Lok Sabha TV- Public Forum: Strengthening Arbitration
Prime Minister Mr. Narendra Modi recently said that the Government’s top priority is to develop an institutional arbitration ecosystem in order to enhance the ease of doing business in the country. It is felt that a reliable and responsive alternative dispute resolution system is essential for rapidly developing countries like India. While business disputes need speedy resolution, litigation is the least favoured method for that. The Indian judicial system is marred by delays because of which businesses suffer as disputes are not resolved in a reasonable time period.
Therefore, need for alternative dispute resolution processes like negotiation, mediation conciliation and arbitration is felt from time to time. All over the world, commercial arbitration has been hailed as the most efficient form of dispute settlement as result of which arbitration clause is receiving much consideration. However, arbitration in India has a long way to go to become an efficient method of dispute resolution. Many domestic and foreign companies prefer Singapore, Hong Kong and London as arbitration venues. Now, India feels the need to create a robust arbitration and dispute resolution structure which crucial for ease of doing business.
What is Arbitration?
- Arbitration is a settlement of dispute between two parties to a contract by a neutral third party i.e. the arbitrator without resorting to court action.
- The process can be tailored to suit parties’ particular needs.
- Arbitrators can be chosen for their expertise.
- It is confidential and can be speedier and cheaper than court.
- There are limited grounds of appeal.
- Arbitral awards are binding and enforceable through courts.
The key Arbitration and Conciliation Act, 1996 amendments include:
- Arbitral tribunal should make its award within 12 months.
- After 12 months, case can be extended for another 6 months.
- In case of a fast track procedure, such awards can be given in 6 months.
- A new subsection introduced for disposal of an application for appointment of an arbitrator by the High Court or Supreme Court within 60 days.
Insolvency and Bankruptcy Code, 2015:
- The amended Insolvency and Bankruptcy Code, 2015 was passed by Lok Sabha in May 2016.
- The Code creates time bound processes for insolvency resolution of companies and individuals which should be completed within 180 days. This may extend to 270 days in certain circumstances.
- If insolvency cannot be resolved, borrower’s assets may be sold to repay creditors.
Commercial Courts Bill, 2015:
- It enables creation of commercial divisions, commercial appellate divisions in High Courts
- It also calls for creation of commercial courts at the district level.
- A commercial dispute includes any dispute related to transactions among merchants, bankers, financers, traders etc.
Challenges in Implementing Arbitration:
- The core issue here is the capacity of the opposite party to pay because the arbitration awards are final. Most of the times, the party against whom there is a recovery do not have the money or resources and hence, there is no enforcement. Therefore, the matter keeps dragging on.
- Taking into account the large business contracts, many of them are stuck because there are no speedy resolution mechanisms available. Courts need to be unburdened from commercial disputes. There are costs associated with arbitration which is not economic.
- There is enough legal talent in the country who have enormous experience that can be used for arbitration. There needs to be a group of trained arbitrators who are assumed to act neutrally.
- There has to be professionalism in the appointment of arbitrators. The fees which they are eligible of being paid for a particular type of case might be decreased if they are unable to resolve the dispute within the stipulated time period. The parties involved need to have confidence that the decision made would be correct for both of them.
The amendment brought to the 1996 Act and others is certainly a positive step towards making arbitration expeditious, efficacious and a cost effective remedy. They seek to curb the practices leading to wastage of time and making the arbitration process prohibitively a costly affair. The new law also makes the declaration by the arbitrator about his independence and impartiality more realistic as compared to a bare formality. Making the arbitrator responsible for delay in the arbitration proceedings, would ensure that the arbitrators do not take up arbitrations, which are beyond their capacities. Such a deterrent would ensure self-discipline and control amongst the arbitrators. It can be said that the present amendments certainly are positive steps towards reducing the interference of the Court in arbitration proceedings.
Even after arbitration, enforcement remains a major challenge. Arbitration is not independent of the justice delivery system. At every stage, for any interim application, one needs to approach the court. Strengthening arbitration would require a pre requisite that justice is provided along with the execution in place.