From litigation to arbitration: a paradigm shift

In India, arbitration is regulated by the Arbitration and Conciliation Act, 1996 which was further amended in 2015

It is a well-known fact that litigation is a time consuming, tedious, and complicated process. Litigation is the conventional and formal procedure of resolving disputes, but the process is a stressful one. Due to the obligation of following a lot of formal procedures, long delays in providing justice are a common feature of litigation.

These challenges have worst adverse effects when the dispute is of a commercial nature. Very often, relationships arising out of a business contract run into choppy waters and long drawn commercial disputes can prove to be fatal for a business. The resolution of disputes in an expeditious and effective manner is of prime importance for business owners and companies. That’s why, in recent times, ‘Arbitration’ has been the buzzword in the commercial-legal ecosystem. The past century saw arbitration emerge as a major reform in dispute resolution which led to the adoption of the New York Convention in 1958 by the United Nations. The convention has 168 state parties including India which adopted the convention on 13th July, 1968. Since then, arbitration has become the preferred method of dispute resolution in the business world and most commercial contracts nowadays have an arbitration clause.

In India, arbitration is regulated by the Arbitration and Conciliation Act, 1996 which was further amended in 2015 with the objective to make arbitration the preferred mode of settlement of commercial disputes and to make India a hub of International Commercial Arbitration.

Arbitration is a form Alternative Dispute Mechanism (ADR) which is driven by party autonomy. The dispute is decided by a one or more persons known as ‘arbitrators’ or ‘arbitral tribunal’ and the decision is rendered in the form of an ‘arbitral award’ which is legally binding on both the parties. Arbitration offers many advantages over the conventional judicial process of dispute settlement. It is faster, simpler and more flexible than litigation in courts.

The parties have the option to choose the arbitrators, the place of arbitration, the language in which the arbitration would be conducted and also the overall procedure that shall be followed throughout the arbitration proceedings. Moreover, unlike court proceedings, arbitration proceedings can be held in private and be kept confidential.

However, not every dispute is arbitrable and the courts have exclusive jurisdiction to settle such disputes. The current legal position recognises disputes which give rise to or arise out of criminal offences, matrimonial disputes, guardianship matters and insolvency and winding-up matters to be beyond the scope of arbitration. But, most disputes arising out of commercial contracts are interpersonal differences between business entities and can be effectively resolved through private arbitration.

The rise in global trade, foreign investments, and international commercial transactions necessitated the establishment of Arbitration Institutions throughout the world. Arbitration can be of two types; either Institutional Arbitration or Ad-hoc Arbitration. Institutional Arbitration is one where a specialised institution is responsible for administering the arbitration process.

The parties submit their disputes to such an institution, and the parties rely on the procedural rules of the chosen arbitration institution, and are assisted during the procedure by that institution. The advantages of Institutional Arbitration are that it provides parties with pre-established rules and procedures which ensures that the arbitration proceedings begin in a timely manner. The arbitration institute also provides administrative support and a list of qualified arbitrators to choose from.

In an increasingly globalised world requiring neutral dispute resolution mechanisms, arbitration institutions are popping up in every continent. The International Chamber of Commerce (ICC), the London Court of International Arbitration, the Permanent Court of Arbitration, the American Arbitration Association and International Centre for Dispute Resolution and Vienna International Arbitral Centre are among hundreds of arbitration centres that have been established throughout the world owing to the need to administer international commercial arbitration between parties. In Asia, the Hong Kong International Arbitration Centre (HKIAC) and the Singapore International Arbitration Centre (SIAC) have emerged as the leading arbitral institutes of the continent.

Every country wants to attract international arbitration and in order to become the preferred seat of arbitration, there has been a thrust to improve the arbitration institutions by governments. There are many benefits to attracting international arbitration. It builds prestige and drives more business towards the country.

It also creates employment for the local legal community such as lawyers, judges and arbitrators by increasing demand for their services. Thus, arbitration is perceived to be an export product in the modern world. India has been attempting to jump onto this bandwagon and has been consistently making efforts to become the hub of international arbitration.

The leading arbitration institutes of the country are International Centre for Alternative Dispute Resolution (ICADR), Indian Council of Arbitration (ICA), the Delhi International Arbitration Centre (DIAC), and recently added in the list the Mumbai Centre for International Arbitration (MCIA). Despite prioritising and encouraging arbitration, the quality of judicial process and infrastructural support deficits are driving investors away from India. Even domestic parties prefer to choose a foreign seat for arbitration. The fact that a major chunk of cases administered by the Singapore International Arbitration Centre over the years involved Indians demonstrates that Indian arbitral institutes have not been able to provide institutional support which is at par with global standards.

Recently in the year 2020, the common High Court of Jammu & Kashmir and Ladakh established the Jammu & Kashmir International Arbitration Centre (JKIAC) with two wings; at Srinagar and Jammu. The institution aims to provide a premier institutionalized framework for amicable, cost efficient and expeditious resolution of disputes through an alternate dispute redressal mechanism. But, to attract domestic and international arbitration, the institute has still a long way to go. In order to flourish, JKIAC like any other arbitral institution requires efficient governance, better infrastructure, supportive arbitration jurisdiction and least amount of interference from the judiciary. All stakeholders should be made a part of this process. The legal community has an important role to advertise the advantages of arbitration and create awareness amongst the business communities regarding the same. The legislature and the judiciary have a responsibility to formulate policies that provide systemic support to the arbitral institutions. The success and increased popularity of Jammu & Kashmir International Arbitration Centre can also bring significant savings for the local court system, as directing commercial disputes to arbitration may save court time and resources apart from the various other benefits to the state as mentioned earlier. The potential is limitless but only if all stakeholders consistently and strenuously toil over this project. Otherwise, this institution, like many before it, will rot and decay into nothing but a concrete proof of wasted taxpayer’s money. As far as the business community goes, it is time they recognise the benefits of Institutional Arbitration and make it their preferred choice of dispute resolution. If you are businessman, the next time you sign a commercial contract, make sure it has an arbitration clause.

Disclaimer: The views and opinions expressed in this article are the personal opinions of the author. The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK.

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