By Aasha Eapen
On 7th March 2018, the Union Cabinet approved the introduction of the Arbitration and Conciliation (Amendment) Bill, 2018 for discussion in the Parliament. If passed, it will become a part of India’s law. In order to understand what the bill is about, one needs to know more about arbitration and Alternative Dispute Resolution (ADR) mechanisms. Litigation is one way to solve a problem but it is often an arduous process characterised by long drawn, delayed court proceedings and high fees. The other resort is through ADR.
Various ADR mechanisms
In mediation, the mediator, an uninvolved and neutral third party, works with the conflicting parties to find a mutually acceptable solution. He or she conducts the negotiation and facilitates options to arrive at a possible settlement. While it does not carry the same force as other ADR mechanisms, the role and influence of the mediator should not be underestimated. This is the model followed by the Village Panchayats and Nyaya Panchayats.
Conciliation functions by showing both parties the contrarian side in a bid to arrive at a solution. Whereas mediation sees the third part delivering the exact compromise, conciliation, as a mode of dispute resolution, differs from mediation in that the neutral third party’s main function is to bring both parties to the table before further proceedings begin.
The first ‘Lok Adalat’ was initiated in Gujarat after its introduction in 1982. This is an ADR mechanism bestowed with a statutory status under the Legal Services Authorities Act of 1987. Verdicts of Lok Adalats are equivalent to the decree of a civil court and are thus binding in nature with no appeal allowed in another court. However, dissatisfied parties can exercise their right to litigate by filing a case in the appropriate court.
Here, the court fees paid when a matter is filed will be refunded if the matter is settled later. A Lok Adalat can deal with any case that is pending or yet to be filed in court, as long as it is non-compoundable (of a grave nature). In arbitration, a matter submitted to an arbitral tribunal makes a decision. The decision is called an ‘award’ and is binding on all parties and enforceable by law.
Proceedings are usually discreet, with no public record of proceedings and the rules of evidence are simplified. To be classified as an arbitration, there needs to be an arbitration agreement, a dispute, a reference to a third party to decide and an award by the third party. It covers cases of a civil and semi-civil nature. Certain issues, like those relating to charities, insolvency or the appointment of a guardian for a minor or a differently-abled person, cannot be decided by arbitration.
As a mode of ADR, it is speedy, lasting only a few hours and much more flexible than stiff litigation routines. These characteristics make it suitable to the fast-paced nature of business transactions.
Arbitration structure
An arbitrator is a private judge who is mutually chosen by the conflicting parties. If they aren’t able to agree, then each side chooses one arbitrator, and those two select the third to form a panel. The arbitrary power bestowed on them means that their sentences have a binding effect with no room for appeal. An Arbitral Tribunal can comprise of one more arbitrator; however, the composition must be uneven. An ‘Arbitral Award’ refers to the written and a signed decision of the arbitrators. Being a type of contract, the validity of an Arbitration Agreement rests on its ability to satisfy the requisite elements of a contract.
Forms of arbitration
Ad hoc arbitration serves as the final recourse if mediation or conciliation fails. It is conducted by a non-institution and the rules followed are framed specifically for that case and are only applicable to it. In institutional arbitration, the parties pre-decide an established and specialised institution for dispute resolution. It is this institution that conducts the arbitration process. Here, only the rules of the institution apply. It is the arbitrators themselves who arbitrate.
Fast-track arbitration functions within a time constraint. As a result, it has more rigid rules and is relatively less expensive. In contractual arbitration, the parties in a commercial transaction may include an arbitration clause in their agreement, in case of a future dispute, to decrease confusion at a later stage. Statutory arbitration is what happens when the court orders that the parties present their matter to arbitration. It is instructive in nature and the consent of the parties is not required.
Arbitration in India
Under the British rule, the Bengal Resolution Act of 1772 and Bengal Regulation Act of 1781 were formed with respect to arbitration. They stated that parties in a conflict would be subject to the binding decision of a mutually appointed arbitrator. These Acts were replaced by the Code of Civil Procedure in 1859. In 1862, this was extended to the Presidency towns of Calcutta, Bombay and Madras.
