How Do I Benefit from Arbitration?

At a time when the pendency of Cases in Courts in India has crossed 3 crores and there is no end in sight to the number growing further, everybody who is directly or indirectly involved in business dispute management can appreciate that the ready solution to reduce pendency in Courts can come only from development of ADR or Alternate Dispute Resolution.

However, the existing number of arbitral institutions and the number of active members there in is miniscule to make any significant impact on the reduction of pending cases and lot of ground needs to be covered in the coming days. Also, the larger universe of the community including the advocates are yet to fully utilize the opportunities that the ADR presents for enhancing their career prospects both in terms of participating in ADR as counsels of parties and to act as Arbitrators themselves.

In this context, it is worth discussing according to the Arbitration and Mediation Act 1996 as amended on 31st December 2015, (AMA-1996/2016), who can be an arbitrator and what is the likely reward as also what the Advocates can themselves can do to expand the ADR market.

In order to make use of Arbitration, the first requirement is that a business contract which is in dispute needs to have an “Arbitration Clause” in the contract itself. However, if the contract has failed to include the clause and a dispute has arisen now, it is still open to the parties to now agree to settle the dispute through arbitration though one of the parties may feel it is beneficial for him not to agree and therefore refuse the request.

The first thing every advocate should do now is to review the contracts of all his/her clients and check if a proper arbitration clause has been included in the contract and if not suggest a supplementary contract for the purpose.

A normal arbitration clause would read as under:

“Any dispute arising out of or in connection with this contract, shall be referred to and resolved by arbitration as per the provisions of Indian Arbitration and Conciliation Act 1996.”

If the contracting parties want to use a specific Arbitral institution, they can add

“The arbitration shall take place under ……… Arbitration Council”

Additionally two other clauses one on the number of arbitrators and the seat of arbitration (place where the arbitration shall be held) can also be mentioned.

The AMA-1996/2016 has now enabled the arbitration agreement to be made with the use of e-mails. However, it is essential to ensure that the e-mail communication is in accordance with the authentication requirements under ITA2000/8 which requires the communication to be digitally signed or otherwise documented for legal acceptance. If the parties do not have digital signatures or even as a further assurance, parties may use the service of “Certified Delivery of E Mails” provided by agencies such as ODRGLOBAL.IN so that the existence of a valid arbitration agreement itself is not challenged.

The next decision that the Contract drawing parties need to determine is the choice of the Arbitrator. In this connection, it is open to the parties to choose a permanent arbitral institution. Once an arbitral institution is chosen, the rules of the institution automatically become applicable. The arbitrators can be chosen from among the members listed by the institution. If an advocate would like to act as an arbitrator, he needs to be a member of the institution.

It should however be remembered that no person can act as an arbitrator for a dispute where there could be a real or potential conflict of interest. The AMA-1996/2016 lists out the situations where conflicts of interest are deemed to exist and makes a person ineligible to be an arbitrator. This means that no advocate can be an arbitrator for a dispute in which he has been a consultant of some sort to one of the parties etc. or had direct or indirect relationship professional or otherwise, in the present or in the past. When there are multiple arbitrators in the panel, it is also necessary to ensure that there is no inter-se relationship between the arbitrators which creates a conflict of interest.

When the choice of the arbitrator is left to the discretion of the Arbitral institution, the advocate can examine the antecedents of the appointed arbitrator to raise an objection in case he perceives a conflict of interest so that the proceedings cannot be later challenged.

If an advocate wants to work as an arbitrator, he can opt to be a member of the arbitral institution and expect that he would be chosen by some party. However it is difficult for the parties to understand the expertise of individuals and hence they may leave the decision to the arbitral institution who may adopt their own criteria for selection which can be fair but does not necessarily mean that every young entrant to the role of an Arbitrator would get an equal opportunity or recognition of his expertise, unless like ODRGLOBAL.IN, the agency provides some useful information about the arbitrator that can help his choice without deeming it as an “advertisement”.

One of the expertise that would be required in the coming days is the ability of the arbitrator to use ODR (Online Dispute Resolution) and contracting parties may insist that they would designate only an arbitrator or arbitral institution that is conversant with and uses ODR.

Hence advocates wanting to harness the future growth of ADR business must train themselves not only in ADR but also on the mechanics of ODR.

Advocates drawing up the arbitration agreement can incorporate the requirements of expertise into the clause so that only such of the arbitrators who have the necessary qualifications can be appointed as arbitrators for their contract.

As regards the fees that can be charged by an arbitrator, normally the institution of arbitration would adopt a set of fees which applies to all the arbitrations carried on under its umbrella. The AMA-1996/2016 provides a model fee structure. This is however only a “Model” and arbitral institutions can draw their own fee structure. Ideally the fees adopted by the arbitrator/arbitral institution should be less than what is indicated in the Act.

The Act provides a table of model fee that starts with a fee of Rs 45000/- for disputes up to Rs 500,000. An arbitral institution is however having the liberty to bring down the fees further if it chooses to do so. If ADR needs to be encouraged, it is necessary to bring down the fees to say slabs of Rs 1 lakh and should not exceed the Court fee structure.

The potential to bring down costs and handle small ticket arbitration makes it necessary for the industry to develop arbitration infrastructure that is cost effective. In this context, the growth of ODR is inevitable. Since in an ODR, the time of the arbitrator can be more efficiently used, he can price his services at a level that is much less than what many of the arbitral institutions have fixed now.

Training of advocates for ADR/ ODR along with flexibilities to be introduced in fixing of price and the procedures for conducting arbitration (which I shall try to discuss in detail in another article) will go a long way in making ADR a success in India.

I strongly hold the view that India has the potential to become a global hub for ODR and the advocate community needs to work out a transformation path to make this possible.

Na.Vijayashankar
www.naavi.org