This article has been written by Ansruta Debnath, 3rd Year law student at National Law University Odisha.
This article analyses the flaws in the inherently paternalistic attitude of the judiciary towards arbitration proceedings in the country and advocates for concrete statutory backing of institutional arbitration centres while simultaneously reducing the wide-ranging powers that the judiciary possesses with regards to appointments or arbitrators and interim measures. Example has been taken of Singapore to recommend similar procedures that Indian law can mirror so as to streamline the arbitration process in the ultimate interest of speedy and private dispute resolution.
The Singapore International Arbitration Centre (“SIAC”) is one of the premier institutional arbitration centres in the world and can be partly attributed for attracting investment in Singapore and making it a major hub of business and commerce. Singapore adopted the New York Convention, 1958 almost three decades later than India. Yet, it has been able to skyrocket itself to being thehub for international arbitration. On the flip side, India, a growing economy projected to be the third-largest by 2027-28, is still lagging behind in this aspect. When the World Bank last published its Ease of Doing Business ranks, India was acclaimed to have done a great job with a rank of 63 out of 190 countries. While providing financial incentives to invite investment can be a good way to project India as a lucrative centre of commerce, a crucial factor that investors look for is the way disputes, which inevitably crop up, get resolved. To that effect, India is infamous for the enormous burden on its judiciary and has embraced arbitration to resolve commercial disputes. Yet, the profoundly paternalistic attitude of the judiciary towards this alternative means of dispute resolution has created barriers to the efficiency that arbitration aims to achieve.
The structure of the Arbitration and Conciliation Act, 1996 (“the Act”) makes the interference of judiciary mandatory at almost every stage, especially as the majority of the arbitration cases in the country are ad hoc. This is a starkly different from the way things are done in Singapore, wherein judicial intervention is kept at its very minimum when it comes to arbitral proceedings.
At the very first instance, Singapore, through SIAC, functions through institutional arbitrations and operates on minimal curial intervention. On the flip side, for ad hoc arbitration to work, courts have to appoint arbitral tribunals in the first place. Section 11 of the Act gives the high courts the power to appoint arbitrators when parties fail to make the appointment or mutually decide on an arbitrator. In contrast, in Singapore, the appointment of arbitrators for international arbitrations, as under the International Arbitration Act, 1994 (“IAA”), on failure of consensus between the parties, is done by the President of SIAC.
Problems magnify when the arbitration agreement calls for a sole arbitrator- parties seldom agree on an arbitrator and the courts have to intervene. Section 12 of the Act allows for challenging the appointment of arbitrators on limited grounds i.e., lack of qualification or independence. However, regardless of whether these grounds exist, a petition to that effect will most definitely be filed. Thus, in India, courts are involved from the very first step.
In most cases however, courts get involved even before the arbitration proceeding starts. There is almost little to no faith in the proceedings, no matter how many posters and advocacy drives the courts and the government invests in, India seems to have a problem of litigation mania. Section 9 gives the power to courts to give interim measures. Section 12A of the IAA also allows for passing of court-ordered interim measures when the same is required ex parte or before the tribunal has been constituted. However, SIAC rules also allow for the appointment of emergency arbitrators who generally deal with these situations and recourse to court is hardly ever taken.
India is foreign to the concept of emergency arbitrators and thus, the moment parties get a whiff of an impending arbitration, they immediately approach the courts for interim measures under Section 9. While high courts have consistently tried to reroute these pending applications to arbitral tribunals under Section 17, the very act of filing these applications leads to multiple hearings, and eventually becomes an expensive headache even before an alternative is explored.
Then comes the actual process. Most appointments of arbitrators occur of retired justices who end up employing proper legal procedure out of pure habit. The lack of fresh and trained blood in the arbitration game has further clogged up the process to the extent that the entire purpose of arbitration fails. Further, the dearth of trained arbitrators in this regard also piles up the caseload of these retired justices, delaying the process further.
In India, interim measures can also be granted by the arbitral tribunals along with courts. While tribunals in Singapore have wide powers to grant interim orders under Section 12 of IAA, the same cannot be challenged in their courts. In India on the other hand, while tribunals can grant interim measures under Section 17, the same can be challenged under Section 37 like any interim order passed by the court under Section 9, thus providing even more avenues to the parties to approach the court.
Finally, comes the stage of execution and appeals. The current bleak state of affairs point to the reality that parties against whom an award is passed, regardless of its merits, will appeal to the courts hoping for a reversal that might never come. Yet again parties are roped into the courts, wasting the valuable resources of all stakeholders involved. While the amendments to the Act have limited the grounds of appeal, parties very easily find ways to fit their appeal under the grounds mentioned and waste the time of the courts. Courts have time and again emphasised on how arbitral awards cannot be re-heard in court based on facts and merits and can be revoked only when the conscience of the court is shocked at its manifest perversity.
While the involvement of courts cannot be eliminated at the stage of execution of appeals as that is the product of natural justice, elimination of courts in the beginning is the need-of-the-hour. Courts should not be allowed to intervene when the arbitration commences nor should they have the power to give interim measures, either in the beginning or during the proceedings. Giving even some power to the courts will pave the way for parties to rampantly misuse it. Learning from Singapore, India needs to invest in and promote institutional arbitration centres.
These centres should receive statutory backing and should have the power to kick-start the arbitration processes completely on their own, with a fair appointment process of arbitrators in place in case of an impasse. They should be given wide powers with respect to passing interim orders such that courts intervene only if parties have an arbitral award in hand. Not only should interim measures by tribunals not be open to challenge in courts, courts themselves should prepare themselves to not pass interim measures unless absolutely necessary and without which there will be a violation of natural justice. This power too can be gradually reduced and transferred to emergency arbitrators when India familiarises itself with that idea and gives it statutory backing. Thus, the Supreme Court verdict, allowing courts to give interim orders even after the constitution of an arbitral tribunal is absolutely misconceived and not justified in light of the prevailing circumstances.
These arbitration centres will thus, solve most of the problems associated with ad hoc bodies. Amendments to that effect should be implemented immediately instead of regressive changes like the recent one to Section 36 wherein unconditional stay could be imposed on arbitral awards if the same was obtained by fraud or corruption, which are in itself undefined terms and sets a dangerous threshold for staying awards. The Mumbai Centre for International Arbitration is on its path to being a forerunner in this regard, but it has a very long way to go. The appointment of trained arbitrators in these institutions should be a goal that has to be simultaneously achieved.
The entire point of arbitration is the speedy resolution of disputes. It will bode well for the legal fraternity to remember the same especially in light of rulings stating that unstamped arbitration agreements are unenforceable. The slow process of advocacy and promotion, which has been attempted for so long does not seem to have made an impact. Instead, it might have delayed the process by adding in a lengthy and expensive process of arbitration sandwiched between multiple and never-ending procedures in courts. Further, the very core of arbitration proceedings, which is privacy, gets completely undermined once courts come into the picture. Interestingly, there is no provision for in camera proceedings in the Indian Arbitration Act.
The judiciary and its caseload are not able to keep up with the fast pace in which investment is being demanded in India. Thus, they have to be removed from the process as much as possible. Eliminating the courts from the initial stages and presenting these institutional arbitration centres as the only available option will throw aspiring litigants in the deep end and force them to take recourse there. The time for gradual change is over as the legislature has to make the judiciary let go of its patronising attitude and take concrete steps to that effect.