EXPLORING THE FRONTIER OF ARBITRATION: INVESTIGATING THE INTRIGUING CHALLENGES AND OPPORTUNITIES IN MODERN DISPUTE RESOLUTION

ABSTRACT

In today’s globalized world, there has been a significant surge in international trade, extending beyond national borders. However, this increase in extraterritorial trade has inevitably led to disputes and conflicts among the parties involved. It has become crucial to promptly resolve these disputes to ensure the smooth functioning of business operations. As a result, parties involved in such trade transactions often prefer to opt for Alternative Dispute Resolution (ADR) methods instead of resorting to traditional courtrooms.

The preference for ADR methods arises from several factors. Firstly, the current backlog of millions of unresolved cases in courts has added a tremendous burden on the judicial system. Consequently, seeking resolution through the court system can be time-consuming and impractical. Additionally, parties involved in international trade often prioritize preserving privacy, diplomatic relations, and commercial ties. Hence, they tend to avoid the public nature of court proceedings.

Among the various ADR methods available, arbitration stands out as the most established and widely utilized approach to resolving conflicts. Recognizing the need to align with international standards, the Arbitration and Conciliation Act of 1996[1] has undergone multiple amendments to ensure its appropriateness and compliance. These amendments aim to bring the Indian arbitration process in line with global practices.

Despite efforts to enhance the arbitration process, it still faces several challenges and issues in India. This article aims to shed light on the current state of arbitration and highlight the intriguing challenges and opportunities in modern dispute resolution faced in the country. It will examine the support provided by different legislations and precedents in addressing these challenges.

Keywords: arbitration, challenges in arbitration, dispute resolution, modern arbitral issues, ADR.

INTRODUCTION

Alternative Dispute Resolution (ADR) is a method used by conflicting parties to settle their disputes without going through formal judicial proceedings. It has gained widespread recognition and popularity in recent times due to its effectiveness. The Malimath committee, recognizing the value of ADR, recommended that it should be mandatory in courts. [2]As a result, in various legal contexts such as commercial disputes, corporate matters, family disputes, specific cases under the Motor Vehicle Act 1988[3], and certain property cases, parties are required to undergo some form of ADR before resorting to court.

Among the different mechanisms of ADR, arbitration is the oldest and most commonly employed. In arbitration, the disputing parties, or sometimes the court itself, appoint one or more arbitrators who are responsible for reviewing the dispute and issuing a legally binding decision called an “Award.” This award can be enforced in a court of law.

During the arbitration process, an impartial third party, known as the arbitrator, intervenes to help the parties in resolving their disagreements. Halsbury defines arbitration as the act of referring a dispute or difference between two individuals or parties to a non-traditional court of law for resolution after hearing both sides in court. However, it is crucial for both parties to agree to submit their dispute to arbitration. It is worth noting that arbitration does not provide an appeals process, which means that the ruling of the arbitrator is binding on the involved parties.

In the current era of a liberalized economy and globalization, the Indian court system is overwhelmed and incapable of providing timely resolutions. However, there exists an alternative approach known as arbitration, which serves as a quasi-judicial method to deliver faster dispute resolution. To ensure access to justice for all, lawmakers have introduced provisions such as Lok Adalat and established Legal Service Authorities under the Legal Service Authorities Act of 1987[4]. These measures have successfully resolved a significant number of pending cases. Despite the ongoing evolution of arbitration in India, it is crucial for individuals to comprehend the circumstances, requirements, and appropriate utilization of arbitration. Further development and adjustments are necessary to align arbitration with contemporary needs.

In India, the arbitration process is divided into three types: Institutional Arbitration, Ad-hoc Arbitration, and Fast Track Arbitration. Institutional arbitration involves a professional organization that assumes the role of a dispute resolution institution, overseeing and managing the arbitration process based on their established rules. The disputing parties possess the freedom to choose the institution they prefer to handle their case. The selection of one or more arbitrators can be done by the governing body of the organization, the disputants themselves, or both, from a preselected panel of arbitrators approved by the organization. However, it is important to limit the selection process to the panel endorsed by the governing body.

