A CALL FOR INSTITUTIONALISED ARBITRATION IN INDIA:
A STEP TOWARDS CERTAINTY, EFFICIENCY AND ACCOUNTABILITY*
by Janak Dwarkadas**
Cite as : (2006) 3 SCC (Jour) 1
Warren E. Burger, former Chief Justice of the Supreme Court of the United States of America in a 1984 address to the American Bar Association lamented that-
"The entire legal profession has become so mesmerised with the stimulation of the courtroom that we tend to forget that we ought to be healers of conflicts. For many claims, trials by adversarial contests must in time, go the way of the ancient trial by battle and blood. Our system is too costly, too painful, (...). As healers of human conflicts, the obligation of the legal profession is to provide mechanisms that can produce an acceptable result in the shortest possible time, with the shortest possible expense and the minimum of stress on the participants. That is what justice is all about."1
Justice Burger at that time, now over two decades ago, foresaw greater use of alternative dispute resolution ("ADR") methods as a relief to the burden on conventional litigation. ADR has the potential to provide such relief and has actually provided it in many jurisdictions.
It is, however, widely felt that the full potential of ADR, arbitration in particular, has not been realised in India. Arbitration is particularly important in India because it can offer a partial solution to the problems of high cost and delays in the formal judicial system and can benefit the formal system by reducing its caseload. India, the world's largest democracy, suffers from extensive delays in its judicial system. The lack of a general availability of an efficient, simple and fairly quick judicial service to as wide a spectrum of the population as possible, weakens the rule of law. One hardly needs to emphasise how essential the rule of law is to a democracy and effective arbitration can help strengthen the rule of law in India2
Here we aim to focus on how the procedure followed by arbitrators in arbitral proceedings can be simplified and the arbitration completed within a short period with reduced cost. It is towards this purpose that I will stress that institutionalisation of arbitration in India, along the lines suggested by a recent Parliamentary Standing Committee Report, is now long overdue and can help to revitalise arbitration in India. I hope that the anecdotes I recount, about my experience with institutional arbitration abroad, will highlight how different the attitudes in India are and how much they could change with the accountability institutionalisation and the benefits of the attendant certainty and efficiency.
On a slightly different note, lawyers have acquired a great deal of notoriety as being largely responsible for all the laws' delays. But at an objective level, counsel can also analyse and identify the evils that plague the system-being so closely associated with it.
Changes; First steps
This process of change must begin in our minds. The mindset needs to be changed. We must recognise that arbitration, by its very nature, is meant to be an alternative to courts and a speedier remedy for dispute resolution. Thus, neither the parties, nor the lawyers concerned, nor the arbitrators appointed by the parties should enter the fray unless and until they are in a position to accept and respect this fundamental premise. As and by way of an example, I may only mention that I have steadfastly refused to appear before arbitrators, being conscious of the fact that my court commitments may compel the parties to seek many an adjournments. Equally, it is the duty of arbitrators that they do not take on more work than they can handle. More so because unlike judges who preside over courts, they do not have the pressure of having to clear a huge backlog of cases and myriad other matters as may be assigned to them to deal with. Arbitrators, being conferred with the full freedom to regulate their own procedure so long as it is in consonance with the principles of natural justice, should therefore ensure that they make themselves available for the required amount of time. It is only they who can inspire and ensure that the proceedings are disposed of expeditiously and in a time-bound manner.
My experience with institutional arbitration
From my experience of having appeared in about four international arbitrations, I would say that it is the difference between their approach and ours that brings about a speedy disposal of arbitration cases. Such a speedy disposal is possible if we too were to adopt the system, which they follow at all the three stages of a reference viz.:
(2) trial; and
(1) The pre-trial stage
At the pre-trial stage, the way the ICC arbitrators, for instance, approach the matter, whether it be a single arbitrator or a panel of three arbitrators is: that all pre-trial directions like filing of pleadings, discovery, inspection, answers to interrogatories, if any, filing of witness statements, etc. are given either by the sole arbitrator or by the Chairman of the panel, without holding a hearing. This results not only in saving of time but also costs. Needless to state the time lines fixed are always adhered to by the parties, failing which the defaulting party must pay heavy costs that too only after proper justification for the delay.
