court. It is often favoured over a regular court case because it’s cheaper and faster. Moreover, the proceedings are confidential. In fact, most businesses include an arbitration clause in their legal documents and contracts, giving them the scope to use arbitration to settle any future problems.
Arbitration works like this. The two parties involved in the dispute select an arbitral tribunal (which plays a role similar to a judge in regular courts) to arbitrate the matter. Both have to agree on the members of the tribunal. “Decisions, called awards, taken by the tribunal are legally binding,” says Kaushik Murali, a Delhi-based corporate law consultant.
Experts say that right now India lacks a proper arbitration “culture”. An Ernst & Young report published in 2011 said most Indian businesses preferred to go abroad to settle arbitration matters, Singapore being a particularly popular destination. It adds that even in India, the preferred arbitration forum by companies is the London Court of International Arbitration of India (LCIA India).
In fact, according to the report, 46 per cent of the companies polled said that arbitration in India was not cost- effective (while only 31 per cent felt it was), and 50 per cent felt it did not result in timely resolution (as opposed to 17 per cent who felt it did).
“Most arbitration done in India is ad hoc rather than institutional arbitration,” explains Ajay Thomas, registrar of LCIA India. “In ad hoc arbitration, parties choose not to go through an institution (such as LCIA) and retain full autonomy in the process, such as choosing the arbitrators and so on. They are subject only to the guidelines set forth in the Arbitration and Conciliation Act, 1996.”
Conversely, institutional arbitration takes place when the two parties go to an institution that specialises in conducting arbitration. These institutes have their own set of guidelines and rules and provide a much more streamlined process.
The main problem with ad hoc arbitration is that both sides have to reach a consensus on every detail regarding the process. Experts say that more often than not, this does not happen. And that is why most arbitration matters in India end up in the courts.
Needless to say, the IAF will advocate institutional arbitration to minimise this problem.
One of the main aims of the IAF is to phase out the use of retired judges and use subject matter experts instead by encouraging the use of engineers, accountants, surveyors, bankers and others as arbitrators. Also in the works are workshops, conferences and training programmes to bring about the required improvement to standards and practices in arbitration.
Says Murali, “Usually, there is a preference for appointing retired judges to arbitration tribunals. Judges are trained to look at every piece of evidence pertaining to a particular case because court cases generally tend to involve a number of different fields. However, while scrutinising data is an admirable trait in a court of law, in arbitration matters it can slow things down. These tend to be of a technical nature, and are better served with an expert looking into the issue and getting to the crux of the matter quickly.”
The Ernst & Young report also bears this out. Sixty-eight per cent of the respondents say they prefer “subject matter professionals” to retired judges or lawyers.
However, experts agree that the main problem with arbitration in India is that the Arbitration and Conciliation Act, 1996, itself is riddled with loopholes.
For example, Section 34 of the act allows losing parties to go to court over an award, under certain conditions. And until and unless the court reaches a decision on the dispute, the tribunal’s award is not dispensed. So, in a way, this totally defeats the purpose of arbitration.
As Advani says, “While the awards are supposed to be legally binding, the law allows the losing party to appeal to the courts to challenge it. First, that’s a long process. Second, until the courts adjudicate on the dispute, the award cannot be dispensed, which ties things up further.”
Sengupta agrees: “The law allows the losing party to appeal against the award handed out by an arbitrator in regular courts. So the speedy resolution expected of arbitration doesn’t happen.”
Arbitration lawyers have, in fact, been pushing for an amendment to the Arbitration and Conciliation Act for years. And the IAF also plans to liaise with the government to bring about changes to the act.
A white paper published by the law ministry, entitled “Consultation Paper on the Proposed Amendments to the Arbitration and Conciliation Act, 1996”, also looked into the problems in the law and suggested recommendations. It said, “Courts have interpreted the provisions of the act in such a way that it defeats the main object of such legislation.” Essentially, the committee felt that it wasn’t a lacuna in the act that causes the problem so much as the fact that it is often too broad in its definitions and clauses, which in turn allows the courts to interpret them in somewhat conflicting ways.
Of course, the IAF cannot do anything to change the law. But it plans to use advocacy to usher in better arbitration practices so that the process becomes smoother and quicker. And that, say experts, is no mean task.