Arbitration Rules in India: A Brief Analysis

Introduction

Arbitration is a method of resolution and adjudication of disputes by the appointment of an Arbitrator or a panel of Arbitrators by the parties themselves, thus reducing the involvement of the Judiciary in the adjudication process and expediting the justice delivery system. Due to the increasing pendency of cases in the Indian Courts and the time-consuming judicial process, there has been a great emphasis on invoking the Alternate Dispute Resolution mechanism and reduce the dependence upon the judiciary for determining the legal disputes.

Further, Arbitration as a method of resolving international disputes was also prescribed by the Constitution of India in the form of Directive Principles of State Policy. Article 51 sub-clause (d) lays down that the State should encourage the settlement of international disputes by arbitration. Further, sub-clause (c) of the same Article lays down that the State should endeavour to foster respect for international law and treaty obligations. Thus, to give force to both the above-mentioned rules, the Arbitration and Conciliation Act, 1996 was enacted, which governs both, domestic as well as international arbitral proceedings. Although the act now stands substantially amended by the Arbitration and Conciliation (Amendment) Ordinance, 2015 which was promulgated by the President of India on October 23rd, 2015.

This article is an attempt to analyze certain important aspects of the Indian law and contrasting them with the internationally recognized standards and signed Conventions.

The Indian Law: Important Aspects

Part I of the Indian Act deals with the rules regarding the requirements and procedures involved in an arbitration case, while Part II and Part III are concerned with giving force to various international treaties. The discussion in this section deals only with Part I and covers various facets and procedures involved in the Indian Law.

Following are some important heads which are discussed -

Types of Arbitrations Recognized: The definitions clause of the Act is imbibed in its Section 2. Section2(1)(a)clarifies the scope of the word ‘Arbitration’. It states that any arbitration whether or not administered by permanent arbitral institution would come within the ambit of the word ‘Arbitration’ with respect to this Act. Thus, the Act recognizes both institutional as well as non-institutional or ad hoc arbitrations.

Institutional arbitrations are the type of Arbitrations where the arbitral proceedings are administered by and under the rules of a specialized institution. The rules vary from institution to institution, and it is decided by a prior agreement based on parties’ will as to which institution they want to submit their dispute to, and the rules of that institution will then be applicable.

It must be noted that the institutes themselves do not arbitrate. It’s still an arbitration done by the Arbitrators appointed by the parties themselves. It’s just the applicable rules that are affected by agreeing to submit a dispute to any particular institution.

There are various institutions around the world, some noteworthy ones being London Court of International Arbitration (LCIA), the International Chamber of Commerce (ICC) and Singapore International Arbitration Centre (SIAC).

Non-Institutional arbitration or the Ad Hoc arbitration is the kind of arbitration which is not administered by any specialized institution. Thus, the parties themselves will have to agree upon every aspect associated with an arbitration proceeding, ranging from composition of the arbitral tribunal and applicable law to deciding the enforceability of the award given by the tribunal.

Ad hoc proceedings are potentially much more flexible and customized and are best suited to meet the needs of both the parties, assuming that the parties are cooperative and approach the arbitration in an amicable manner. Parties are often inclined to go for this form of proceedings as the absence of administrative fee itself makes the procedure much cheaper than a proceeding in institutional arbitration.

Disqualification of Arbitrator: Owing to the fact that the Arbitrators are not members of any judicial organization, rather, they are private adjudicators and are not vested public authoritative powers, the selection of Arbitrators is left to the parties to the dispute themselves. The process includes plethora of considerations, the primary ones being independence and impartiality of the Arbitrators. Thus, special emphasis has been given in the Indian Arbitration and Conciliation Act on these two qualifications, failing which the Arbitrator may be disqualified.

Section 12(3)(a) of the Act states that an Arbitrator may be challenged if there exist circumstances that create justifiable doubts about the independence and impartiality of the said Arbitrator. Thus, it is pertinent to explain the meaning and scope of these two terms.

Independence: An independent Arbitrator is the one who has no personal or employment relationship with either of the parties, neither does he/she has any economic or any other sort of dependence on the parties.

Independence is easier to ascertain and measure as it consists of an objective assessment of the relationship shared by an Arbitrator and a party to the dispute. On the outset, it can be said to be the lack of ties to any of the parties, counsels or the co-Arbitrators.

Impartiality: Impartiality is absence of any inclination or disinclination towards any of the parties. Impartiality is important as it ensures that the award is not tilted in favour of any one party and both the parties get a fair chance to get a balanced and impartial award.

Impartiality is an abstract concept and is characterized by various subjective aspects, therefore, is difficult to ascertain and prove. But to ensure the fairness of the proceedings, both, independence, as well as impartiality, have to be checked.

The Courts have, however, been refining the tests being employed to determine the independence and impartiality of the Arbitrators. It was held in the case of Parthasarthi v. State of Andhra Pradesh that the circumstances should be such that the reasonable man would think it probably or likely, that the inquiring officer would be biased. This was called the real apprehension test. However, the Court in the case of Kumaon Mandal Vikas Nigam Ltd vs Girja Shankar Pant & Ors held that bias of every individual case should be decided on the cases own facts and circumstances and held that when there shall be a real danger of bias then the administrative action of the cases should be set aside, but if there shall be any little apprehension of bias, the Court can consider all the void circumstances before arriving at a conclusion.

Although, a confusing stance was taken by the court in the case of G. Sarana v. Lucknow University. The observation made by the court here threw some doubt on the application of test laid down in Parthasarathi case as the court used two different expressions – “reasonable ground for believing” and “substantial possibility of bias”. It made it unclear that whether the court had in mind the standard of reasonable man or the the standard of court being satisfied of the possibility of the bias. But the well-knows authors on Administrative Law, M.P. Jain and S.N. Jain, opine that the court did not intend any departure from the above test.

Deciding Jurisdiction: The arbitral tribunal has been vested with the power to adjudicate on the issue of its own jurisdiction over the matter at hand by the Indian Arbitration and Conciliation Act. Section 16(1) of the Act states that the arbitral tribunal may rule in the matter of its own jurisdiction, including any objections raised against the validity of the agreement to arbitrate.

This power of the tribunal deciding its own jurisdiction is vested in by relying on the concept of Competence – Competence. This principle was established by the English Law in the case of Brown v. GenossenschaftOsterreichischerWaldbesitzer, in which Justice Devlin very clearly stated that -

“[Arbitrators] are entitled to inquire into the merits of the issue whether they have jurisdiction or not, not for the purpose of reaching any conclusion which will be binding upon the parties – because they cannot do so – but for the purpose of satisfying themselves as a preliminary matter about whether they ought to go on with the arbitration or not.”

The principle of Competence – Competence is a widely accepted principle, which can be ascertained by the fact of its express incorporation in Article 16 of the UNCITRAL Model Law and many other developed arbitration jurisdictions. Thus, the principle is not a novel concept, rather, it is a much recognized and relied upon concept when it comes to deciding jurisdiction of an Arbitral Tribunal.