THE EVOLUTION OF ARBITRATION PRACTICES

This article is written by Mannat Kapoor of 2^nd Semester of Asian Law College, Noida, an intern under Legal Vidhiya

ABSTRACT

Through the appointment of an unbiased arbiter who will issue a legally enforceable ruling, parties can settle disputes outside of the conventional court system through arbitration, a type of alternative dispute resolution. Arbitration procedures have a long history in India, having undergone substantial changes due to historical reforms and new laws. A significant turning point was the Indian Arbitration Act of 1996, which brought domestic laws into compliance with global norms and promoted the establishment of institutional arbitration hubs like the Mumbai Centre for International Arbitration and the Delhi International Arbitration Centre.

The judiciary’s endorsement of arbitration has grown stronger over time, reducing intervention by the courts and improving the enforceability of arbitral rulings. Accelerated by the COVID-19 epidemic, technological developments have brought arbitration processes up to date, allowing for digital evidence submission, virtual hearings, and electronic files. But there are also issues, such as lengthy court cases, exorbitant fees, and difficulties enforcing judgments—especially when it comes to matters of public policy.

Sufficient institutional capacity, court intervention boundaries, arbitrator expertise, and other reforms must be pursued in order to meet these issues. It’s also critical to promote linguistic and cultural diversity among arbitrators and raise public knowledge of the advantages of arbitration. In spite of these challenges, arbitration has developed into a workable process in India for settling complicated commercial disputes, and it is in a position to improve both locally and globally in terms of accessibility and efficiency.

KEYWORDS

Arbitration, Arbitration Practices, Arbitral rulings, Arbitral, Commercial Disputes

INTRODUCTION

• Let’s first understand what arbitration is?

A form of Alternative Dispute Resolution called arbitration allows the parties to resolve their differences out of court. The parties select an arbitrator—an unbiased third party—to hear their case and render a verdict. Though it happens out of court, the conference is structured much like a hearing, with both sides presenting testimony and supporting documentation. Arbitrator decisions are nearly always final and rarely subject to court reconsideration because arbitration has been established as a mechanism to relieve the backlog of cases on court calendars.

• History of arbitration

ARBITRATION IN PRE-BRITISH ERA:- There were several popular courts in ancient India that coexisted alongside the official official courts. The village elders resolved disagreements about the property’s boundaries. Brihadaranyaka Upanishad was one of the first treaties to address arbitration under Hindu law. The early arbitration courts in India were all of these three bodies, according to Sage Yajnavalkya. These bodies included the “Puga,” or local courts, the “Srenis,” or people in the same business or profession, and the “Kulas,” or members concerned with the social issues of a particular community. Until the start of British control, these well-liked courts in India remained prosperous.

Only some matters that the popular courts had not resolved and that had been brought as an appeal against their rulings were admitted by the government courts during British rule. The popular courts had no authority to hear criminal proceedings; they could only hear civil cases. In the past, a group of knowledgeable men known as “Panchayat” members—also called “panchas”—resolved a number of conflicts. The parties were obligated to follow their decision.

• PRE-INDEPENDENCE ERA:- The Indian Arbitration Act, 1899, which was based on the English Arbitration Act of 1889, controlled arbitration principally in India before to independence. A legislative framework for the upholding of arbitration agreements and the management of arbitral procedures was established by this Act. It was deemed less thorough than planned and had certain restrictions.
• POST-INDEPENDENCE ERA:- Following its independence in 1947, India started a process of legal reforms, which included creating a contemporary arbitration system. The former laws were superseded by the Indian Arbitration Act of 1940. Although it brought about a number of reforms, it remained limited in some ways, including the absence of any provisions on international arbitration.
• The Arbitration and Conciliation Act of 1996 was a turning point in the history of arbitration in India. The UNCITRAL Model Law on International Commercial Arbitration served as the foundation for this Act, which sought to establish a thorough legal framework for both local and foreign arbitration.[1]

SECTIONS OF INDIAN ARBITRATION ACT

(few important ones are):-

SECTION 2 DEFINITION: This section defines terminology that are used often in the Act, including “arbitration agreement,” “arbitral award,” and “arbitrator.” It makes the Act’s reach and applicability more clear.

