The Hindu Business Line : Quo vadis arbitration in India?

Has arbitration kept its `tryst with destiny' as an efficient charter for Alternate Dispute Resolution (ADR) in India? The tenth anniversary of the Arbitration and Conciliation Act, 1996 (the Act) is an apposite occasion to examine this issue.

While arbitration is touted as a modern ADR method, in reality it is not very different from the panchayat system, in vogue in India for centuries. In essence, it is the process by which a neutral third party, not a court, adjudicates and renders a legally binding decision. The 1996 Act was designed primarily to implement the UNCITRAL Model Law on International Commercial Arbitration and create a pro-arbitration legal regime in India. It came not a moment too soon.

Why arbitration

Litigation in India is generally time-consuming and expensive. An estimated backlog of 30 million cases and routine delays of 15 years or more to dispose of a single case have severely undermined public confidence in the rule of law.

In this situation, arbitration affords parties the hope of avoiding the judicial system. There are other reasons to support recourse to arbitration too. For international transactions, arbitration offers the hope of reducing bias and the prospect of parallel lawsuits in different countries. There may also be the expectation (warranted or not) of confidentiality, speed and expertise.

Just as the proof of the pudding lies in the eating, the efficacy of any legislation must be judged by its implementation. Unfortunately, insofar as the 1996 Act is concerned, the reality has been far removed from the ideals professed by the legislation. The current practice is certainly a far cry from that envisaged by the objectives of the Act and the UNCITRAL Model Law.

Internationally, the International Court of Arbitration of the ICC, the LCIA, the WIPO Arbitration Centre and the AAA have set high standards of efficiency, integrity and transparency in resolving disputes by arbitration.

Ground reality

In India, however, the most common form of arbitration is ad hoc arbitration. There are few institutions which can provide arbitration facilities under their Rules. Often, retired judges are appointed as arbitrators who, by virtue of long tenures behind the Bench, have got accustomed to tedious rules pertaining to procedure and evidence. As a result, arbitrations become a battle of pleadings and procedures, with each party trying to stall if it works to their favour. And, there may be a temptation for arbitrators to prolong the arbitration to earn higher "sitting fees". Whispers also abound of arbitrators being vulnerable to `being procured' and those with deep pockets being able to purchase justice. Many arbitrators are not familiar with the practice of arbitration or how to effectively conduct the arbitral process.

Lawyers too, are often not trained in the law and practice of arbitration and there is a tendency among them to prolong arbitrations, seek unnecessary adjournments, sandwich arbitrations between their regular court appearances, etc., all of which add up to a lack of standards in conducting arbitration in India. This has driven parties to opt for arbitration outside the country (adding to the gravitational popularity of London and, increasingly, Singapore as centres of international dispute resolution), or even go back to choosing litigation in Indian courts as a `lesser evil'.

The problems have been exacerbated by judicial intervention. Unnecessary judicial legislation has created uncertainty about the position of the law. The single most remarkable aspect of the experience over the last decade has been the propensity for judicial intervention — while the Act bolted the front door and limited judicial intervention to a few strictly defined instances, courts have found means to break down the back door.

The propensity for needless judicial intervention in arbitration may be because some judges are suspicious of the arbitral process or that they are yet to become comfortable with the idea that their jurisdiction to adjudicate cases is being outsourced to arbitral tribunals. Their readiness to become involved in contentious disputes is exemplified by the decisions of the Supreme Court in Saw Pipes (2003 5 SCC 705) and SBP (2005 8 SCC 618), which threaten key goals of arbitration — speed and efficiency.

Needed, trained arbitrators

It is not enough to simply enact a progressive law on arbitration. It is much like having a brand new stadium, a certified football and a first-rate football field. One also needs well-trained players and referees who know the rules of the game.

The availability of skilled, trained and honest arbitrators as well as well-equipped arbitral institutions is vital for the further success of arbitration in India. If there is an emergent opinion that by choosing arbitration over litigation, parties have substantially diminished their chances of getting good quality of justice, that would obviously bode ill for the future of arbitration. What is needed is inculcation of a culture of arbitration among the key stakeholders — the bar, the Bench, the arbitrators, arbitral institutions and the consumers of arbitration and for them to display a sincere commitment to prevent the `banalisation' of arbitration.

Indian lawyers and judges will do well to be aware of and absorb some of the best arbitration practices from jurisdictions which have a more developed culture of arbitration, if arbitration is to provide the benefits it is capable of delivering. Ten years on, arbitration in India under the 1996 Act is far from having fulfilled its potential and continues to be on probation.

(The author is a Visiting Fellow at the Lauterpacht Research Centre for International Law, University of Cambridge.)

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