Independence and impartiality are supposed to be the foundation stone of Arbitration. The majority of arbitration cases in India have been ad hoc arbitrations; which means arbitration conducted under the framework of Arbitration Act without any supervision of the Arbitral Institutions. The predominant choice of arbitrators has always been retired court judges. It will not be an exaggeration saying that the arbitration has the characteristics of “after hour litigations” with advocates finishing short hearing, when the court closes, in front of the retired judges who brings their past courtroom experience into the arbitration chamber. Also, the arbitration has not flourished in India compared to many international Jurisdictions and it witnesses judicial intervention at each step of the arbitral proceeding. Due to this dilapidated state of arbitration in India, The government constituted a high-level B.H. Srikrishna Committee on 13th January 2017. The objective of this committee was to give suggestions for the reformation and institutionalization of the arbitration mechanism in India and making it more efficacious. There were many suggestions recommended by the committee but the suggestion which caused a lot of debate was the suggestion for the creation of the Arbitration Council of India (ACI).
The 2019 Amendment Act has been one of the most commented legislation because of its wide dividing opinions. The key Changes of this amendment act was the changes in the appointment of arbitrators by arbitral institutions instead of courts, introducing time limit of six months for filing pleadings, removing the twelve months adjudication period in the international arbitration under section 29 and changing the scope of various sections like Section 17, section 45 and section 50 of the Arbitration Act and introducing Section 87 for the clarification of the prospective effect of the Amendment Act of 2015. But the creation of an arbitral body like the Arbitration Council of India is widely getting debated because of its regulatory powers. The composition and Functions of ACI are inserted in Part 1 A of Arbitration and Conciliation Amendment Act, 2019. The council will perform various functions like grading the professional institutions training arbitrators, issuing guidelines and recommendations for arbitral institutions, and to take various initiatives for making India a hub of Domestic and International arbitration. But there are various functions and powers conferred to this council which needs to be critically analyzed for saving the arbitration in India from Red-Tapism and unnecessary governmental interference.
The Arbitration Council of India
The 2019 Amendment Act, inserted Part 1A in the Arbitration Act which talks about the ‘Arbitration Council of India’ and it gives power to the Central Government for the establishment of the ACI by an official notification in the Gazette of India. The composition of the council shall be a retired Supreme Court or High-Court Judge appointed by the Central government in consultation with the Chief-Justice of India, as its chairperson. An eminent arbitration practitioner nominated as the central government member, An eminent academician Knowing arbitration appointed by the central government in consultation with the chairperson, Secretary of the Central government in the Department of Legal Affairs, Ministry of Law and Justice, Secretary to the central government in the department of legal affairs, Ministry of Finance as an ex-offico member, a representative of a recognized body of Commerce and Industry, chosen on a rotational basis by the central government as a part-time member, and a Chief-Executive officer, member secretary, ex-officio.The council is entrusted with various regulatory power like grading of arbitral institutions, assessing the quality and caliber of the arbitrators, performance, and compliance of time limits for the disposal of domestic and international arbitrations. The representative in the ACI will be from the Commercial as well as the Industrial Sector for the development of arbitration in a friendly manner. ACI is entrusted with a wide variety of responsibilities such as framing of policies for the grading of arbitral institutions, accreditation of the arbitrators. This may likely ensure a regulated and expert-guided regulation of arbitration in India and may also help in reducing the judicial intervention in terms of setting guidelines for the AI and its proceeding.
But these objectives of ACI seem difficult for implementation because of the vague provisions governing the council. One obvious problem is the scope of impartiality because the government’s involvement in the arbitrations would make the independence and impartiality of the arbitrators questionable because they will be accredited by the council whose scope of impartiality can also be a cause of worry. Further, it also excludes the scope for the appointment of foreign distinguished arbitrators who may have been part of the domestic arbitration in India. This point has been discussed in detail in the latter part of the essay.
Regulating the Grading of arbitral institutions –
Section 11(3A) of the 2019 Amendment Act provides that the Supreme Court of India and the High Court shall have the power to designate arbitral institutions graded by the ACI under Section 43-I. It should be noted that Section 43-I is also inserted by the Amendment Act of 2019. The basic idea behind this section is that the courts will designate graded arbitral institutions to full-fill all the tasks mentioned under Section 11(4) – (6) of the Amendment Act of 2019 in those cases where parties don’t reach to an agreement when courts appoint the arbitrators. But to designate Arbitral institutions (AI), the courts are only required to see if the AI has been graded by the ACI. No clarity has been given about what can be a good grade for this purpose. This is fraught with a high-danger because there have been many instances in the past where Indian Courts have taken such powers contrary to the legislative intent of the arbitration laws. This is a very worrisome case where the legislative intent is not very clear.
