India: A Case For Arbitral Institution Vis-à-vis Ad-hoc Arbitration.
The adjudication of disputes through arbitration is at a crossroads today, with the cons outweighing the pros for adopting arbitration instead of court litigation. There is growing concern amongst the business community that the ad-hoc arbitration process has become slow and expensive, coupled with challenges on the appointment of the arbitrator leads whilst the arbitration is yet to commence, which leads to avoidable delays and unnecessary costs. Although, sweeping amendments have been made to the Arbitration & Conciliation (Amendment) Act, 2019, to plug loopholes and anomalies in India's arbitration law. However, it may be too early to determine the effects of the said amendments.
Facing huge sums of arbitral awards, which has practically bankrupted many Public sector enterprises. To circumvent this scenario, many Public sector enterprises have started to fix an upper ceiling limit for arbitration, meaning if a claim crosses a specific ceiling limit of the disputed amount, then the claimant has to approach Court for adjudication of its Claim. Furthermore, in a commercial suit, one can challenge a finding of fact and law before the appellate Court, as opposed to in an arbitration, where the scope of interference with Arbitral Awards is extremely limited and confined to the parameters set out in under Section 34 of the Arbitration & Conciliation Act, 1996 ('Act') i.e the Impugned Award does suffer from patently illegality, arbitrator's findings are perverse so as to shock the conscience of the Court.
However, upon closer inspection of the recent trends, one thing that stands out is that most of the arbitrations are ad-hoc arbitrations, which have landed the companies in a big soup. Therefore, one needs to ask what benefits an arbitral institution brings to the table and should the business community be gravitating toward it. Let us compare some of the salient features of an arbitral institution over Ad hoc arbitration.
- Procedural control/certainty - Institutional arbitration gives the parties the benefit of using a tried and tested process and a proven set of terms and conditions to rely upon. This means that the fundamental steps for appointing any arbitrator either by the parties or by the institution in case either of the parties failed to nominate, including costs, are managed and controlled by the institution. Certain institutions such as MCIA alone are empowered to appoint arbitrators, and even party appointment arbitrators are subject to discretion by the institution's Council1.
In contrast, ad hoc arbitration depends, to a certain extent, on the cooperation of the parties, which may be difficult to achieve if the relationship has broken down. Generally, ad hoc arbitrations are more vulnerable to procedural challenges and obstructive tactics. Parties may seek redress from the applicable procedural law, which will be time-consuming and expensive.
- Administration - Some arbitral institutions benefit from an active professional administration service for supervision and monitoring of the arbitration hearings to ensure the smooth running of the proceedings. In an Ad-hoc arbitration, it is up to the arbitral tribunal to administrate its proceedings.
- Costs – Under arbitral institutions, parties have upfront clarity on the costs of the arbitral tribunal as the institutions have in place a framework of charges for administration services and arbitrators. A further advantage of institutional arbitration is that the major institutions can hold funds on behalf of the parties if appropriate and some have ceiling limits for arbitrator's fees.
- Speed - In practice, there is unlikely to be any substantial difference between the processes now that the Arbitration and Conciliation Act 1996 provides a time limit of 12 months to complete arbitration ( Section 29 A of the Act).
- Domain Knowledge of arbitrators - Typically, the arbitral institutions do have access to a large pool of experienced arbitrators. However, in practice, the parties and their legal advisers, with knowledge of the relevant industry, are just as able to make a suitable appointment under Ad hoc process.
- Scrutiny of awards – Typically, arbitral institution rules provide for scrutiny of awards without affecting the arbitrators' liberty of decision. The scrutiny process provides the parties with an additional layer of protection that would not otherwise be available under Ad hoc arbitration. The scrutiny of awards promotes their legal effectiveness and enforceability.
In the context of commercial disputes, institutional arbitrations may be more suitable as the institutional process provides established and up-to-date arbitration rules, support, supervision and monitoring of the arbitration, review of the awards, and strengthens the awards' credibility. After you have decided to march towards the path of Arbitral institution over Ad hoc mechanism, the next crucial step is to determine which vessel, i.e arbitral institution, you need to board which would carry and help you navigate through the adjudication process.
There has been a surge in the growth of Domestic Arbitral Institutions within India. It is pertinent to note that the Rules of Domestic Arbitral Institutions are at par with what is being offered by the International Arbitral Institutions such as ICC, LCIA, SIAC, etc. Few Domestic Arbitral Institutions have modelled their rules with International Arbitral Institutions. Practices of popular Arbitral Institutions such as Mumbai Centre for International Arbitration (MCIA), Indian Council Arbitration (ICA), Delhi International Arbitration Centre (DIAC)and SCOPE Forum of Conciliation and Arbitration (SFCA) are discussed below.
Amongst the typical features, a party looks in an arbitral institution such as the venue of arbitration, method of commencing an arbitration, Administration fee, and Arbitrators' fees. Lately, new features such as the appointment of an emergency arbitrator, fast-track arbitration, and the joinder of multiple parties should also be considered.
- Emergency Arbitrator
The advent of the Emergency Arbitrator came into being to provide urgent relief to a party before the constitution of the arbitral tribunal in order to protect their assets and evidence that might otherwise be altered or lost as the constitution of the arbitral tribunal takes considerable time.
