With thanks to Varnika Chawla, trainee solicitor (India Qualified) in the International Arbitration and Construction Disputes Group at Bryan Cave Leighton Paisner LLP for co-authoring this blog.
On 9 August 2019, the Indian Arbitration and Conciliation (Amendment) Act 2019 was published. This will come into force as and when the central government notifies by way of Official Gazette. The Act amends the Indian Arbitration and Conciliation Act 1996 and is the latest in a series of steps designed to make India a more arbitration-friendly jurisdiction.
One of the key amendments is the creation of an independent body, the Arbitration Council of India (ACI), which will be responsible for promoting institutional arbitration in India by grading arbitral institutions and promoting the accreditation of arbitrators.
This blog post looks at the role of the ACI and whether the creation of this new body will have the desired effect of promoting arbitration as an effective and efficient dispute resolution mechanism in India.
Arbitration in India
The 2019 Act came about based on the recommendations of a high level committee under the chairmanship of (retired) Justice B.N. Srikrishna.
The committee, in its report dated 30 July 2017, proposed several amendments to the law with a view to:
“… strengthening institutional arbitration in India through measures such as the grading of arbitral institutions, the accreditation of arbitrators, the creation of a specialist arbitration bar and bench, and the provision of governmental and legislative support for institutional arbitration.”
Improving the formal legal infrastructure (neutrality and impartiality of the legal system, national arbitration law, and track record for enforcing arbitration agreements and arbitral awards) is essential for making arbitration an effective method to resolve commercial disputes in India. This remains an ongoing process in India. However, the recommendations demonstrate an acceptance that strengthening institutional mechanisms in India is also an important step in that process.
The 2015 QMUL Arbitration Survey found, once the legal infrastructure threshold has been achieved, the availability of local arbitral institutions, and of quality arbitrators who are familiar with the seat, can increase the attractiveness of the seat. Singapore is a good example of an arbitral seat that has successfully implemented this model. Over the last ten years, Singapore has become a well-established seat for international arbitration, combining a solid legal infrastructure with a respected arbitral institution: SIAC.
The 2019 Act draws heavily on the recommendations of the committee. It introduces several amendments not only to address the issues with the legal infrastructure, but also to promote the use of institutional mechanisms in India.
The Arbitration Council of India
The ACI will be an independent body. It will consist of a chairperson who has been either a judge of the Supreme Court, Chief Justice of a High Court, judge of a High Court or an eminent person having special knowledge and experience in the conduct or administration of arbitration. They shall be appointed by the central government in consultation with the Chief Justice of India. Other members of the council will include an eminent arbitration practitioner and an eminent academic with experience in arbitration. Ex officio members of the council will include government appointees and a representative of a recognised body of commerce and industry.
One of the concerns that has been expressed about the ACI is that, in a country with a reputation for high levels of bureaucracy, creating this new body simply introduces another level of administration and regulation in the arbitration process.
Grading arbitral institutions
India currently has over 35 arbitral institutions of varying quality. The 2019 Act provides that the ACI will be responsible for grading arbitral institutions on the basis of criteria relating to infrastructure, quality and calibre of arbitrators, performance, and compliance with time limits for disposal of domestic or international commercial arbitrations.
The intention of the provisions is to promote the efficiency of Indian arbitral institutions. This is clearly important, as a key consideration when choosing an arbitral institution is whether it offers a high level of administration (typically judged by how proactive and responsive it is in administering an arbitration).
One of the problems with the 2019 Act is that it does not specify the precise method and scale of such grading. It fails to provide an exhaustive list of factors to be considered in the process. This may result in a lack of clarity and transparency over how the grading system will work in practice. This is undesirable from an end-user perspective; parties, both domestic and international, who are considering institutional arbitration in India will want to have a clear understanding of the criteria that have been applied so that they can make an informed choice of arbitral institution.
The grading is also significant for another reason. The 2019 Act effectively allows courts to delegate the function of appointment. Under the new amendments, if the parties are unable to reach agreement on the appointment of an arbitrator or arbitrators, the courts will designate a graded arbitral institution to act as the appointing authority. The advantage of this provision is that it will limit judicial intervention in the appointment process and improve efficiency.
However, one of the problems with the new provision is that there are no criteria mentioned by which courts may designate the graded institutions. Further, given that there is no limit on the number of institutions that can be designated by the courts, there may be a situation of deadlock between parties as to the preference of appointing institution. This can be contrasted with the approach that has been adopted in Singapore, where the International Arbitration Act designates one arbitral institution (SIAC) as the appointing authority.
Accreditation of arbitrators
The ACI will also be responsible for recognising professional institutions which accredit arbitrators. The eighth schedule of the 2019 Act sets out the qualification criteria and general norms applicable to all arbitrators.
The general norms include the following:
- The arbitrator must be impartial and neutral.
- The arbitrator shall be conversant with the constitution of India, principles of natural justice, equity, common and customary laws, making and enforcing arbitral awards, domestic and international legal system on arbitration, and international best practices.
- The arbitrator should be capable of suggesting, recommending or writing a reasoned and enforceable arbitral award in any dispute which comes before them for adjudication.
The general norms are not particularly controversial, although they do favour arbitrators with a legal or public sector background. The accreditation itself is a positive step as it enables younger professionals with relevant experience, such as lawyers at law firms, litigation specialists and persons with technical expertise, to seek engagement opportunities as arbitrators, thereby separating the arbitral process from the sole influence of retired members of the judiciary or government services. There have been concerns that the criteria essentially disqualifies foreign registered lawyers from becoming arbitrators. However, the eighth schedule clarifies this by providing an all-encompassing provision that allows persons having requisite educational qualifications and ten years of experience in various streams, or holding a senior level managerial position in a private sector, to qualify as arbitrators. It is important to ensure party autonomy in the appointment process and to allow parties the option to choose arbitrators irrespective of nationality, by maintaining a balance between accreditation and regulation.
Again, Singapore serves as a good example in this regard. Singapore law does not impose any nationality requirements on arbitrators, ensuring a liberalised arbitration system. Rather, parties are encouraged to stipulate their own requirements (such as professional qualifications, expertise or nationality) that they may require their arbitrators to possess, thereby also allowing a wider range of expertise and promoting party autonomy.
The 2019 Act is the latest in a series of amendments to the legal infrastructure that are designed to improve the efficacy of arbitration in India. Strengthening institutional arbitration is an important step towards achieving that objective and the ACI will have a key role in that process. It will be interesting to see whether the ACI can rise to this challenge and encourage parties to adopt arbitration as a viable alternative to litigation in India.