The year 2019 marked a pivotal moment in India's journey toward institutional arbitration, signifying a determined effort to cultivate an arbitration-friendly environment. This endeavour, echoed in previous amendments to the Arbitration and Conciliation Act, 1996 (referred to as the "ACA"), finally found solid ground in the latest amendment.

A cornerstone of this legislative change was the delegation of authority for arbitrator appointments under Section 11 to arbitral institutions. Fueled by concerns over India's reputation as an arbitration-unfriendly jurisdiction, the Ministry of Law and Justice established a High-Level Committee (HLC), chaired by retired Justice of the Supreme Court, Justice B.N. Srikrishna. This committee was tasked with recommending measures to foster institutional arbitration within India.

Building upon the recommendations of the HLC's report, the Indian Parliament introduced the 2019 Amendment Act.[1] Central to our discussion are the amendments to Section 11, "Appointment of Arbitrators," which repealed sub-sections (6-A) and (7). The core thrust of these changes was to strengthen institutional arbitration in India, with the amended Section 11(6) empowering arbitral institutions designated by the Supreme Court or High Court to oversee arbitrator appointments.

However, significant questions remained unanswered: the scope of examination by these institutions when considering appointment applications and the possibility of challenging tribunal orders. These uncertainties loom as potential impediments to the advancement of institutional arbitration in India, urging the legislature to provide clarity and prevent undue interference in the tribunal's authority.

The Arbitration and Conciliation Act, of 1996, was conceived with the aspiration of minimizing court interference and expediting proceedings while upholding arbitral sanctity. To this end, comprehensive amendments were introduced in 2015 and 2019, marking significant milestones. The 2019 amendment, in particular, granted heightened recognition and authority to institutional arbitration centres (IACs) in India, primarily through the revision of Section 11.

By empowering IACs designated by the Supreme Court or High Court to appoint arbitrators, this amendment took a crucial step toward elevating IACs in India and promoting their use as an alternative to ad hoc procedures. However, challenges persist, notably regarding the IACs' ability to compel pre-arbitration compliance and the absence of provisions addressing non-compliance, leading to protracted arbitrations. This article delves into these issues and explores potential solutions within the framework of the Act to bolster the authority of IACs in India.

The Role of Institutional Arbitration Centers

Institutional arbitration is a method of dispute resolution conducted under the governance of established arbitral bodies. These organizations create and enforce rules that complement the Arbitration and Conciliation Act, 1996 (ACA), governing procedural aspects of arbitration. These rules are designed for both domestic and international arbitration, covering a wide range of disputes. Institutional arbitration centres play a crucial role in managing administered arbitrations. One key advantage of institutional arbitration is its ability to streamline proceedings, providing clarity and certainty.

These cases adhere to well-defined procedural rules, reducing ambiguity and ensuring efficiency. Arbitral institutions anticipate various scenarios, including uncooperative parties, and oversee the arbitration process. They maintain a panel of experienced arbitrators known for their integrity and expertise, further enhancing the process.

Institutional arbitration offers convenience by providing standardized arbitration clauses, reducing the burden on parties and their legal representatives. Parties need only incorporate the institution's draft clause into their contracts, signalling their intent to follow the organization's rules. This approach minimizes the need for court intervention and ensures clarity throughout the arbitration process.

Additionally, institutional arbitration promotes financial detachment, as many institutions collect funds from parties to compensate arbitrators without direct involvement from the arbitrators themselves. Moreover, the process enhances the selection of arbitrators, as experts from various regions and professions populate the institution's panel. This diversity ensures the appointment of arbitrators with the requisite experience, facilitating efficient dispute resolution.

"Arbitration may be conducted ad hoc or under institutional procedures and rules. When parties choose to proceed with ad hoc arbitration, the parties have the choice of drafting their own rules and procedures which fit the needs of their dispute. Institutional arbitration, on the other hand, is one in which a specialised institution with a permanent character intervenes and assumes the functions of aiding and administering the arbitral process, as provided by the rules of such institution. Essentially, the contours and the procedures of the arbitral proceedings are determined by the institution designated by the parties. Such institutions may also provide qualified arbitrators empanelled with the institution. Further, assistance is also usually available from the secretariat and professional staff of the institution. As a result of the structured procedure and administrative support provided by institutional arbitration, it provides distinct advantages, which are unavailable to parties opting for ad hoc arbitration".[2]

The HLC in its Report referred to the QMUL Survey[3] which stated that the International Chamber of Commerce Court (ICC Court), the London Court of International Arbitration (LCIA), the Hong Kong International Arbitration Centre (HKIAC), the Singapore International Arbitration Centre (SIAC) and the Arbitration Institute of the Stockholm Chambers of Commerce (SCC) are the five most preferred arbitral institutions worldwide. The call for the establishment of credible institutional arbitration centres in India resonates with international practices. The above-mentioned IACs are government-supported entities renowned for their impartiality.