The 2019 Amendment Act introduces Part 1 A of The Act, which talks about the ACI from Section 43A – 43M. As Per Section 43I of the Amendment Act, 2019, ACI shall be responsible for the grading of the Arbitral institutions based on their infrastructure, Calibre of arbitrators, performance and compliance of the time limitations given for the disposition of the domestic and international arbitration. But the main drawback of this regulatory power given to ACI is that it limits the party’s autonomy in international arbitration because of the governmental and court interferences. ACI has been designated as a governmental body for regulating the AI in India and to grade the AI. This limits the court’s choice in designating the AI because of the options presented to it by ACI. This limitation makes very difficult for a foreign party appearing before the Supreme Court seeking the appointment of an arbitrator because such appointment will be limited to an extent of the institutions accredited by the ACI and also to those arbitrators who will be in the panel of such graded and accredited AI. The court will also be disabled in designating ungraded global AI with high quality of service who wants to set up an office in India without dealing with the hurdles of being graded by ACI. This drawback can lead to the possibility of red-tapism, nepotism, lack of clarity and transparency in the grading process of AI.
ACI’s regulatory powers related to Arbitrator’s Qualifications
ACI is also entrusted with the responsibility of reviewing the grading of Arbitrators under Section 43D (2) (c) of the amendment act of 2019. Also, Section 43J under the eighth schedule of the 2019 Amendment Act specifies qualifications and experience for accreditation of the arbitrators. It set forth nine categories of people with a certain level of experience to qualify as an arbitrator. This Section automatically disqualifies the foreign-registered lawyer or a retired foreign lawyer to be appointed as an arbitrator in India. This disqualification can also be for an obvious reason because the choice of their candidate is limited by the nationality of the arbitrators and their lack of experience in the domestic arbitration.
So, the recent 2019 Amendment Act also raises many concerns of impartiality and the role of the regulating body i.e., ACI for the accreditation of arbitrators. The mentioned limitations can also act as a barrier to the flourishing international arbitration in the nation.
Confidentiality of Arbitral proceeding and awards
As per the newly inserted Section 42A of the Arbitration Act, the arbitrator, the arbitral institution, and the parties to the arbitration agreement are required to maintain confidentiality about all the arbitral proceedings but arbitral awards are given the exception in situations where it becomes important to publish the award for its enforcement. Last year ICC released its notes for the parties and arbitration tribunals on the conduct of arbitration under the ICC rule of arbitration. It says that all awards made from 1 January 2019 can be published, which shall be no less than two years after the notification and shall be based on the opt-out procedure. Opt-Out Procedure means that any party may at any time put an objection to the publication of an award. So, in such Opt-Out Procedure cases, the award will either not be published or redacted under the party’s agreement.
It may look like that India is following global practice and following the Opt-out procedure in the publication of awards established by AI. However, the newly incorporated Section 42A has excluded the Opt-Out Procedure which will fail to bring clarity to the fate of an award for its publication. It brings many unanswered questions for the recently incorporated ACI that how they will decide that disclosure of award is necessary for its implementation? Will it be a full disclosure? Will ACI regulate and issue notifications to give clarity on the confidentiality of the arbitral proceedings and its publications? These questions only add more suspense for the regulatory powers given to the ACI.
Regulatory power of the council for the timely conduct of the Proceedings-
As per Section 23(4), the statement of claim and defense shall be finished within 6 months of the appointment of arbitrators. Also, Under Section 29(1), the award related to international commercial international arbitration should be given as early as possible with an endeavor to deliver it within 12 months from the date of completion of pleadings under section 23(4). There’s no doubt that it’s a welcome step with good intent. But it can lead to conflicts with the rule of international arbitration; it overlooks the inherently complex procedural aspects of international arbitration. For Example- if we look into the Rule 24 of the 2017 ICC Arbitration Rules, Arbitrators routinely hold a case management hearing after consultation with the parties and issues an order on the procedural timetable for the completion of the arbitral proceeding in the international arbitration but now Section 23(4) of the Arbitration Amendment Act,2019 will restrict a tribunal from being in control with the proceeding and it may be impossible to effectively conduct multi-party arbitrations involving massive paperwork and documents and it will become impossible to complete the proceedings in six months. Similarly, the party’s autonomy in deciding a more flexible procedural schedule will be very limited. This new regulatory approach will always make the parties very wary about the fate of an award where the time requirements are not in compliance with Section 23(4) of the Arbitration Amendment Act, 2019.
India has often been criticized as a “non-friendly” arbitration jurisdiction by the international community. The introduction of a regulating body in the field of arbitration i.e., ACI is an attempt to take this criticism head-on. However, it’s more of a disaster than relaxation for the dilapidated condition of the domestic arbitration. ACI as a regulating body, albeit aimed at institutionalizing arbitration in India, leaves the discretion in the hands of the courts and executive to decide about who can be part of this reform. Another drawback can be governmental control which can lead to nepotism, red-tapism, lack of objectivity, and clarity in the grading process. However, we can’t ignore that it is a welcome move by the government for acknowledging that institutional arbitration is the only way ahead for attracting foreign parties to include India as a seat in their arbitration agreement. But, the Amendment Act of 2019 failed to bring transparency in the regulating body i.e., ACI which can jeopardize the right intent of the legislation. The changes also aimed at making India a hub of International arbitration but it misses the mark in convincing foreign parties that India is an Arbitration friendly nation. The best way to address any problem is to address the questions of why a regulatory body is needed in the field of arbitration and what are the effective ways to tackle the cons of this reform. Unless this is done, any change – no matter how well-intended will risk adding fuel to the fire of the current perceptions.