- Fast Track Arbitration
As the name implies, it is an arbitration on steroids. A Fast Track Arbitration is an effective mode of dispute resolution that is time-bound and hence, cannot be delayed for any reason whatsoever. It is a sub-system of regular arbitration usually involves adjudication of disputes based on documentary evidence with the exclusion of oral evidence and strict timelines.
- Joinder Of Multiple Parties
As parties enter into a series of contracts which are either layered or intertwined, having a similar party or product, it so happens that the said contract does not have a common dispute resolution clause or no arbitration clause at all. The rule for Joinder Of Multiple Parties comes to the aid of a party who is left outside the preview of the arbitration by consolidating its lis or grievance in the arbitration.
DOMESTIC ARBITRAL INSTITUTIONS
Delhi International Arbitration Centre (DIAC)
Hon'ble Delhi High Court was instrumental in setting up Delhi International Arbitration Centre (DIAC) on 25 November 2009. The DIAC. DIAC Rules are modelled after the much sought-after Singapore International Arbitration Centre. DIAC is housed within the premises of Delhi High Court. Since its inception, it has seen a multifold rise of arbitrations being administered by it. Like ICA, it also has a panel of Arbitrators comprising judges, advocates, engineers, chartered accountants, etc. Being modelled after Singapore International Arbitration Centre, the Rules of DIAC provide all the bells and whistles which an International Arbitral Institution provides for.
Mumbai Centre for International Arbitration (MCIA)
Mumbai Centre for International Arbitration (MCIA) is the new entrant on the block, and within a short period, it has been recognised as one of the leading arbitral institutions. As the name implies, it is based in the financial capital of India- Mumbai having a plush office at Nariman Point which also offers a venue to conduct the arbitration(s). It is established with a joint initiative between the Government of Maharashtra and the domestic and international business and legal communities.
It so happened with the exit of LCIA India on 01 June 2016 from India. In October 2016, MCIA came to be established. The organisation of MCIA is divided into MCIA Council and MCIA Secretariat. MCIA Council has enlisted leading practitioners of arbitration both domestically and internationally. MCIA Secretariat comprises a CEO, Registrar/Secretary-General and a team of case handlers. Recently, MCIA has entered a collaboration with WeWork arbitration hearing facilities, whereby parties now have access to all 35 WeWork spaces across 6 major cities in India for fixing a venue for the arbitration.2
Indian Council Arbitration (ICA)
One of the oldest Domestic Arbitral Institution based in the nation's capital- New Delhi, ICA was established in 1965 with the initiatives from Govt. of India and popular business think tanks like FICCI etc. It claims to handle more than 400 domestic and international arbitration cases annually. It provides Rules for three spheres of dispute resolution, namely Rules of International Commercial Arbitration, Maritime Rules, and Rules of Arbitration & Conciliation.
It also has a panel of Arbitrators comprising judges, advocates, engineers, chartered accountants, executives, maritime experts, businessmen and foreign nationals. From this, the Registrar calls upon the parties to choose its arbitrator (s).
Although, Rules of ICA do provide for a Fast track arbitration, however, it fails to provide for an emergency arbitrator and joinder of multiple parties.
SCOPE Forum of Conciliation and Arbitration (SFCA)
Standing Conference of Public Enterprises (SCOPE) is an apex professional organisation comprising of Central Government Public Enterprises, a few State Enterprises, Banks and other Institutions as its Members. It came into existence on 10 April 1973, and Central Government of India formally recognised SCOPE as an apex body of Central Public Sector Enterprises in November 1976.
In order to cater to the demands from Public Sector Enterprises for setting up a forum to resolve disputes through arbitration, conciliation, and mediation, SCOPE Forum of Conciliation and Arbitration (SFCA) came to be established in 2003 under the aegis of SCOPE with the objective to settle the disputes between Public Sector Enterprises and private parties expeditiously at a minimal cost.
A large number of Public Sector Enterprises, including M/s IOCL, BPCL, SAIL, NFL, CONCOR, NHPC, Airport Authority of India Limited & M/s SJVN Limited, have opted for SFCA Clause in their contracts and agreements.
The organisation set up of SFCA comprises of Governing Body and Secretariat. Governing Body of SFCA comprises of 15 office bearers for a term of two years. Amongst other functions, the Governing Body appoints the Secretariat.
SFCA Rules-2003 (as amended up to 2017) provide for a default venue of arbitration in New Delhi in terms of Rule 21. Administration fees and Arbitrators' fees are Ad valorem to the claim amount. Rule 33 provides for expeditious disposal of the proceedings within six months from the completion of pleadings. Further, Rule 34 provides for a levy of interest @ 2% higher than the current rate of interest as stipulated in the Interest Act in those instances where interest is not stated in the award.
As the cliché goes, "one size fits all" is certainly not applicable to arbitral institutions as every institution will have its positives coupled with negatives. Therefore, it becomes imperative for a general counsel or advocates to delineate the nature of possible disputes that may arise and how the same can be effectively resolved through arbitral institutions.
Comparison of the Domestic Arbitral Institutions Rules.
Important Note: This is a simplified guide intended to provide an overview of the similarities and differences among some of the major domestic institutional arbitration rules. It is not intended as a substitute for detailed legal advice as to the procedures and laws which govern a particular dispute. Corrected as at 05 June 2022.
1. Rule 7.3 of MCIA Rules 2016
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.