New Delhi: The legal framework governing arbitrations in India should be overhauled to do away with ad-hoc arbitration and replace it with institutionalised arbitration, former Supreme Court judge and chairman of India International Arbitration Centre (IIAC) Hemant Gupta has said.
In an exclusive conversation with ThePrint, Justice Gupta said people in India have grown with the mindset that only “ad-hoc arbitrations in which courts appoint former judges as arbitrators” is practiced here.
“This (ad-hoc arbitrations) must end and appointment of arbitrators should go beyond former judges to include experts from other domains. The process of arbitration needs to be institutionalised so that arbitrations are regulated and become an effective alternative dispute redressal mechanism,” he said.
“Organised arbitrations would impact India’s economic growth in a positive way and also build confidence in global investors seeking to do business here,” he added.
Justice Gupta was appointed as IIAC chairperson in December last year, two months after he retired as a Supreme Court judge.
IIAC is a central government-backed arbitration centre, which was established under the India International Arbitration Centre Act. The law declared IIAC as an institution of national importance aiming to create an independent and autonomous regime for institutional arbitration.
The procedure of arbitration — in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute — is meant to provide quick resolution to commercial disputes arising out of financial contracts.
Arbitration in India is governed by the Arbitration and Conciliation Act, 1996. However, long delays in arbitration proceedings have frustrated the purpose of the law.
Though the law allows for institutionalised arbitrations, ad-hoc arbitrations are more popular, where courts appoint former judges as arbitrators.
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‘Need for domain specialists’
Highlighting the deficiencies in the existing arbitration system, Justice Gupta emphasised that modulation is required in all the three stages — appointment of arbitrators, conduct of proceedings and finalisation of the arbitration award — under the alternative dispute redressal mechanism.
Moreover, he added, only institutionalisation of the system can regulate the fee structure of an arbitration proceeding which, in his view, has over the years become a matter of concern, with expenses skyrocketing many times.
“Though the fourth schedule under the Arbitration Act prescribes a fee to be given to the arbitrator as well as a timeline for the proceedings to conclude, they are seldom followed,” Justice Gupta said.
According to him, the problem begins with the appointment itself. As of now, the law empowers the high court to appoint arbitrators in domestic disputes and the Supreme Court in case of international commercial disputes.
Appointment of an arbitrator takes a lot of time and in many instances remains stuck in court for its final say on it, the former judge pointed out.
He recalled that while he was in the SC, the top court had collated data from various state high courts, which revealed that “900 applications seeking appointment of arbitrators were pending in Maharashtra, 800 in Delhi and a somewhat similar number in Punjab”.
“If the appointment of an arbitrator, which is the first stage in an arbitration proceeding, takes a long time then, obviously, everything gets delayed,” Justice Gupta said.
Another difficulty with respect to appointments, he pointed out, is the pool from where arbitrators can be chosen. It is limited to retired apex court judges, high court judges or district judges. In rare cases, an advocate is appointed as an arbitrator.
“Worldwide, judges probably form a miniscule number of arbitrators. Persons who are experts in different fields are appointed as arbitrators,” he said, opining that judges are not equipped or trained to handle disputes that are technical in nature, such as disputes in the energy sector. “Hence, such arbitrations require domain specialists,” he added.
Problem with ad-hoc arbitrations
Ad-hoc arbitrations, Justice Gupta asserted, remain unregulated. Though parties agree to follow a timeline, many times the arbitration proceedings get extended and courts allow this.
According to the law, pleadings in a domestic arbitration proceeding must complete within six months and in 12 months, the award must be announced.
Another reason why arbitrations often continue beyond the deadline mentioned in the law is because there is no dedicated bar for this specialised area of legal practise. “Arbitration is treated as a part-time job and lawyers mostly prefer to appear after court work is over, or on Saturday and Sunday,” said the former judge.
Similarly, negotiations are also done on the fee amount for arbitrators, said Justice Gupta. “Parties involved in the dispute themselves offer an amount that is more than the fee prescribed in the Act,” he added.
On why institutionalised arbitration has remained only in the statute book, but not encouraged, Justice Gupta said that since the law was framed — first in 1940 and then reworked in 1996 — not many institutions got established in India where arbitrations could be referred.
The ones that came up over the years have worked in silos, instead of making a collective effort to convince the courts to let the institutions appoint arbitrators, he explained.
Justice Gupta further said that unlike international practice, where advocate bodies have taken the lead to set up state-of-the-art arbitration centres, India has not seen such a push from the legal fraternity.
“India is the only country where an institution (on arbitration) is not allowed to appoint an arbitrator (because the court does so),” he said.
Justice Gupta recalled a recent international conference “where a sitting Supreme Court judge said that if they (courts) can appoint judges, they can appoint arbitrators too”.
“This mindset must change,” he said, calling for removing the provision in the law that lets a court nominate an arbitrator.
Talking about the “defects” in the legal framework, Justice Gupta said “the law must be amended to reduce intra-court appeals that linger on and delay arbitration proceedings”.
Further, the grounds on which a final award can be challenged needs to be crystallised and made specific. Currently, he alleged, the law has “broad” and “vague” grounds for an appeal.
Recovery of the final arbitration award is also problematic, he said. “Most of the time, the party who has won the arbitration has to approach the court for the execution of the award. This is because the losing litigant does not honour the award. This is another area that needs to be addressed,” the former judge explained.
New regulations
On the IIAC’s role, Justice Gupta said the institution has formed a broad-based panel of arbitrators who are in the age group of 35 to 75 years. The panel is not limited to former judges, but domain experts such as chartered accountants, engineers and others.
According to the arbitration regulations notified by the Centre last month, the fee structure for an arbitrator has been specified. It is based on the financial stakes involved in the dispute referred to the institution.
Justice Gupta said that milestones would be followed for payment of the fee and it would not be given in advance. Further, a strict time schedule would be followed to complete the proceedings.
Also, he added, the regulations allow for an in-house review of the award. “Before the award is made public, our registrar will review it to make sure there are no calculation errors or the arbitration tribunal has not dealt with an argument raised by either of the two sides,” said Justice Gupta, clarifying that there will be no review on the merits of the decision given.
(Edited by Nida Fatima Siddiqui)
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