After all the pre-trial formalities are complete, parties are called upon to furnish an estimate of time required for opening submissions, cross-examination of witnesses and closing submissions. These estimates have to be supplied on a responsible and a realistic basis as the parties are held to their bargain. Because of the high costs involved, it is not in the interest of either party to give an unrealistic estimate. This is because the parties as well as the arbitrator block their dates on the basis of the time indicated and agreed. Cancellation costs make it prohibitive and impractical to give exaggerated estimates.
The trial time being already fixed in advance even prior to the trial commencing, the arbitrator or the panel will have studied the entire record, come prepared with the draft issues, and a rough time-table indicating the time which will be spent on opening arguments, cross-examination of witnesses and closing arguments. Now it may be said, that the ICC arbitrators are paid for the time they spend doing this. But are not the parties in India ultimately paying them when the pleadings, the witness statements and other documents are read and re-read before the arbitrators either before or during the trial. Are they not being paid when parties try and wrangle over the settlement of issues, before the arbitrators and lengthy arguments are advanced?
During the trial, which takes place on a day-to-day basis, normally between 9.00 am to 5.00 pm with two coffee breaks of 15 minutes each and one lunch break for an hour, the hearing is never interrupted, either by phone calls, or advocates being called away to courts or the convenience of arbitrators. The arbitrators ensure that parties do not get bogged down in any kind of technicalities or trivialities. There is never any question of the trial being postponed once it commences. Unless the party is willing to bear all the costs thrown away, that too at actuals and only for a genuine reason, the trial must go on and be concluded within the time agreed. At this stage let me give an example of what happened during an ICC arbitration in London, in which I participated two years ago. During the course of the hearing there was a call for a transportation strike by the London underground employees. On the eve of the strike and only after the proceedings for the day were over, the Chairman of the panel announced"Gentlemen, I believe there is likely to be transportation strike in London tomorrow. I am sure each of you will take care to see that you are here on time." Everybody, including the arbitrators assembled ten minutes before time. The arbitration commenced on the dot of 9 despite the transportation strike. Not a single moment was spent or wasted discussing the merits or demerits of the strike, the inconvenience, if any, caused to the commuters or trying to ascertain how each of us got to the arbitration centre.
At the end of the stated period for the trial, the arbitrator takes a short break and returns with instructions for each of the parties on what particular issue or issues they would like either or both of the parties to submit their written submissions, needless to state, once again within a time-bound programme.
As per the Rules of ICC, an award must be rendered within six months of the reference unless extended by the court. Once again this time is adhered to. This is because the arbitrator(s) appointed by ICC are rated/graded not only on the basis of their performance as arbitrator-how many arbitration references are conducted/disposed of in a year whether as a sole arbitrator or as part of a panel, the number of awards, if any, being set aside, but also the dispatch shown in rendering the award. Since we do not have any such external monitoring agency, I think the only way in which any improvement can come about is by introspection and self-discipline.
Institutional ad hoc arbitration
Arbitration is today more a business than a calling. It involves very large sums and consequently substantial earnings for the participants. Perhaps inevitably then, there has been a concurrent decline in the standards of at least some, certainly not all, of those who take part. It is no good wringing hands about this, for it is a fact to be faced, and part of facing them is to recognise that now the influence of peer pressure and indeed of simple honour has waned and some other means must be found of protecting this voluntary process.3 I believe that this is one reason why ad hoc arbitration does not work as well as institutional arbitration. The latter can bring in accountability and with it, certainty and efficiency in arbitration proceedings.
That institutional arbitration like ICC would help speed up the process and help remove some of the ills that plague the system has in fact found recognition recently in the form of a Parliamentary Standing Committee Report.