In an ad hoc arbitral process, the power to make decisions lies with the parties involved rather than a specific institution. This means that they have the freedom to determine various aspects of the arbitration, such as the process itself, the number of arbitrators involved, and the format of the proceedings. Unlike institutional arbitration, where predefined rules and procedures are followed, ad hoc arbitration allows the arbitrator or the party acting as the arbitrator to establish their own rules without being bound by previous arbitration practices.

In line with the Arbitration and Conciliation Amendment Act of 2015, an additional provision was introduced to address the concept of Fast Track Arbitration. This approach requires the arbitration process to be completed within a shorter timeframe, specifically within six months or less. In fast-track arbitration, a single arbitrator oversees the proceedings, eliminating the need for the selection of three arbitrators, which is common in other arbitration cases.[5]

RESEARCH METHODOLOGY

The researcher carried out a thorough examination based on legal principles and gathered supplementary information to ensure a comprehensive analysis. In order to achieve a comprehensive understanding, the researcher employed a wide range of sources including articles, comments, statements, and other published materials that incorporated viewpoints from different legal experts. Additionally, to identify recurring trends in the court decisions explored in the research, relevant case laws were also consulted. By adopting this methodology, a more detailed and comprehensive investigation of the topic was conducted, encompassing a variety of perspectives and shedding light on emerging patterns within the field.

LITERATURE REVIEW

The researcher has delved into the subject by consulting various articles on platforms such as Bar and Bench- “Impact Of The Arbitration And Conciliation (Amendment) Act, 2021 on India’s Pro Arbitration Outlook,”, Legal Service India- “Contemporary issues in India”, and Manupatra- “Judicial Intervention In Arbitration- A Comparative Analysis”. However, it was found that while these articles touch upon the subject matter to a certain extent, they do not offer a comprehensive understanding of the intriguing challenges and opportunities in modern dispute resolution. While they cover specific provisions and laws, they fall short of providing deep insights into the matter. To address this gap, the research paper aims to provide a thorough understanding of the subject, supported by relevant case laws, and how this concept is applied in India.

STATUS SUBSEQUENT TO THE IMPLEMENTATION OF THE ARBITRATION AND CONCILIATION ACT OF 1996

The Arbitration and Conciliation Act of 1996 replaced the previous Act of 1940 and has undergone several significant amendments since its inception. The new Act introduced substantial changes, which had an overlapping impact on the previous provisions. Under the 1940 Act, parties involved in a dispute could seek court intervention to appoint an arbitrator and obtain interim relief. However, with the implementation of the 1996 Act, parties are no longer permitted to approach the court for such applications. Instead, the court can issue orders even before the arbitration proceedings commence.

Another distinction between the two Acts is that the 1940 Act did not require the provision of reasons for the arbitral award, while the 1996 Act mandates that the award must be accompanied by proper reasons unless the parties have agreed otherwise.[6] This reduction in the court’s role in interpretation has created challenges in comprehending the legislative intention and applicability of the provisions under the 1996 Act. Nevertheless, the Hon’ble Supreme Court has addressed these issues through various cases. For instance, it has ruled that Part-I of the Act shall also apply to foreign commercial arbitrations conducted outside of India unless the parties explicitly or implicitly agree otherwise[7].

In line with international arbitration laws and due to the pro-arbitration approach adopted by the Indian judiciary, the 2021 Amendment ensures the enforceability of all international awards in India. The Apex Court has emphasized that the refusal to enforce international arbitral awards should only occur in exceptional circumstances. This development aims to align India with global arbitration standards.[8]

ARBITRATION AND CONCILIATION (AMENDMENT) ACT OF 2021

The Arbitration and Conciliation (Amendment) Act of 2021 brought about significant revisions to the existing legislation, with the primary objective of bolstering the integrity and credibility of the arbitration process. Two noteworthy changes were introduced to achieve this purpose:

  • Automatic Stay on Arbitration Award Execution: The amendment introduced a pivotal provision concerning the automatic stay on the execution of any arbitration award. This means that if credible evidence of corruption or fraudulent activity influencing the award is presented in court, the enforcement of the arbitration award will be temporarily halted. The implementation of this amendment is carried out through Section 36 of the Act, which makes reference to Section 214 of the Principal Act.
  • Omission of the Eighth Schedule: Another crucial amendment pertains to the omission of the Eighth Schedule from the main Act. The Eighth Schedule had previously outlined specific qualifications, backgrounds, and guidelines that arbitrators were required to meet and follow. However, with its removal, the Act no longer prescribes detailed qualifications and criteria for arbitrators.
    This change is aimed at introducing greater flexibility in the process of appointing arbitrators while maintaining transparency and impartiality. By not imposing rigid prerequisites, the amendment allows for a more diverse and expansive pool of qualified individuals who can potentially serve as arbitrators. This, in turn, enhances the possibility of selecting arbitrators with specialized expertise relevant to specific cases, thereby improving the overall quality of the arbitration proceedings.

The amendments introduced by the Arbitration and Conciliation (Amendment) Act of 2021 were geared toward enhancing the arbitration and conciliation process in the country. By instituting the automatic stay on arbitration award execution, the Act aims to promptly identify and address cases tainted by corruption or fraudulent practices. Simultaneously, the omission of the Eighth Schedule provides greater flexibility in selecting arbitrators, fostering a broader pool of qualified individuals and potentially elevating the efficiency and fairness of the arbitration process.

INTRIGUING CHALLENGES IN MODERN DISPUTE RESOLUTION

Despite the progress made, it is essential to acknowledge that the Arbitration process and its governing laws may still suffer from certain deficiencies and shortcomings. Although modern Arbitration procedures have improved considerably in terms of flexibility and accommodation compared to their predecessors, it is imperative to confront and resolve the significant gaps and issues that persist within the current system.

These gaps can significantly affect the fairness, transparency, and enforceability of Arbitration awards. Recognizing and addressing these shortcomings is necessary to maintain the efficacy of the Arbitration system as an alternative dispute resolution method for all parties involved. By doing so, we can continue to leverage the advantages of Arbitration while ensuring a fair and reliable process for resolving disputes. Here we will discuss a few of those challenges-

  • APPOINTMENT OF ARBITRATOR

The appointment of arbitrators has been a subject of considerable debate in the dispute settlement system. Initially, the 1996 Arbitration and Conciliation Act outlined specific conditions and qualifications for accrediting arbitrators. However, in 2019, an amendment was introduced, incorporating Section 43J, which led to the establishment of Schedule VIII. This schedule provided a comprehensive set of qualifications that arbitrators needed to meet.[9]

Subsequently, the 2021 Amendment Act replaced Section 43J and Schedule VIII. According to the revised Act, the qualifications, expertise, and standards for accrediting arbitrators would now be defined in the “regulations.” These regulations were introduced by the 2019 Amendment Act through Section 2(1)(j). This raises questions regarding the precise meaning of these regulations and the responsible entity for their formulation.[10]

The significance of having a sufficient number of capable, knowledgeable, and ethically upright arbitrators, coupled with a well-equipped arbitration institution, cannot be overstated. Their presence plays a pivotal role in achieving the objectives and goals of the Act. Ensuring the availability of such qualified arbitrators is vital because if a perception were to emerge that opting for arbitration over litigation significantly diminishes the chances of receiving fair and high-quality justice, it would undoubtedly cast doubt on the future efficacy of arbitration as a dispute resolution mechanism. Thus, guaranteeing a pool of skilled arbitrators and a robust arbitration infrastructure is indispensable to uphold the credibility and trustworthiness of the arbitration system.