SECTION 7 ARBITRATION AGREEMENT: The criteria for a legally binding arbitration agreement are listed in Section 7. It highlights the significance of a formal contract and the requirement for both parties’ permission.

SECTION 11 APPOINTMENT OF ABRITRATORS: Arbitrator appointments are covered in this section. It offers instructions on how to proceed when parties are unable to reach a consensus over the choice of arbitrators.

SECTION 34  SETTING ASIDE ARIBTAL AWARD: Parties may contest an arbitrator’s decision under Section 34. It lays out the grounds—such as a party’s failure to state its case or proof of fraud—for a court to set aside a judgment.

THE EVOLUTION OF ARBITRATION PRACTICES OVER TIME:-

JUDICIAL APPROACH AND PRO-ARBITRATION STANCE

Since arbitration is a practical method of resolving disputes, Indian courts have gradually taken a pro-arbitration position. Parties choose arbitration over traditional litigation with confidence because judicial decisions have highlighted the narrow extent of judicial interference in arbitral proceedings. The Arbitration Act has been interpreted and clarified by the Supreme Court of India in a way that has improved the enforceability of awards and streamlined arbitration procedures.

GROWTH OF INSTITUTIONAL ARBITRATION

A growing number of Indian organizations, including the Delhi International Arbitration Centre (DIAC), the Mumbai Centre for International Arbitration (MCIA), and the Indian Council of Arbitration (ICA), support institutional arbitration by offering facilities, rules, and administrative support. Through the provision of industry-specific standards and increased reputation as the go-to option for settling business disputes, these organizations have helped to standardize arbitration methods.

SPECIALIZED ARBITRATION TRIBUNALS

India has set up specialized arbitral courts to meet the unique requirements of particular sectors. The Construction Industry Arbitration Council (CIAC), for example, handles conflicts in the infrastructure and construction industries. These tribunals provide experience and specialized knowledge, which makes it easier to resolve conflicts resulting from intricate projects in an effective manner.

MODERNIZATION

With the advent of electronic filing, virtual hearings, and electronic evidence submission, technology has completely changed arbitration procedures in India. The adoption of digital tools by arbitral institutions and practitioners for remote case management and hearings was expedited by the COVID-19 epidemic. Technology has been integrated into arbitration procedures in a way that has increased efficiency, improved accessibility, and decreased costs.

ADR AND SKILL DEVELOPMENT

The legal reforms agenda of the Indian government includes aggressive promotion of arbitration and other types of alternative dispute resolution (ADR). The goal of initiatives like the National Initiative on ADR and arbitrator training programs is to increase the competence, professionalism, and capacity of arbitrators to handle complicated business disputes.

Ssangyong Engineering and Construction Co. Ltd. v. NHAI[2]

-issue: Under Section 34 of the Arbitration and Conciliation Act, 1996, the Supreme Court   addressed the grounds for contesting an arbitral ruling, with a particular emphasis on public policy issues.

-impact: This judgment clarified the high bar needed to set aside awards and reaffirmed the narrow scope within which courts can intervene on behalf of public policy in relation to arbitral awards.

Hindustan Construction Company Ltd. v. Union of India & Ors.[3]

-issue: Pursuant to Section 34 of the Arbitration and Conciliation Act, 1996, the Supreme Court heard arguments about the enforcement of arbitral awards against the state and other public entities.

-impact: This case promoted openness and accountability in arbitration processes involving public institutions by providing clarification on rules pertaining to the execution of arbitral awards against governmental authorities.

