Why is it in the news?

• Vice President Jagdeep Dhankhar emphasized the imperative for reforming the Indian Arbitration system due to its increasing complexity and inefficiency.

More about the news

• He noted that the process typically involves an award by the arbitration court, objections to the award, appeals, and the subsequent invocation of Article 136 of the Constitution.
• Dhankhar pointed out that review and curative petitions have become commonplace after the invocation of Article 136, further elongating the process.

Arbitration Mechanism in India

• Arbitration in India serves as a quasi-judicial process for resolving disputes between various parties such as trading members, investors, clearing members, authorized persons, and listed companies.
• The primary objective of arbitration is to provide a faster and more efficient legal resolution for disputes compared to traditional court proceedings.
• The Arbitration and Conciliation Act of 1996 forms the backbone of arbitration in India, drawing inspiration from the United Nations Commission on International Trade Law (UNCITRAL) framework of laws, which provides a global standard for arbitration procedures.
• Parties can voluntarily opt for arbitration to settle their disputes, either before or after a dispute arises, by entering into an arbitration agreement.
• The arbitral tribunal, consisting of one or more arbitrators, is appointed by the parties themselves or as per a mutually agreed-upon procedure. The decisions made by the tribunal are typically binding on the parties involved.
• Generally, there is no automatic right to appeal an arbitrator’s decision, which ensures finality and efficiency in the dispute resolution process.
• The Arbitration Act provides a structured framework for conducting arbitration proceedings, including rules for the appointment of arbitrators, conduct of hearings, submission of evidence, and issuance of the final arbitral award.
• Arbitral tribunals are empowered to grant interim measures to preserve the rights of parties during the arbitration process. Once arbitral awards are granted, they are enforceable in the same manner as court judgments, ensuring compliance with the decisions.
• Arbitration in India can be conducted through institutional bodies like the Indian Council of Arbitration (ICA), International Chamber of Commerce (ICC), or through ad hoc arbitration, where parties directly appoint arbitrators based on their mutual agreement.
• In 2019, significant amendments were made to the Arbitration Act aimed at streamlining the arbitration process, expediting proceedings, and minimizing interference by courts, thus enhancing the efficiency and effectiveness of arbitration in India.

Need for Arbitration Mechanism

• Arbitration provides an alternative dispute resolution mechanism, alleviating the burden on overburdened judicial systems by resolving disputes efficiently and expeditiously outside of courts.
• A robust arbitration framework fosters a conducive business environment, instilling confidence among investors and facilitating economic growth by providing a reliable mechanism for dispute resolution.
• Arbitration offers a neutral and internationally recognized forum for resolving cross-border disputes, ensuring certainty and predictability for parties engaged in global transactions, thus promoting international trade and commerce.
• Arbitration proceedings maintain confidentiality, safeguarding sensitive business information and preserving the privacy of disputes, which is crucial for maintaining commercial relationships and protecting proprietary interests.
• Parties have the autonomy to select arbitrators with expertise in relevant subject matters or industries, ensuring that disputes are adjudicated by professionals who possess the requisite knowledge and understanding of complex issues.

Challenges

• Courts’ tendency to entertain challenges beyond the permissible grounds leads to delays and undermines the finality of arbitral awards, hampering the efficacy of the arbitration process.
• Procedural complexities, frequent adjournments, and enforcement challenges contribute to delays and backlogs, impeding the timely resolution of disputes through arbitration.
• Despite efforts, there is a shortage of qualified arbitrators, especially in specialized fields, posing challenges to the resolution of complex disputes requiring specific expertise.
• High costs associated with arbitration, including arbitrators’ fees, legal representation, and administrative expenses, deter parties, particularly in low-value disputes, limiting accessibility to the arbitration mechanism.
• Despite provisions for confidentiality, concerns persist regarding the potential disclosure of sensitive information during arbitration proceedings, posing risks to parties’ confidentiality interests.
• While several arbitral institutions exist in India, the institutional infrastructure for arbitration remains underdeveloped compared to global standards, hindering the growth and effectiveness of the arbitration mechanism.

Way Forward

• Reforms targeting procedural simplification, reduced judicial intervention, and improved arbitration education and training are vital for enhancing the efficiency and credibility of the arbitration mechanism in India.
• Strengthening institutional infrastructure through collaborative efforts between arbitral institutions can further bolster confidence in the system, fostering its growth and development as a preferred avenue for dispute resolution in the country.