EMERGING TRENDS IN ARBITRATION
IN INDIA
SUBMITTED BY-
AKASH JHA
LLB(Hons.)
SEM III
1
ACKNOWLEDGEMENT
At the outset, I would like to express my earnest gratitude and sincerely thank my teacher, Ms.
Anusha shrivastava for putting his trust in me, giving me a project topic such as this, providing
me with all the help and resources possible and also for showing his faith in me to deliver.
Ma’am, thank you for an opportunity to help me grow.
My gratitude also goes out to the extremely helpful and cooperative staff and administration of
GDGU for the infrastructure in the form of library and IT lab that was a source of great help for
the completion of this project.
-Akash Jha
(Semester-III)
2
CONTENTS
1.Introduction…………………………………4
2.Independence of arbitrators………………..6
3.Changes in legislative environment………..9
4.Importance of evidence in arbitration…….10
5.Third-party funding and cost allocation of
proceedings………………………………….12
3
INTRODUCTION
The Indian economy has seen an increasing number of commercial disputes in recent times.
Disputes in sectors including construction, energy, pharmaceutical, etc., are snowballing, and
becoming more and more complicated. Parties are increasingly turning to arbitration over
traditional court litigation for resolution of domestic and cross-border disputes.
The Indian judicial system is advancing progressively in the field of arbitration. This is evident
from the recent decisions of Indian Courts in various cases such as the overruled Bhatia
International case, the famous White Industries case and several others, which indicate a pro-
arbitration trend in the country, thereby laying down a positive trend by reducing intervention of
Indian courts in arbitrations seated outside India.
The arbitration environment in India has been changing rapidly. Various landmark judgments
have been given by the Supreme Court and the High Courts, which have drastically transformed
the scope of current legislation. Interpretations of various sections of the Arbitration and
Conciliation Act, 1996 (the “Act”) by the courts indicate the emergence of a pro-arbitration
culture that matches international best practices.
There have been significant developments in India’s arbitration scenario. For example, in April
2009, the London Court of International Arbitration launched LCIA India - its first independent
subsidiary. Similarly, Singapore International Arbitration Centre (SIAC) has opened its first-ever
overseas/offshore office in India. It is anticipated that the positive trend of resolving international
disputes through arbitration will gain further momentum in India at a rapid pace.
Industry-specific arbitration disputes
In the last three years, India has seen a growth of nearly 200% in the number of disputes that
have been referred to arbitration, with cases in various sectors including trade, construction,
general commercial disputes, joint ventures, shipping and maritime matters, energy and natural
resources, international trade, among others.
Arbitration disputes in India have been rampant (and continue) in the construction and
infrastructure, and oil and gas sectors, due to the nature of these businesses and exigencies
attached in running the business.
4
It has been recently observed that financial sector disputes are being reported at an increasing
rate in areas including private equity, joint ventures and mergers and acquisitions.
The research has been categorized in following themes-
Independence of the arbitrators
Changes in legislative environment
Importance of evidence
Third-party funding and cost of proceedings.
The themes elaborated in the below section, indicate the complexities of and the changing trends
in the current arbitration scenario in India.
5
INDEPENDENCE OF ARBITRATORS
“Appointment of Arbitrator(s) to the arbitral tribunal is the most decisive and key step in
arbitration proceedings. Thus, it can be said that an arbitration is only as good as the arbitrator.”1
An independent arbitrator, free from bias toward either party, is fundamental for the arbitration
proceeding to be successful. A biased arbitrator defeats the end purpose of the proceedings. An
award passed by such an arbitrator is most likely to be challenged by a petition filed under
Section 34 of the Act in a court of law. The resultant outcome would be that the arbitral award is
“stayed” as matter become subjudice, which renders the arbitration process futile.
In the prominent case of Shakti Bhog Foods Ltd. v. Kola Shipping Ltd. & Anr3, on 21 August
2012, the Delhi High Court set aside the impugned award passed by the arbitrator due to his non-
disclosure at the time of acceptance of his appointment that he had acted as co- arbitrator for the
respondent in a related dispute between the respondent and another party involved in the same
transaction.2
Similarly, in Murlidhar Rongta v. Jagannath Tibrewala4 the Bombay High Court set aside the
award on the grounds that the duty to disclose was mandatory and an essential procedural
safeguard that had to be followed, and since the procedural duty was not adhered to, the award
deserved to be set aside.
In case of institutional arbitration, SIAC / LCIA / ICC rules, prescribe a challenge procedure. An
arbitrator may be challenged, if circumstances that give rise to justifiable doubts as to the
arbitrator’s impartiality or independence or if the arbitrator does not possess any requisite
qualification on which the parties have agreed.
In deciding such challenges, the IBA Guidelines on Conflicts of Interest in International
Arbitration are often relevant. A committee of the SIAC Court of Arbitration decides challenges
to arbitrators. A committee of the Court consists of not less than two members of the Court as
appointed by the President of SIAC.