FEW OBSTACLES AND SOLUTION IN THE WAY OF ARBITRATION PRACTICES:-

1. Judicial Delays and Court Interference

• Issue: Courts’ propensity to overintervene in arbitration processes is one of the major obstacles. The efficacy of choosing arbitration is negated by the frequent delays that result from this.
• Impact: Procedural disputes could lead to protracted litigation between the parties, negating the benefit of selecting arbitration given its efficiency and quickness.
• Solution: Restrict judicial intervention in arbitration processes by enacting new laws. Programs for judicial education and awareness can help courts take a pro-arbitration position. To avoid unnecessary delays, impose stringent deadlines for the court review of arbitral rulings.

2. Enforcement of Awards

• Issue: Despite the progress made in India, obstacles still exist when awards are appealed on     the basis of public policy.
• Impact:  Arbitration may be avoided by parties due to concerns regarding enforcement, especially in international cases where cross-border enforceability is essential.
• Solution: Through court precedents or legislative changes, define and restrict the parameters of “public policy” as a basis for contesting arbitral verdicts. Assure uniformity in the way judges interpret public policy. Encourage India to sign international conventions that recognize and uphold arbitral rulings.

3. Costs and Time

• Issue: The cost of arbitration in India can be high, particularly when there are administrative, legal, and arbitrator fees involved.
• Impact: Exorbitant fees may dissuade parties from using arbitration as a means of resolving disputes, particularly smaller companies and individuals.
• Solution: Encourage institutional arbitration to save expenses and streamline processes. Promote the adoption of affordable procedures for minor claims, such as accelerated arbitration. Provide fee schedules that are clear and commensurate with the amount at stake in the dispute. Reduce the overall cost of dispute resolution by offering incentives for early settlement through mediation.

4. Lack of Specialized Arbitrators

• Issue: There is a dearth of skilled arbitrators in some industries, including technology, IP, and intricate business dealings.
• Impact: This may cause a delay in the selection of arbitrators possessing the requisite knowledge, so compromising the effectiveness and caliber of arbitration procedures.
• Solution: Make specialist panels or lists of arbitrators specifically for fields such as technology, IP, and intricate business deals. To improve the expertise of arbitrators, provide incentives for training programs and ongoing education. Suggest arbitration to top experts and retired judges.

5. Overburdened Arbitral Institutions

• Issue: Despite their increasing numbers, India’s arbitral institutions may have trouble effectively handling their caseloads.
• Impact: The efficiency of arbitration as a prompt conflict resolution method may be harmed by delays in case management and arbitrator appointment.
• Solution: bolster arbitral institutions’ capabilities and infrastructure to effectively manage growing caseloads. Use technology-driven approaches to arbitrator appointments and case management. Promote collaboration throughout establishments to efficiently handle caseloads.

6. Public Policy Challenges

• Issue: Interpreting “public policy” as a basis for contesting arbitral awards can be arbitrary and result in uneven rulings from the courts.
•  Impact: In instances involving sensitive industries or public institutions, in particular, this uncertainty may have an impact on the finality and enforcement of arbitral rulings.
• Solution: Establish precise standards and precedents about the definition of a public policy breach. Raise judges’ and arbitrators’ understanding of how public policy challenges affect arbitral rulings. Promote uniformity in court rulings by means of instruction and communication between the judiciary and the arbitration community.

7. Perception and Awareness

• Issue: The notion among stakeholders that litigation yields more predictable outcomes than arbitration may persist notwithstanding legal revisions.
• Impact: Especially among investors and businesses, this may impede arbitration’s ascent as a favored method of resolving disputes.
• Solution: Start educating people about arbitration’s advantages, which include its speed, flexibility, and confidentiality. Highlight the achievements of arbitration in settling complicated conflicts. Encourage investors and companies to include arbitration clauses in their contracts by offering incentives.