The Parliamentary Standing Committee on Personnel, Public Grievances, Law and Justice in its Ninth Report on the Arbitration and Conciliation (Amendment) Bill, 2003 presented to the Rajya Sabha and laid on the table of the Lok Sabha on 4-8-20054 highlights that there is an absence of accountability of arbitrators, huge pendency of cases, no rules as to who can be appointed as arbitrators or regarding their fees, time-limit for making an award and consequences of not making an award within a time-limit.
The Standing Committee recommended setting up of an Indian Arbitration Commission, presided over by the Chief Justice of India, along the lines of the Institute of Chartered Accountants of India, Bar Council of India, etc.
The Arbitration Commission would have the powers to grant accreditation to professional institutions, which come forward to render services in the field of institutional arbitration. Such institutions would in turn frame its rules governing appointments, fees, conduct of arbitrators, delays, etc. Enrolment of arbitrators as members of such institutions would be made mandatory. Possible consequences suggested by the Standing Committee for Arbitrators guilty of not disposing of the case within the time-limit were withdrawal of fees or blacklisting.
All this would provide for transparency, reliability and familiarity to the minds of the public and quicken the process of arbitration in India. An added advantage of this might be that the international commercial community might regard arbitration in India more favourably. Those currently dissuaded, who choose to opt for countries like Singapore, might choose India as a venue for arbitration. On a similar note, at a recent meeting which our Finance Minister, Mr Chidambaram had with the US Secretary of Treasury, Mr John Snow, it was reiterated, by citing the example of Dabhol, that unless we speed up our arbitral machinery, trade between the US and India is likely to be adversely impacted. Mr Chidambaram has promised to tighten up the procedural aspects of our arbitration law.
There are several apparent advantages of institutional arbitration. For instance: (i) availability of pre-established rules and procedures which assure that arbitration will get off the ground and proceed to conclusion with dispatch; (ii) administrative assistance from institutions providing a secretariat or court of arbitration; (iii) lists of qualified arbitrators; (iv) appointment of arbitrators by the institution, if required; (v) facilities and support services for arbitrations; (vi) assistance in encouraging reluctant parties to proceed with arbitration; and (vii) an established format with a proven record.5 Institutional arbitration, for instance arbitration conducted by ICC, has one downside-it requires the parties to incur additional costs towards the administering institution. However, the functions performed by the institution can be critical in ensuring that the arbitration proceeds to a final award with a minimum of disruption and without the need for recourse to the local courts. The services an institution may offer are exemplified by the role of the ICC Court. Among other things, the ICC Court will: (i) determine whether there is a prima facie agreement to arbitrate; (ii) decide on the number of arbitrators; (iii) appoint arbitrators; (iv) decide challenges against arbitrators; (v) ensure that arbitrators are conducting the arbitration in accordance with the ICC Rules and replace them if necessary; (vi) determine the place of arbitration; (vii) fix and extend time-limits; (viii) determine the fees and expenses of the arbitrators; and (ix) scrutinise arbitral awards.6
The Standing Committee's recommendations might not be implemented just yet. The legislature has an important role to play in establishing the necessary framework. Unfortunately, reform of the law on arbitration does not bring votes and this is low on the priority list. The motive for reform might eventually not even be the belief in the need for institutionalised arbitration. Nevertheless, I believe that the step of setting up institutionalised arbitration in India is certainly the way forward.
- Burger, "The State of Justice", 70 ABAJ 62 (1984)
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- This passage has adapted ideas from Working Paper No. 141 on "Democratisation of Justice in India", pp. 1-2, by Professor Robert Moog for the Center for Research on Economic Development and Policy Reform at Stanford University available at http://scid.stanford.edu/pdf/credpr141.pdf.
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- This part adopted from the foreword written by the Rt. Hon. Lord Mustill for "The Law and Practice of Arbitration and Conciliation" by O.P. Malhotra, 2002, Butterworths.
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- Available at http://rajyasabha.nic.in/book2/reports/personnel/9threport.htm.
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- Ideas adopted from http://www.carrow.com.
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- See www.iccwbo.org/index_court.asp
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