  • ISSUE OF BIASED DECISIONS BY ARBITRATORS IN GOVERNMENT CONTRACTS

In government or public-sector contracts, it is a common practice to appoint an individual affiliated with the government agency or the contracting party as the arbitrator. However, this raises valid concerns about impartiality and contradicts the fundamental principle of natural justice known as “Nemo Judex in Causa Sua” (No person should be a judge in their own cause). Despite varying opinions in the courts, the Supreme Court has ruled that merely naming an arbitrator with ties to the company in government contracts does not automatically imply bias or lack of independence.[11]

An illustrative case highlighting the challenge of potential bias can be observed in Vinod Bhaiyalal Jain v. Wadhwani Parmeshwari Cold Storage Pvt. Ltd.[12] In this instance, the arbitrator had previously served as a lawyer for one of the parties involved in the dispute, raising concerns about their impartiality. The Supreme Court emphasized the importance of arbitrators being unbiased, and in this particular case, the aggrieved party had genuine reasons to question the arbitrator’s independence, leading to the decision to invalidate the award.

Another notable case, HRD Corporation (Marcus Oil and Chemical Division) v. Gail (India) Ltd, established that certain conditions listed in the 7th Schedule disqualify a person from serving as an arbitrator. Challenges related to these conditions can be directly brought before the court. However, concerns about independence and impartiality can only be raised before the arbitrator under Section 13 of the Arbitration and Conciliation Act of 1996. [13]Notably, challenges to the fifth schedule can only be made after the arbitrator has issued an arbitration decision.[14]

  • INVOLVEMENT OF JUDICIARY

The role of the Judiciary in arbitration is a crucial aspect that needs to be understood before delving into the extent of their participation. The Acts of 1996, 2015, and their 2019 Amendment were specifically designed to reduce court workloads and expedite dispute resolution. This approach is particularly advantageous for developing economies, where timely resolutions to commercial conflicts are vital.

The Honorable Supreme Court acknowledges that intervening in ongoing proceedings could cause delays, but refraining from intervention might leave errors uncorrected. Thus, the exercise of judicial power is discretionary, guided solely by the judge’s judicial conscience, enriched by their experience and practical wisdom.

Despite the legislative intention to minimize judicial interference, the actual level of judicial involvement remains sufficient to undermine the core objective of arbitration. One significant issue is the detrimental impact of appeals arising from arbitrators’ procedural decisions on the arbitral proceedings. Balancing limited intervention to ensure fairness and efficiency while minimizing interference is an ongoing challenge that needs to be addressed to uphold the effectiveness of arbitration as an alternative means of dispute resolution.[15]

  • STATUTORY RECOGNITION OF EMERGENCY ARBITRATION

Over the past few decades, Emergency Arbitration (EA) proceedings have gained widespread acceptance and usage on a global scale. Various jurisdictions and arbitral organizations worldwide have embraced this mechanism to resolve urgent disputes efficiently. However, in India, there has been no explicit statutory recognition of Emergency Arbitration. Despite this, there has been a recent surge in attention towards emergency arbitration in the country due to a notable case involving Amazon and the Future Group. This case has drawn significant interest as courts are examining an award made in favor of Amazon during the Emergency Arbitration proceedings.[16]

However, in India, there is no explicit statutory recognition of Emergency Arbitration in the Arbitration and Conciliation Act of 1996. Despite this, some arbitration institutions, such as the Delhi International Arbitration Centre and the Mumbai Centre for International Arbitration, have taken proactive steps to include dedicated provisions for Emergency Arbitration in their rules. This has enabled parties to seek urgent relief in critical situations. While there is no formal recognition at the national level yet, the efforts of these institutions have facilitated the use of Emergency Arbitration in India. It remains a possibility that India may consider incorporating formal recognition through future amendments to its arbitration laws. For now, these arbitration institutions’ proactive approach is crucial in ensuring access to justice and swift resolution of time-sensitive disputes within the Indian legal landscape.

SUGGESTIONS

The Arbitration process in India has a rich history and has undergone significant changes to adapt to the evolving needs of society. However, it still exhibits certain shortcomings. India’s Arbitration procedures require improvement in line with international standards to effectively settle commercial disputes within the country. This is crucial considering India’s appeal to global businesses and its goal of fostering a favorable business environment. The business community, particularly the elite, favors alternative dispute resolution methods over court intervention due to delays in court proceedings. Nevertheless, concerns persist regarding court interference, highlighting the necessity for independent and unbiased arbitrators appointed through appropriate legislation. It is essential for India to create a supportive atmosphere for arbitration, address biases in the selection of arbitrators, and strengthen anti-bias laws to ensure fairness and impartiality. Despite its benefits, the Arbitration process in India encounters various challenges, some of which are pending resolution in the highest court. Positive decisions, such as the validation of Emergency Arbitration, are eagerly awaited.