The British Arbitration Act, 1889, the Indian Arbitration Act, 1899 and later, the Arbitration (Protocol and Convention) Act, 1937 followed. The Arbitration Act of 1940 made provisions for pending arbitration and arbitration with and without court intervention. Since the Act was only developed on a domestic level, it proved to be frustratingly ineffective in disputes arising from foreign trade.
With respect to international conventions, India had given its assent to the Geneva Protocol on Arbitration Clauses, 1923, the Geneva Convention on the Execution of Foreign Arbitral Awards, 1927 and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.
The Arbitration and Conciliation Act of 1996 was a watershed event that effectively rendered the previous 56 years worth of arbitration case law redundant. It covered both international and domestic commercial arbitration and aimed to promote arbitration as a thrifty and speedy means to settle commercial disputes. It also stated that the Arbitral Tribunal would not be subject to the Code of Civil Procedure, 1908 and the Indian Evidence Act, 1872.
This was done following the Model Law on International Commercial Arbitration, adopted by the United Nations Commission on International Trade Law (UNCITRAL), 1985. The Indian government brought the 1996 Act into effect using an ordinance, before being passed by the government.
Arbitral awards, which conflict with India’s public policy (including matters like fraud and corruption), could be ignored. The arbitrator has the power to decide the venue of arbitration and the law to be applied. Organisations that settle commercial disputes using ADR mechanisms have rules about how the arbitration should be conducted but their rules are subordinate to those enumerated in the Act. The 1996 Act was also not as effective because government interference meant that traditional seats of arbitration like Singapore were preferred. Government interference, even in these locations, significantly lowered India’s ease of doing business.
From 2012-15, the Supreme Court of India assumed a pro-arbitration stance, by delivering rulings that favoured arbitration. It said that the Indian arbitration law should be seat-centric. This means that the Indian judiciary has no say in arbitrations that take place abroad.
In 2015, the Arbitration and Conciliation Act, 1996 was amended and the central government and it formed a High-Level Committee (HLC) in order to remove the difficulties in applying the Arbitration and Conciliation (Amendment) Act, 2015. The HLC was chaired by Justice BH Srikrishna, a retired Supreme Court judge. It was tasked with studying how effective Indian arbitral institutions were. Based on this, they needed to work out a plan that would make India’s arbitration system more conducive to solving commercial disputes. On 30th July 2017, the HLC submitted its report containing observations and recommendations based on the Arbitration and Conciliation Act of 1996.
The Arbitration and Conciliation (Amendment) Bill 2018
Following clearance from the Union Cabinet, the Bill will be introduced to the Parliament before it can become a law. As part of the Bill, the Supreme Court or the High Court will designate arbitral institutions for International Arbitration, who will, in turn, appoint arbitrators. Parties in conflict can directly approach the appointed arbitral institutions.
A new body, the Arbitration Council of India (ACI), will formulate conditions to accredit the arbitral institutions, maintain an electronic record of all arbitral awards and promote other ADR mechanisms.
The ACI will be chaired by a former Supreme Court or High Court Judge and the committee would comprise of eminent academicians and government officials. Confidentiality of all arbitral proceedings, except the arbitral award, should be maintained. The Arbitrator has immunity from other legal proceedings for acts done in good faith during arbitration proceedings. Aside from this, filing arbitration applications and delivery of the arbitration award will be time-bound.
ADR as an effective mechanism
ADR helps to delegate the Herculean task of delivering justice. Given the size and complexity of cultures, ADR is well suited to Indian conditions. Indeed, it is the model followed by the panchayat system and other traditional forms of conflict resolution. The adage, “Justice delayed is justice denied,” sadly rings true for many Indians who are at the mercy of long drawn and expensive court battles. Arbitration, with its speed, privacy, cost-effectiveness and the liberty of choosing an arbitrator, seems like the silver bullet.
Yet, some of these qualities could have a disadvantage. The privacy offered by arbitration would mean that the important details, that the public deserves to know, will be withheld. Speedy verdicts will also be prone to haste. Also, if dissatisfied parties take recourse to courts, the courts will have to deal with a burden they intended to dispel in the first place. These are the issues that need to be addressed and solved during parliamentary discussions, in order to have a more realistic and effective Arbitration and Conciliation (Amendment) law.
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