India's pursuit of a similar path is underscored by the recommendations of the High-Level Committee to Review the Institutionalization of Arbitration Mechanism in India, chaired by Justice B.N. Srikrishna. This committee emphasized the need for government backing to fortify institutional arbitration in India, a sentiment echoed by the Law Commission of India.

Challenges in Arbitrator Appointment

Arbitrator appointment is a critical aspect of the arbitration process, influencing the fairness and efficiency of dispute resolution. However, challenges often arise in this regard, particularly in ad hoc arbitration systems. These challenges can hinder the smooth progression of arbitration proceedings. One prominent challenge lies in the lack of clarity surrounding the criteria for arbitrator appointment and the process itself, especially in ad hoc arbitrations.

Parties may struggle to agree on arbitrators, leading to delays and disputes, which defeat the purpose of arbitration - swift and efficient resolution. In some cases, parties may be unwilling to cooperate in the arbitrator appointment process. This non-cooperation can further delay proceedings and erode the benefits of arbitration.

The recent amendments to Section 11 of the Arbitration and Conciliation Act, of 1996, have taken a significant step toward addressing these challenges by vesting the authority to appoint arbitrators with arbitral institutions. However, certain aspects, such as the scope of examination by these institutions and the challenge of tribunal orders, remain unclear. Legislative intervention is needed to provide clear guidelines in these areas to ensure the efficient functioning of institutional arbitration in India.

The Need for Compliance

In institutional arbitration, despite comprehensive procedures established by various institutions, certain issues remain unaddressed, raising concerns about compliance and efficiency. Firstly, these institutions often lack the power to enforce their procedures on the parties involved. Even with the 2019 Amendment to the Arbitration and Conciliation Act, which aimed to promote institutional arbitration, there is no provision for sanctions in cases of non-compliance with orders issued by these institutions.

For example, these institutions cannot compel a non-compliant party to appoint its nominee arbitrator. Consequently, there is no certainty that non-compliant parties will actively participate in the arbitration process, potentially leading to prolonged proceedings and delays, undermining the purpose of institutional arbitration.

Secondly, the existing procedures in institutional arbitration can place an unreasonable financial burden on parties who comply with these procedures. Many institutions require upfront payments, including arbitrators' fees, hearing costs, administrative charges, and arbitrators' travel expenses, estimated based on the number of arbitrators and the claim value.

Both parties are typically required to share these costs equally. In cases of non-compliance by one party, it is a common practice to direct the compliant party to bear the entire cost of arbitration, with the possibility of recovering these costs once an ex-parte award is issued. This practice can further deter parties from strictly adhering to the institution's procedures.

To address these issues, it is imperative to establish stricter compliance measures in institutional arbitration. One proposed solution is to introduce legislative amendments that allow for the initiation of contempt proceedings against non-compliant parties before the formation of an Arbitral Tribunal. This legal sanction would incentivize parties to diligently follow the timelines set by institutional arbitration bodies.

Alternatively, legislative amendments could grant the compliant party the ability to approach the Court under Section 11 of the Arbitration and Conciliation Act, requesting the Court to direct the non-compliant party to adhere to the institution's directions regarding the appointment of an arbitrator.

Such applications should be decided within a specified timeframe, such as 30 days, to expedite the process. While some may argue that this approach could increase court litigation and contradict the principle of minimal judicial intervention outlined in Section 5 of the Act, it is deemed necessary to expedite the formation of Arbitral Tribunals and achieve the Act's objectives.

The authors emphasize that the principles of party autonomy, crucial in institutional arbitration, would lose significance without affirmative provisions for court-directed arbitrator appointments due to non-compliance. Therefore, the first suggested option is favoured as it provides a more effective remedy to the compliance issues faced in institutional arbitration.

Conclusion
In conclusion, the authors stress the critical need for legislative intervention to bolster Institutional Arbitration Centers (IACs) and address the persistent issue of party non-compliance with IAC directives. IACs play a pivotal role in today's legal landscape, offering structured fee models and comprehensive procedures that enhance transparency and cost-effectiveness in arbitration. By implementing the suggested legislative amendments, we can fortify IACs' authority and motivate parties to seriously consider them as the preferred avenue for arbitration.

To complement these legislative changes, measures such as training and certifying arbitrators and embracing technological innovations for streamlined processes can further enhance IACs' efficiency. Transparency initiatives, including regular reporting of case statistics, can provide valuable insights for parties. Altogether, these efforts will strengthen IACs and promote their role as dependable platforms for dispute resolution in India's evolving legal environment.

End-Notes:

1. Report of the High-Level Committee on Making India a Hub of International Arbitration, https://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf (accessed August 23, 2023)
2. 2022 SCC OnLine Del 4367
3. 2015 International Arbitration Survey: Improvements and Innovations in International Arbitration", Queen Mary University of London and White & Case LLP (2015), available at http://www.arbitration.qmul.ac.uk/docs/164761.pdf

Written By: Aditi Sharma is a final year B.A. LL.B. (Hons.) student at UPES, Dehradun.