Arbitration needs stronger teeth

Ever since the Modi government assumed control of the national government, the country’s alternative dispute resolution (ADR) ecosystem has been undergoing changes and adjustments. With the amendments, particularly the Arbitration and Conciliation (Amendment) Act, 2021, and the proposed draft Arbitration and Conciliation (Amendment) Bill, 2024, India is beginning a new chapter in its arbitration ecosystem.

These measures, which build on prior modifications in 2015 and 2019, seek to reduce judicial interference, enhance institutional arbitration, and match the country’s dispute resolution framework with international best practices. The Arbitration and Conciliation Act of 1996, based on the UNCITRAL Model Law, was enacted to modernise India’s arbitration landscape. However, later years showed other flaws, including excessive judicial interference, delays by courts in hearing the cases under Section 34, delays in appointment of arbitrators, and a lack of procedural clarity, and lack of awareness of party autonomy in arbitrator appointment. This resulted in a series of revisions intended to remedy these issues. The 2015 Amendment Act was the first revision made to the Arbitration and Conciliation Act after the Modi government took office. This reform was a watershed moment because it addressed the automatic stay of awards, limited court interference in arbitral appointments, and created time limits for completing processes.

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It also changed the meaning of “court” in international commercial arbitration, directing such cases only to the High Court. The second in the series is the 2019 Amendment Act, which focuses on institutional arbitration by establishing the Arbitration Council of India (ACI) to grade arbitral institutions and accredit arbitrators. It also established confidentiality standards for hearings and offered arbitrators immunity for acts performed in good faith. This modification resulted from the Justice Sri Krishna committee’s recommendations, which included improving institutional arbitration by promoting private players recognised by the Arbitration Council of India.

However, the ACI has yet to be constituted and operationalised. The third was the 2021 Amendment Act, which included a provision that allows for an unconditional stay on the enforcement of awards in circumstances where the arbitration agreement or award was obtained through fraud or corruption. However, neither of these amendments were fully notified by the government following the president’s approval. However, the International Centre for Alternative Dispute Resolution (ICADR) which was functioning under the aegis of the Supreme Court of India was closed down, and a new Indian International Arbitration Centre (IIAC) is opened under the India International Arbitration Centre Act, 2019.

The Arbitration Bill of 2024 is the latest in the line that might impact the arbitration ecosystem in the country if passed by the parliament and notified by the government. The draft Arbitration and Conciliation (Amendment) Bill, 2024, aims to create a more efficient, technology-driven, and institutionalised arbitration system through key proposals such as redefining arbitral institutions, strengthening the ACI, imposing stricter court timelines, limiting judicial intervention, codifying emergency arbitration, disp ensing with gradation of arbitration institutions, and clarifying the seat vs. venue distinction. However, several debatable concepts, such as extending “patent illegality” to international commercial arbitrations located in India and establishing an Appellate Arbitral Tribunal, have raised concerns about alienating foreign parties and perhaps causing delays and confusion.

The new chapter in Indian arbitration law is promising, as it emphasises efficiency, institutionalisation, and technological integration. However, the ultimate effectiveness of these reforms will be determined by how well they are executed and whether they can strike the proper balance between avoiding judicial intrusion while maintaining fairness and due process for all parties. Critics point to potential drawbacks of a proposed arbitration bill, such as undermining party autonomy by limiting the choice of arbitration seat and extending grounds for challenge such as “patent illegality” to international commercial arbitrations, potentially weakening the finality of decisions.

Concerns have also been made concerning the complexity and time caused by appellate arbitral tribunals, the exclusion of ad hoc arbitration from new rules, and the delay in putting the Arbitration Council into operation. The measure is also attacked for ignoring unsolved legal difficulties, notably failing to codify the Group of Companies Doctrine, and for reflecting parliamentary stagnation. Critics of the proposed measure have provided additional facts. For India to maintain its position as a global arbitration powerhouse, it must solve these concerns and continue to improve its system.

(The writer is a former Senior International Advisor, UNDP.)