Arbitration in India: The Growing Role of Institutional Dispute Resolution

Arbitration in India: The Rise of Institutional Dispute Resolution

Arbitration reforms in India has become an increasingly common mode of dispute resolution, enjoyed by flexibility, efficiency, and party autonomy. Rapid changes in dispute resolution frameworks have been seen in arbitration in India over the years owing to legislative amendments, judicial interventions, and a growing focus on institutional arbitration. As India targets becoming a global arbitration hub, reforms and best practices in dispute resolution frameworks are transforming the arbitration landscape

During the last decade, India has progressed considerably in dispute resolution framework that has been trying to establish India as a premier arbitration hub worldwide. The Arbitration and Conciliation Act, 1996 ("Arbitration Act"), enacted initially, and amendments thereof in 2015, 2019, and 2021, form a foundation for the modernization of India arbitration reforms. The recently proposed Arbitration and Conciliation (Amendment) Bill, 2024 ("2024 Draft Bill") marks another milestone in India's journey towards promoting institutional arbitration and reducing judicial intervention.

This article delves into the evolution of arbitration in India, the proposed amendments under the 2024 Draft Bill, the differences between ad hoc and institutional arbitration, landmark Supreme Court rulings, and best practices for drafting arbitration clauses.

The Evolution of Arbitration in India

The Arbitration Act, 1996 was the point of inflection in Indian law, which had derived inspiration from the UNCITRAL Model Law on International Commercial Arbitration. But subsequently, issues like excessive judicial intervention, delay, and inefficiency led to much-needed reforms.

1. Amendment in 2015

The 2015 amendments aimed at streamlining arbitration proceedings by providing timelines for completion of the proceedings, curtailing judicial intervention, and admitting the principle of party autonomy.

2. 2019 Amendments

In the 2019 amendments, institutional arbitration was a central point of focus with the proposal for the establishment of the Arbitration Council of India (ACI). It also served to strengthen the mechanics of enforcement of awards and clarified the concept of public policy.

3. 2021 Updates

In 2021, further refinements included provisions to protect the independence and impartiality of arbitrators and introducing guidelines for arbitrator fees.

4. 2024 Draft Bill

Building on these reforms, the 2024 Draft Bill makes radical changes to boost institutional arbitration, increase efficiency, and curtail judicial intervention.

Pivotal Amendments under the 2024 Draft Bill

Facilitating Institutional Arbitration

• Definition of Arbitral Institutions

The draft defines "arbitral institutions" as organisations providing arbitration under their procedural rules. Unlike the 2019 amendments, these institutions no longer require Supreme Court or High Court designation for recognition.

• Improved Powers

Arbitral bodies are being empowered for ordering enlargement of period, subrogation and reduction in fees payable for delay as done in many superior courts from their authority

• Removing Grading

The 2024 Draft Bill does not allow the mechanism of grading the arbitral institutions in order to enable model rules and strength.

Efficiency Time Periods

• Within 60 days for reference applications. Here a court can disposes upon applications about arbitration under S. 8.
• 30-Day Jurisdictional Objections: Tribunals are expected to rule on jurisdictional objections under Section 16 within 30 days.
• 60-Day Appeal Limit: Appeals under Section 37 are to be disposed of within 60 days, thereby eliminating delay in interim measures and award challenges.

Emergency Arbitration

• Emergency Arbitrators Providing Interim Relief

The new Section 9-A introduces emergency arbitration whereby parties can approach an emergency arbitrator for interim relief before the constitution of a tribunal. Emergency arbitrator orders shall be civil court orders and their execution shall extend to foreign-seated arbitrations, unless excluded.

Appellate Arbitral Tribunals

• Section 34-A

The bill proposes appellate arbitral tribunals, empowering parties to challenge awards within the arbitration framework instead of courts. This novel mechanism could expedite dispute resolution and reduce court backlog.

Online Dispute Resolution (ODR)

Recognizing the shift to virtual proceedings post-pandemic, the bill formally incorporates online dispute resolution within arbitration.

Ad Hoc vs. Institutional Arbitration in India

Ad Hoc Arbitration

Parties independently manage the arbitration process without relying on institutional rules.

• Advantages

More flexibility, lower costs in some situations, and party influence over procedural rules.

• Challenges

Lack of formality can create inefficiencies, delays, and inconsistent decisions.

