Promoting institutional arbitration in India

Posted on 28 September 2018

Promoting institutional arbitration in India

Arbitration in India has long been dominated by ad hoc processes. The lower house of the Indian Parliament has now passed two Bills which are intended to create a significant shift towards institutional arbitration. They should mark the next major phase of development of arbitration in India.

Background

The Arbitration and Conciliation Act, 1996, which was based on the UNCITRAL Model Law, modernised the law on arbitration in India. Over time, however, problems emerged. In part these were problems with the law itself, compounded by various well-meaning but misguided court rulings. In part these were problems with the practice of arbitration in India, dragged down by a combination of a lack of focus on efficiency on the part of some arbitrators, and ad hoc, unmonitored processes.

There were various calls for reform over the years, including a report by the Law Commission of India in 2014 that (among other proposals) recommended the promotion of institutional arbitration in India. It was not until 2015, however, that legislative changes were introduced, first via an Ordinance issued by the President in October 2015, then by an Amendment Act (virtually identical to the Ordinance) that came into force on New Year's Eve in 2015. The 2015 Amendment Act addressed a number of the problems that had arisen as a result of caselaw since 1996. It did nothing, however, for the promotion of institutional arbitration.

The Srikrishna report

In January 2017, the Indian Government established a committee to look further into how institutional arbitration could be developed. The Committee was headed by Justice B. N. Srikrishna, a retired Judge of the Supreme Court, and it delivered its report in July 2017. The report was critical of ad hoc arbitration in India, as well as of some of the Indian arbitration institutions. It made a number of recommendations, not only aiming to encourage and improve institutional arbitration in India, but also covering a number of other areas including corrections to the 2015 Amendment Act and advice on how the Government should deal with BIT claims against India. The Government has now taken steps to implement many of those recommendations via two Bills that have been introduced in the Lok Sabha (the lower house of Parliament). These are expected to be introduced in the upper house towards the end of this year and become law after that.

The New Delhi International Arbitration Centre Bill, 2018

One of the recommendations made by the Srikrishna report was that the Government should make a substantial investment in an arbitration institution. This was the subject-matter of the first Bill that was introduced in the Lok Sabha, in January 2018. The Srikrishna report had proposed that the Government develop the existing International Centre for Alternative Dispute Resolution (ICADR). The Bill puts that proposal into practice, transferring all the buildings and operations of the ICADR to a new entity, the New Delhi International Arbitration Centre (NDIAC).

The Bill expressly states that one of the objects of the NDIAC is to "develop itself as a flagship institution for conducting international and domestic arbitration". It will do this by administering arbitrations, promoting studies in ADR, running training courses and co-operating with other arbitration institutions both in India and abroad. The NDIAC will create a panel of arbitrators and establish an Arbitration Academy to teach arbitration law and practice. 

Significantly, the NDIAC will be an institute of national importance under the Constitution of India. The Bill also states that the Indian Government will provide a budget of almost 7 crores (around US$ 1 million) in each of the first three years. 

The Arbitration and Conciliation (Amendment) Bill, 2018

The second Bill to be introduced, in August 2018, is a further Amendment Bill (following on from the 2015 Amendment Act). It will enact many of the other recommendations of the Srikrishna report, including:

  1. Removing the time-limits from institutional arbitration

One of the most striking reforms in the 2015 Amendment Act was the introduction of a 12-month time-limit (extendable by 6 months by agreement between the parties) for arbitrations in India. While this has proved to be beneficial in some cases, major arbitration institutions have complained that it is too restrictive. The Srikrishna report recommended that the time-limit be lifted in some circumstances, so the Bill carves international commercial arbitration out of this requirement. This means that domestic arbitration in India will remain subject to the legislative time-limit but international arbitration seated in India can go on for longer.

  1. Arbitration Council of India

The Srikrishna report had recommended that a new body, called the Arbitration Promotion Council of India (APCI), be set up to oversee and grade Indian arbitration institutions. This recommendation was in light of the criticisms made of several arbitration institutions in India which the Committee thought were not fit for purpose. The Committee envisaged that the APCI would be free of Government involvement and stressed that it should provide oversight but not act as a regulator.

The Bill has taken a slightly different line to the Srikrishna report. It states that a new body is to be created, called the Arbitration Council of India (ACI). This is to consist of 7 members, all to be appointed by the Central Government, and to include representatives of both the Ministry of Law and the Ministry of Finance. Its role is not only to grade arbitral institutions but also to review the grading of arbitrators based on an list of criteria set out in a Schedule to the Bill, and to "set up, review and update norms and ensure satisfactory level of arbitration and conciliation". The composition of the ACI and the scope of its role have led some to criticise the proposal as setting up a de facto Government regulator of arbitration in India.

  1. Other changes

The Bill also adds various clarifications and corrections to the reforms made in 2015. In particular, it clarifies that the 2015 amendments apply only to arbitrations and court proceedings commenced after 23 October 2015; and that the 12-month time-limit applies from the close of pleadings. The Bill also introduces a new duty of confidentiality, and a new right of immunity for arbitrators for anything which is done in good faith. Finally, the Bill allows the courts to designate the appointment of arbitrators to an arbitral institution and specifies that a court need only decide on a prima facie basis that there is a valid arbitration agreement in order to refer a dispute to arbitration seated outside India.

Comment

These Bills, if enacted, should give institutional arbitration in India a considerable boost. In particular, it is possible that the NDIAC might in due course become a focus for arbitration in India like the SIAC and Maxwell Chambers are in Singapore. The clarifications to the 2015 Amendment Act should also improve matters.

The establishment of the ACI, though, might be a cause for concern. Most countries allow arbitration to be organised in accordance with party autonomy, i.e. parties have a free choice over the arbitration institution and the arbitrators. Depending on how the ACI is constituted and operates, it might restrict that choice and impose a degree of Government regulation. We shall have to see what effect in practice the ACI has on arbitration in India.

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