CONCLUSION

The field of law continuously evolves to meet the changing needs of society, and this principle applies to the Arbitration procedure as well. While Arbitration has a long-standing history in India, with similar methods used in the past to settle disputes, it has undergone significant transformations over time. In India, we now have a structured set of Arbitration procedures called The Arbitration and Conciliation Act, which has been refined through amendments and various legal precedents to align with current practices. However, it is important to acknowledge that like any aspect of law, including Arbitration, it is not without its flaws.

In comparison to international arbitration standards and the ease of resolving commercial disputes, the Arbitration procedures in India require further improvement and nurturing. This is because India is gradually becoming a prominent global business destination, attracting companies like Foxconn, and the government actively encourages investments. In order to facilitate a favorable business environment, India needs appropriate and reliable legal provisions.

The business community, particularly the elite, prefers alternative dispute resolution mechanisms instead of traditional court intervention for resolving complex business disputes. This preference arises from the significant delays associated with court proceedings. However, despite the advantages of alternative dispute resolution, concerns persist regarding court intervention. The effectiveness of the arbitration system heavily depends on the independence and impartiality of arbitrators. It is crucial to acknowledge and address the inherent bias in the one-sided selection of arbitrators through suitable legislation. India needs to establish a supportive environment for arbitration and strengthen anti-bias laws. Similar to how the judiciary strives for justice, arbitration should be free from any biases on the part of the arbitrator.

In the Indian context, the Arbitration procedure still faces several challenges. Some of these issues are currently awaiting resolution in the highest court, and we eagerly anticipate positive decisions, such as the validation of Emergency Arbitration.

DETAILS OF AUTHOR

Name: Aakansh Prakash

College: Amity Law School, Noida


[1] Arbitration And Conciliation Act, 1996, No. 26, Acts of Parliament, 1996 (India).

[2] LAW COMMISSION OF INDIA, http://www.commonlii.org/in/other/lawreform/INLC/2009/6.html (last visited July 18, 2023).

[3] Motor Vehicles Act, 1988, No. 59, Acts of Parliament, 1988 (India).

[4] Legal Service Authorities Act, 1987, No. 39, Acts of Parliament, 1987 (India).

[5] Arbitration and Conciliation (Amendment) Act, 2015, No. 3 , Acts of Parliament, 2015 (India).  

[6] Arbitration And Conciliation Act, 1996, § 31, No. 26, Acts of Parliament, 1996 (India).

[7] Bharat Aluminium Co. vs. Kaiser Aluminium Technical Services Inc, (2016) 4 SCC 126.

[8] Associate Builders vs. Delhi Development Authority, (2015) 3 SCC 49.

[9] Arbitration and Conciliation (Amendment) Act, 2019, No. 33, Acts of Parliament, 2019 (India).

[10] Arbitration and Conciliation (Amendment) Act, 2021, No. 3, Acts of Parliament, 2021 (India).  

[11] Ace Pipeline Contract vs. Bharat Petroleum, (2007) 10 SCC 504 SC.  

[12] Vinod Bhaiyalal Jain vs. Wadhwani Parmeshwari Cold Storage Pvt. Ltd., (2011) 1 SCC 670.  

[13] Arbitration And Conciliation Act, 1996, § 13, No. 26, Acts of Parliament, 1996 (India).

[14] HRD Corporation (Marcus Oil and Chemical Division) vs. Gail (India) Ltd (Formerly Gas Authority of India Ltd., (2017) SCC Online SC 1024.

[15] Surya Dev Rai vs. Ram Chander Rai, (2003) 6 SCC 675.  

[16] Future Retail Ltd. vs. Amazon.com Investment Holdings LLC & Ors. , (2021) SCC Online SC 623.