1
J.F. Lalive, “Melanges en l’ honneur de Nicolas Valticos”, Droit et Justice (Editions Pedone, 1989), p 289
2
2012(3)ArbLR372(Del
6
Disclosure of conflicts and other commercial interests
Every arbitrator is duty bound to disclose any conflicts and other commercial interests to the
disputing parties at the earliest.
Legislative scenarios in India-
Section 12 of the Act imposes a legal obligation on a person, who is approached for possible
appointment as an arbitrator, to make disclosures (in writing) without any delay of circumstances
that are likely to give rise to justifiable doubts as to his or her independence or impartiality. Duty
to disclose permeates the entire arbitral process.
Section 12 does not specify or lay down the exact nature of disclosures that need to be made.
Neither does it specify any format or set of disclosures. It only states that disclosures should be
made about circumstances likely to give rise to justifiable doubts about the independence or
impartiality of an arbitrator.
International legislative scenarios-
The legal provision under Section 12 of the Act is in line with international standards. Institutes
such as SIAC, LCIA, IBA, ICSID and the UNICITRAL Rules make similar provisions — that
every arbitrator is legally bound to make disclosure (in writing) of circumstances that are likely
to give rise to justifiable doubts about his or her independence or impartiality. This obligation is
a continuing one.
Reliance may be placed on international best practices followed by institutes such as the
following to identify and develop the nature of disclosures that should ideally be made by
arbitrators in India:
IBA Guidelines on Conflicts of Interest in International Arbitration.
The Code of Ethics for arbitrators in commercial disputes published by SIAC, which
came into effect on 1 March 2004
Independence in ad-hoc arbitration-
While institutional arbitration has become an increasingly preferred option in complex dispute
matters involving high transactional value, the trend in domestic arbitrations is more in favour of
the ad-hoc approach.
In the case of institutional arbitration, the arbitrator or panel of arbitrators are appointed from a
list of qualified arbitrators who have been pre-approved by the institute. Parties can seek the
assistance of the institute for appointment of arbitrators.
7
On the other hand, in ad-hoc arbitration, all aspects (including the appointment of arbitrators) are
to be determined by the parties themselves. Such appointments tend to be a delicate process and
parties frequently have difficulty in making the right choice. Any error in judgment can result in
a biased award, which can be challenged in a court of law and render the arbitration process
futile.
Background checks in ad-hoc arbitration-
Background checks are extremely crucial, given the fact that the independence of arbitrators is of
paramount importance and due to non-availability of expert guidance in appointment of
arbitrators in ad-hoc arbitration.
The practice of conducting background checks involves a scrutiny of the profiles of arbitrators,
desktop searches or through word of mouth information gathered on them by parties consulting
with their counsels or advocates. Reliance is placed on the credibility attributed to arbitrators by
well-respected and reputed judges, counsels, advocates and other prominent persons within the
profession.
Although there is a pressing need, especially in ad-hoc arbitration, to conduct a background
check prior to the appointment of an arbitrator by a professional body, no regulatory framework
has been implemented for this purpose.
Pre-appointment meetings-
The practice of conducting pre-appointment meetings with prospective arbitrators is commonly
seen in case of foreign arbitrations.. This is a relatively new concept in the current Indian
arbitration scenario and is gradually gaining momentum.
Discloser report-
It is an up-to-date report that lists previous awards rendered by arbitrators as well as current
matters which they are adjudicating upon. Disclosure reports provide parties an opportunity to
review the past history of arbitrators, however, all precautions should be taken to maintain the
confidentiality of the parties.
While the Indian law has no provisions relating to disclosure reports, implementation of such
provision would help to keep a check on the independence and impartiality of arbitrators.
Statement of independence-
In line with SIAC and IBA Rules, persons approached in connection with their likely
appointment should not hold back vital and material information with regard to their
independence and impartiality. Every prospective arbitrator should file a Statement of
Independence for the purpose of a conflict check.
8
CHANGES IN LEGISLATIVE ENVIRONMENT
Amendment in Indian Arbitration and Conciliation Act 1996 (the “Act”)-
In 2001, the Law Commission of India undertook comprehensive review of the working of the
Act and recommended various amendments to it in its 176th Report.
The Arbitration and Conciliation (Amendment) Bill, 2003 was introduced in the Rajya Sabha on
22 December 2003 on the basis of this report.
The Bill was withdrawn from the Rajya Sabha in view of the large number of amendments
recommended by the Committee and because many provisions of the Bill were contentious.
The Supreme Court and High Courts have interpreted many provisions of the Act, and while
doing so, have also discovered some gaps in the Act. This may lead to conflicting views.
The following are some provisions proposed for amendments to remove practical difficulties in
interpretation of the Act and make alternative dispute resolution for settlement of disputes more
popular and effective:
Section 2 (2): Scope of application of Part I of the Act
Section 11: Appointment of arbitrators
Section 12: Disclosure by arbitrators on their possible interest in the matter
Section 31 (7): Rate of interest
Section 34: Providing meaning of “public policy of India”and harmonizing it with
Sections 13 and 16
Section 36: Enforcement of arbitral award
The proposed amendments are expected to result in minimal court intervention in arbitration
matters, enhance institutional arbitration and lead to arbitrators disclosing any interest in the
case. India can become a hub of international commercial arbitration if these amendments are
carried out successfully.
