The Future of Arbitration in India

What is arbitration?

Arbitration is a form of Alternative Dispute Resolution mechanism, which has been in existence since the 1980s. Based on the 1985 UNCITRAL, the Arbitration and Conciliation Act, 1996 governs arbitration in India. It aims to modernize the arbitration law in India and bring it to par with international practices. In other words, it is a legal process to resolve disputes privately without going to court formally. According to the Law Commission of India, 222nd Report, the Constitution guarantees equal access to justice for all citizens through Article 39A. It states that everyone must have an equal opportunity to obtain justice, which must not be denied to any citizen due to economic or other types of disabilities.

Arbitration has attained great significance in India in recent times. There is an inclination towards arbitration due to its character as the best alternative disputes resolution process. In the initial stages of its existence, the progress for arbitration was very slow-going. Individuals were oblivious of the advantages it offers over the formal litigation process. There has been massive development in arbitration, from The Arbitration and Conciliation Act, 1996, to the latest amendment act in 2021. There are various prospects to look into the future of arbitration in India.

The Arbitration Council of India

Several provisions are added and amended to keep the national law at par with international transcendence. It is a determining factor for the future of arbitration in India. With the Arbitration and Conciliation (Amendment) Act, 2019, the Arbitration Council of India was established. It takes measures that are important to promote and encourage arbitration, mediation, conciliation, or other alternative dispute resolution mechanisms and, for that motive, frame policy and guidelines for establishing, operating, and maintaining unvarying professional standards concerning all the matters relating to arbitration.

As per the 2019 amendment, the High Courts and the Supreme Court can designate the arbitral tribunals. The Arbitration Council of India will grade these tribunals.

Moreover, the basis of grading such tribunals will be infrastructure, quality, and potential of arbitrators, performance. Working following time limits for disposal of domestic or international commercial arbitrations as specified by the regulations. The arbitral tribunals decide on matters like qualification requirements for the appointment of an arbitrator and describe several other rules related to arbitrators.

The establishment of the Arbitration Council of India expands the scope of commercial disputes. Resolving disputes largely via arbitration and projecting India as a hub to resolve even international disputes. The Council even strengthens the institutional identity of arbitration in India. This institutional identity had been lagging as companies opted for ad-hoc mode.

Judgements of Courts

The timely legislation and amendments prove India’s efforts to strengthen alternative dispute resolution mechanisms like arbitration, both domestically and internationally. India’s vision to develop such mechanisms tends to be clear with judgments like the Supreme Court in Bar Council of India vs. A. K. Baja & Ors. It was held that foreign lawyers could not practice in the Indian court. But there is nothing that can prevent foreign lawyers from conducting arbitration proceedings in India. This is appraised as a progressive step to enlarge the reach of domestic arbitration. This judgment not only strengthens the Indian arbitration but also makes the enforcement of arbitral awards easy.

The amendment to Section 34 is the most important change to the Act of 2021. It is regarding the automatic stay of awards made under the Principal Act. Under the current system, a party can apply to the Court to hold an arbitral judgment under Section 34. In Prakash Industries Limited v. Bengal Energy Limited and Ors., the court was asked to determine the scope of a modification to an arbitration application submitted under Section 34 of the Arbitration Act. The court held that what needs to be determined is whether the grounds sought to be added through an amendment are necessarily new and independent grounds that did not have a foundation in the original Section 34 application; this means that each case must be decided on the nature of the amendments.

The Delhi High Court in Mohini Electricals ltd v. Delhi Jal Board stated that an arbitrator has no statutory right to direct the stamp duty to be paid in a specific period of time. Thus explicating, there isn’t an obligation to pay the stamp duty when pronouncing or signing the award.

Third-party funding of arbitration

The funding of legal proceedings is fairly pricy for a company and negatively influences its cash flow, financial image, and market value. Further, the funding of legal proceedings permits companies to leverage their scarce resources for fecund usage. The third-party funding of arbitration comes without any cost of capital and therefore improves the company’s operating profit.

Currently, there is no existing legislation to deal with third-party funding. However, the Supreme Court made a clear comment about the legitimacy of third-party funding in arbitration. It stated- “there appears to be no restriction on third parties (non-lawyers) funding the litigation and getting repaid after the outcome of the litigation.”

In 2017 the B N Srikrishna Committee Report was constituted to Review the Institutionalisation of Arbitration Mechanism in India. It recommended third-party funding for arbitration in India positively. In addition, India should take some inspiration from countries like Singapore, which recently passed amendments to its Civil Law Act legalizing third-party funding for arbitration.

Third-party funding would be a great deal for the future of arbitration in India.

Technology-driven Arbitration

Given the current situation of COVID-19, technology-driven and virtual platforms have become all the more important. That is to say, virtual hearings and negotiations are no more new-fashioned phenomena. Further, the speedy process, better documentation, cost-effectiveness, remote dealings, and negotiations between parties are many perks that technology propound. No wonder technology has become part of our everyday lives, and its use in legal proceedings would only embrace the future of arbitration in India. Even international disputes resolution processes turn out to be more accessible with the use of technology. That is to say; technology will strengthen the future of arbitration.

The provision of Emergency Arbitration

The emergency arbitration provision in the form of urgent interim relief is an imminent notion in arbitration. It certainly augments the future of arbitration in India. Meanwhile, the Supreme Court of India’s verdict between Amazon and the Future Group has established the basis for emergency awards to be recognized and enforced under the Indian arbitration law. This provision seeks to encourage parties to seek dire relief from an arbitral institution rather than a court. Many of the world’s most prominent arbitral tribunals like SIAC, ICC, and LCIA include provisions for the appointment of an emergency arbitrator.

In India, the 246th Law Commission Report recommended that the Arbitration and Conciliation Act, 1996 be amended to give statutory recognition to an emergency award. However, certain indigenous arbitral institutions, such as the Delhi International Arbitration Centre, already incorporate emergency arbitration procedures.

The Supreme Court of India also held that the Indian Arbitration Act doesn’t impede parties from consenting to an emergency arbitrator setting. Moreover, the Supreme Court determined that the phrase “during the arbitral procedures” is broad enough to include emergency arbitration proceedings. The emergency award was the resolution to be an interim order under section 17(1) of the Indian Arbitration Act and subsequently legitimized under section 17 of the Indian Arbitration and Conciliation Act.

The challenges to arbitration

With several best attempts to increase the growth of arbitration in India, some challenges still come along. These challenges deter people from choosing arbitration for resolving their disputes. These challenges, for instance, comprise:

~lack of awareness about the arbitration procedures among the masses

~no strict rules regarding arbitral awards

~no time limit set for completing the arbitration proceedings

~the appointment of arbitrators is a tiring process

Conclusion

The future of arbitration in India has a long way to go. Certainly, India has the immense caliber to emerge as a domestic and international arbitration hub. Disregarding a few ambiguous provisions and strengthening the ADR mechanism is the need of the hour. There is a huge impact of arbitration on international relations and business that cannot be overlooked. Above all, it is imperative to rectify the flaws and make arbitration a preferable process.