Govt seeks to amend law to bolster institutional arbitration

New Delhi: The Union law ministry has proposed to strengthen the process of institutional arbitration by making provisions for appellate arbitral tribunals, giving disputants the option to appeal arbitral awards without moving courts of law.

This provision would, however, only be available for arbitrations conducted under the aegis of arbitration institutions, as per the draft amendment to the Arbitration and Conciliation Act issued on Friday.

The Arbitration and Conciliation Act, passed originally in 1996, is the country’s key legislation governing arbitrations in the country, and has been amended thrice before this in 2015, 2019, and 2021.

In India, arbitrations can either be ad-hoc, where parties determine arbitrators and the rules of procedure, or institutional arbitrations, where the same tasks are done by a specialised institution.

Low caseload in institutional arbitration in the country has been a pain point in the ecosystem, according to various expert panels, even as India aims to become a global arbitration hub.

The option for disputants to appeal arbitral awards in either a court or an appellate tribunal would only be available to arbitrations conducted by institutions, and not ad-hoc dispute resolutions, the proposed amendments to the Arbitration and Conciliation Act show, indicating the government’s push to strengthen these institutions.

Mint reported on 29 September that the government was working to strengthen the India International Arbitration Centre (IIAC) by increasing the institution’s caseload. The IIAC is the country’s only arbitration institution directly funded by the central government.

Some legal experts welcomed the proposed amendments, saying they may lead to a declogging of the courts.

“Yes, it is expected to help reduce the burden on Indian courts by strengthening and streamlining the arbitration framework, by limiting court intervention (narrowing the grounds of challenge), giving finality to the arbitral award, encouraging institutional arbitration, clearer appointment procedure and reducing litigation on appointments, making the overall process time-bound,” said Gauhar Mirza, partner, Cyril Amarchand Mangaldas.

However, others are wary. “While the proposed amendment shall offer some benefits and advantages but in my opinion there are potential challenges that could arise. This amendment would increase complexity and arbitration cost to the parties. With this amendment, appellate arbitral tribunals would mean that adding a layer of appeal within the arbitration process, which will lead to more complexity and delay in adjudication. The parties pay for arbitration and later pay for appeal, leading it to opening the doors for delaying the adjudication and making it less cost-effective,” said Alay Razvi, managing partner, Accord Juris.

Other proposed changes to the law include the omission of Conciliation from the Act. The law will now be called the Arbitration Act, the law ministry proposed.

The proposed amendments also included the addition of emergency arbitrations for interim relief of disputants, as well beefing up the Arbitration Council of India (ACI), which is a body created in 2019 to regulate the mechanism, with additional powers. The ACI, however, has not been constituted till date.

“Emergency arbitration offers a mechanism for disputants to seek interim relief swiftly, bypassing the need for lengthy judicial intervention. This could accelerate dispute resolution in commercial matters, providing immediate relief in urgent cases. However, it’s worth noting that while emergency arbitration is a step in the right direction, its effective implementation and success in India may still be a distant goal, considering the current arbitration framework and lack of awareness among stakeholders,” Abhishek Taneja, an advocate who practises before the Delhi High Court, said.

The ACI was created via the 2019 amendment with overarching powers to determine the model rules and procedures of arbitration in the country. It was also given powers to regulate arbitrators.

Now, the proposed amendments provide more powers to the ACI. The new proposal suspends the powers of the central government under the Fourth schedule of the law to prescribe fees for arbitration. Instead, it provides fee-deciding powers to the ACI, in cases where the fees have not been decided by the parties or by the arbitration institution.

The ACI also has the powers under the proposed law to create model rules of procedure for arbitration proceedings, which have to be followed by the arbitrators in ad-hoc cases, or where parties have themselves not decided upon a set of rules.

“We should also understand that the ACI’s code needs to be followed as part of the amendment, but the body does not exist. This can lead to confusion and increase in disputes,” said Razvi of Juris Accord.

Crucially, the proposed amendment will also allow arbitrations conducted via video conferencing. It also allows parties to use digital signatures for arbitration proceedings.

Proposed amendment also tightens the definition of courts for arbitration

The proposed amendment also tightens the definition of “courts” for arbitration, clarifying that courts having territorial jurisdiction over the dispute will hear appeals from the arbitration process.

It also grants more powers to arbitration institutions to allow or disallow extension of the arbitration process — with the same power granted to relevant courts for ad-hoc arbitrations.

The proposed amendments also tie arbitration with the Mediation Act passed last year, by saying that if parties come to a consensus during the arbitration proceedings, it would be recorded as a mediated settlement agreement enforceable in accordance with the provisions of Mediation Act, 2023.

The law ministry has sought public feedback on these proposed amendments, and the same can be given within the next 15 days.