8. Technological Integration

• Issue: Although there has been progress, electronic files and virtual hearings are just two examples of how technology is still being fully integrated into arbitration proceedings.
• Impact: Inadequate technology infrastructure can make arbitration less accessible and efficient, particularly in instances involving distant parties or multinational parties.
• Solution: Promote the use of electronic files, online case management tools, and virtual hearings in arbitration processes. Educate and assist stakeholders and arbitrators in making efficient use of technology. Make an investment in modernizing the technology infrastructure needed for online and global arbitration.

9. Complexity of Multi-Party and Multi-Contract Disputes

• Issue: Resolving multi-party and multi-contract conflicts through arbitration can be difficult and necessitate cooperation between several parties and agreements.
•  Impact: When resolving complicated conflicts, unclear procedural norms and coordinating systems can cause delays and raise expenses.
• Solution: Provide precise procedural norms and instructions for arbitrating conflicts involving multiple parties and contracts. In order to clarify duties and obligations between parties and arbitrators, encourage early case management conferences. Encourage the application of case management strategies to expedite processes.

10. Cultural and Linguistic Diversity

• Issue: Assuring good communication and understanding between parties and arbitrators is made more difficult by India’s cultural and linguistic diversity.
•  Impact: In cross-cultural or international arbitrations, these difficulties may have an adverse effect on the efficiency and fairness of the arbitration process.
• Solution: Encourage a diverse mix of arbitrators with a range of linguistic and cultural backgrounds for arbitration panels. To promote efficient communication, encourage the use of translators and interpreters when needed. Give arbitrators and other participants in cross-cultural arbitrations cultural sensitivity training.

CONCLUSION

Conclusively, arbitration in India has progressed from its antiquated beginnings as a community-centered dispute-resolution technique to a sophisticated, institutionalized framework acknowledged worldwide. The Indian Arbitration Act of 1899 and historical procedures from local courts predating the British era established the fundamentals for settling disputes. Reforms implemented after independence, most notably the Arbitration and Conciliation Act of 1996, brought India’s arbitration system into compliance with global norms and enhanced the impartiality, effectiveness, and enforcement of arbitral rulings.

The Delhi International Arbitration Centre and Mumbai Centre for International Arbitration are two examples of institutional arbitration centers that have grown in size, as has the Construction Industry Arbitration Council, specialized tribunals. Standardizing arbitration proceedings and bolstering legitimacy, these institutions offer buildings, administrative support, and norms.

Technology has further changed arbitration procedures; the COVID-19 epidemic has hastened the adoption of electronic filing, virtual hearings, and digital evidence submission. Arbitration is now a feasible option for settling complicated business conflicts because of these advancements in accessibility, efficiency, and cost. Still, difficulties are present. Significant challenges still include judicial backlogs, excessive meddling in arbitration cases, and reservations about the enforceability of verdicts due to public policy considerations. Widespread adoption is further discouraged by the high expenses of arbitration, especially for individuals and smaller firms.

Sustained reforms are necessary to address these issues. This involves sharpening the boundaries of judicial intervention, expediting enforcement processes, and encouraging judicial education on arbitration. Important measures also include expanding the pool of qualified arbitrators, refurbishing arbitral institutions’ infrastructure, and encouraging linguistic and cultural diversity among arbitrators.

To sum up, arbitration has come a long way in India, but more work needs to be done to make it the most efficient, convenient, and appealing way to resolve disputes both locally and internationally.

REFERENCES

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10. Law.com International. (n.d.). 6 Ways to Overcome the Challenges Facing International Arbitration. [online] Available at: https://www.law.com/international-edition/2023/02/13/6-ways-to-overcome-the-challenges-facing-international-arbitration/?slreturn=20240612074608 [Accessed 12 Jul. 2024].

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[1] UNCITRAL stands for the United Nations Commission on International Trade Law. It’s a UN body that works to harmonize and unify international trade laws to facilitate global commerce and resolve disputes.

[2] Ssangyong Engineering and Construction Co. Ltd. v. NHAI (2019) SCC OnLine SC 677.

[3] Construction Company Ltd. v. Union of India & Ors., 2020. SCC OnLine SC 1522.

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