Institutional Arbitration

It refers to arbitration under the auspices of an arbitral institution like the ICC, LCIA, or SIAC, with pre-adopted rules.

• Advantages

Well-defined procedural framework, with administrative support and expedited timelines.

• Challenges

Higher cost and a potential rigidity than ad hoc arbitration.

The draft bill 2024 for promotion of institutional arbitration by strengthening arbitral institutions and by forcing parties to seek structured mechanisms.

Landmark SC Decisions on Arbitration

Role played by the Indian judiciary in restructuring the arbitration framework with the help of landmark judgments reconciling party autonomy with judicial oversight.

1. Vidya Drolia v. Durga Trading Corporation (2021)

The Supreme Court again brought out the doctrine of minimum judicial intervention in reiterating the principle of independence of arbitration agreements. It ruled that the determination of the arbitrability of disputes would lie with the arbitral tribunal rather than courts.

2. Perkins Eastman Architects DPC v. HSCC (India) Ltd. (2020)

It was ruled that unilateral appointment of arbitrators by one party goes against the doctrine of impartiality, ensuring fairness in arbitration.

3. PASL Wind Solutions v. GE Power Conversion India (2021)

Held the decree of seat of arbitration being a foreign seat, to be valid between two Indian parties and reaffirmed the principle of party autonomy and foreign institutional arbitration.

4. Amazon v Future Retail (2022)

The judgment confirmed emergency arbitrators' orders from foreign institutions like SIAC that create a precedent for interim reliefs under institutional rules having potential applicability in India.

Such judgments indicate that the judiciary is itself an active force in the promotion of arbitration as a preferred mode of dispute resolution but with procedural fairness

Guidelines on Drafting Arbitration Clauses

Drafting arbitration clauses will inevitably form a critical step in the prevention of future disputes and towards an efficient arbitration process. The best practices that should be followed are as follows:

• Specification of Seat and Venue

Clearly state the seat of arbitration, which determines the procedural law applicable, and the place for physical hearings, if necessary. For Example, in arbitration clause you can find: "The seat of arbitration shall be New Delhi, India."

• Governing Law

Insert a governing law clause that states the substantive law that governs the contract and the arbitration proceedings.

• Institutional vs. Ad Hoc Arbitration

If arbitration through an institution is selected, indicate the institution itself and its rules clearly.

• Number and Qualification of Arbitrators

Indicate whether one or three arbitrators are required and if there are any requirements of qualifications, such as knowledge of the law of intellectual property.

• Language of Arbitration

Gives the language to avoid confusion where cross-border disputes are in question. For Example you can specify the language like: "The Language of arbitration shall be English."

• Confidentiality Clause

Incorporate confidentiality provisions to protect sensitive information disclosed during arbitration.

• Interim Reliefs

Include provisions for interim reliefs and their enforceability during arbitration.

• Time Limits

Set realistic timelines for initiating and concluding arbitration to avoid delays.

• Cost Sharing

Define how arbitration costs will be shared among parties, such as institutional fees and arbitrators’ remuneration.

• Exclude Non-Arbitrable Disputes

Clearly exclude disputes that are non-arbitrable under Indian law, such as criminal offenses and matrimonial matters.

Future of Institutional Arbitration in India

Institutional arbitration in India is becoming more positive through legislative changes, the setting up of ACI, and greater recognition of international arbitral awards. However, there are a few challenges still: lack of awareness, resistance to change, and limited access to institutional arbitration centers.

• Capacity Building

Training arbitrators and legal practitioners in institutional arbitration.

• Awareness Campaigns

Promotion of the benefits of institutional arbitration to businesses and legal communities.

• Judicial Support

Continued recognition and enforcement of institutional arbitration mechanisms by courts.

Conclusion

The Arbitration and Conciliation (Amendment) Bill, 2024 reflects a commitment by India to position its arbitration regime in compliance with international best practices. Encouraging institutional arbitration while streamlining processes and adopting e-dispute resolution will likely keep India at the forefront among global arbitration hubs. That said, the practical efficacy of these reforms will determine their acceptance by the arbitration community.

Indian arbitration is entering a new age-one that values efficiency, autonomy, and reduced judicial intervention. These trends, added to the rising preference for institutional arbitration, are pointers to a promising future of dispute resolution reforms in India.