9
IMPORTANCE OF EVIDENCE IN ARBITRATION
Evidence has always been an essential element that plays a vital role in commercial arbitration
proceedings. The outcome of any legal dispute substantially depends on the evidence presented
during the course of the proceedings. Historically, oral and documentary evidence has been
relied on in arbitration as well as in court proceedings. Recently, the concept of electronic
evidence has been gaining ground in arbitration in India.
Oral or documentary evidence-
Evidence can be oral or in writing. While proving a dispute, written as well as oral evidences
have their respective places.
Civil Law countries prefer written documents as evidence over oral evidence, whereas Common
Law ones rely on both forms of evidence to understand facts of a dispute in totality
Indian law is largely based on English common law, and relies on both written as well as oral
evidences.
Eminent legal practitioners are also of the opinion that neither oral nor documentary evidence
can be singled out as being solely important, since both are equally significant contributors to the
outcome of a dispute. This clearly indicates that all evidence is valid and cannot be dispensed
with, in whatever form it is provided. Thus it can be stated that all evidence is good evidence.
Electronic evidence-
Arbitration in India has been facing significant challenges due to the magnitude and complexity
of cases involving huge amount of information in the form of pleadings, witness statements,
experts’ reports and evidence submitted to arbitrators. Such information, contained in written
documents, often runs into thousands of pages.
Maintenance of such documents and access to them, particularly in arbitration involving multiple
parties from various jurisdictions, often makes the process a cumbersome and expensive means
of resolving a dispute.
Increasing importance is being given to evidence in electronic forms including compact discs
(CDs), digital versatile discs (DVDs), web hosting, hosting on virtual private networks, etc., due
to the fast growth of cross-border arbitration and remarkable progress made in technology.
Furthermore, “Evidentiary Hearings” through tele-conferencing or video- conferencing are on
the rise. This reduces the overall time and cost of arbitration proceedings.
10
Importance of expert witness reports as evidence-
The need for experts’ reports before passing an arbitral award is gradually growing due to the
increasing sophistication and complexity of matters referred to arbitration.
Experts’ reports are gradually becoming a norm in arbitration, since subject matter experts’
reports are seen as independent, professional and unbiased. They help in ascertaining the amount
in dispute and/or determining the technicalities of a dispute on which the arbitral award is
generally based.
Experts may be appointed by the parties themselves or by the arbitral tribunal to report to it on
specific technical and complex issues that need to be determined by the arbitral tribunal. An
expert witness report provides concrete supporting evidence with regard to issues in arbitral
proceedings. It helps an arbitral tribunal deliver an arbitral award in all fairness.
Hot tubbing (also known as Witness Conferencing) is a commonly used colloquialism for
concurrent evidence and saves a significant amount of time and resources. It is therefore
considered to be better and time-saving than cross- examination. According to leading
practitioners, the practice of hot tubbing, although present in India, is practically negligible at the
moment. This practice is viewed as desirable for increasing the efficacy of domestic arbitration.
11
THIRD PARTY FUNDING AND COST
ALLOCATION OF PROCEEDINGS
THIRD PARTY FUNDING
The rapidly increasing cost of arbitration due to operational and legal limitations has led to
parties involved in arbitration exploring the possibility of using specialist arbitration funders to
provide capital for their arbitration proceedings. Globally, there is a growth of professional
funders, who provide funding for international arbitration proceedings.
Third-party funding of international arbitration has been growing in many jurisdictions, i.e., the
US, the UK, Canada, Germany and Australia, and is seeing increasing attention in international
arbitration.
A third-party funder seeks to acquire a percentage of the proceeds of a successful case or a
multiple of the financed costs incurred by a party.
Depending on the jurisdiction involved, a funder can be the following:
A client’s law firm (where authorized)
An insurance company
A bank or financial institution
While recourse to third-party funding appears to be increasingly attractive for claimants in
international arbitration, especially those embroiled in claims arising out of bilateral investment
treaties, it is still at its nascent stage in India and its impact needs to be examined. It may take a
while for arbitration funding to become a feasible option in India (in the way of foreign venture
capital funds); such cross-border funding is yet to be approved by Indian regulators.
COST ALLOCATION IN ARBITRATION PROCEEDINGS
The Indian Arbitration statute does not make explicit provisions relating to cost allocation of
arbitration proceedings.
Section 31 of the Act merely states that in the absence of a contrary agreement between parties,
arbitration costs are to be fixed by the arbitral tribunal. These costs constitute the fees and
12
expenses of arbitrators and witnesses, legal fees and expenses, institutions’ administration fees
(if any) and any other expenditure in connection with arbitral proceedings and awards.
However, a large majority of eminent legal professionals are of the opinion that in these pressing
economic times, it is more significant than ever for arbitration to follow cost- effective processes
that essential amendments are made to current arbitration legislation and a well-set out
framework for allocation of costs is put in place through legislation inthis regard.
13
14
15
