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Mechanism of Arbitration

Arbitration is gaining importance in India as the court system is overwhelmed with enormous pending litigation. Many commercial disputes require an appropriate arbitration mechanism to resolve issues more quickly. Arbitration is described as a proceeding in which a dispute between two or more persons regarding their mutual legal rights and obligations is brought up by submission and judicial decision with irrevocable effect by the application of the law through judicial arbitration and not through the Court of Law, the arbitration will settle or resolve the dispute, outside the traditional legal system.

Arbitration in India- Mechanism

Arbitration in India is governed or regulated by the Arbitration and Conciliation Act, 1996. In 2015, Arbitration and Conciliation (Amendment) Act was enacted to regulate and enhance arbitration in India.

The 2015 amendments aimed to ensure swift contract enforcement, easy collection of pecuniary claims, reduce the processing of cases in court and expedite the dispute settlement process through arbitration to encourage foreign investment by projecting India as an investor-friendly country that has a strong legal framework and easy doing business in India.

However, arbitration is not yet a preferred means of dispute resolution in India.

Types of arbitration in India

In India, there are two types of arbitration: Ad-hoc arbitration and Institutional arbitration.

  • Ad hoc arbitration

Ad hoc arbitration can be defined as a procedure of arbitration in which the tribunal conducts arbitration between the parties in accordance with the rules agreed by the parties in advance, or with the rules established by the tribunal, in case there is an absence of the agreement between the parties.

  • Institutional arbitration

Institutional arbitration means the conduct of arbitration by an institution in accordance with its rules of procedure. The institution provides arbitrator appointment, case handling services including arbitration monitoring, places for hearings, etc.

There are currently more than 35 arbitral institutions in India, which include national and international arbitral institutions, arbitration facilities by PSUs, trade and business associations, and chambers of commerce in specific cities. Many of them have their own rules, and some follow the UNCITRAL arbitration rules.

The Challenges of Institutional Arbitration in India

Following are the challenges facing institutional arbitration in India.

  • Issues relating to the administration and the management of arbitration institutions.
  • Perceptions of arbitrators and expertise regarding government resources and support, lack of primary capital, poor and inadequate infrastructure, lack of well-trained administrative staff, lack of qualified arbitrators, etc.
  • The problems in developing India as the seat of international arbitration.

To address the challenges and shortcomings of institutional arbitration, a High-Level Committee (HLC) was formed in 2016 to review the institutionalization of Arbitration Mechanism in India under the direction of Judge B.N. Srikrishna. The committee presented its report on August 3, 2017.

Recommendation of the committee regarding Institutional Arbitration Landscape In India
  • Establish an autonomous body called the Arbitration Promotion Council of India (APCI) with representatives of all stakeholders to evaluate arbitral institutions in India.
  • The APCI can recognize the following:
  1. The professional institutes that facilitate the accreditation of arbitrators.
  2. A conduct training workshops and interact with law firms and law schools to train attorneys interested in arbitration.
  3. Establish a specialist arbitration bar, made up of specialized lawyers.
  4. A good arbitration bar can help conduct arbitration proceedings quickly and efficiently.
  • The creation of a specialist Arbitration Bench to settle such commercial disputes in the domain of the courts.
  • The proposed changes in various provisions of the 2015 amendments to the Arbitration and Conciliation Act to speed up and make arbitration procedures more effective and incorporate international best practices (immunity to arbitrators, the confidentiality of the arbitral proceedings, etc.).
  • The Central Government and various other State Governments can stipulate arbitration clauses or agreements in government contracts that only arbitrators accredited by recognized professional institutions can be appointed as arbitrators under such arbitration clauses or agreements.

These reforms are aimed at making India an international arbitration centre and a strong ADR centre for domestic and international arbitration that meets international standards. In addition, by reducing the burden of the Judicial system i.e. Court, the arbitration mechanism can ensure that everyone reaches justice in the shortest possible time span.

By Priyasha Sen Gupta