The Indian legal system has long grappled with the burden of pending cases across courts, leading to inordinate delays in the resolution of disputes. This plight has paved the way for the increasing adoption of alternate dispute resolution (ADR) mechanisms, with arbitration emerging as one of the most sought-after methods. While ADR stands on the three pillars of arbitration, mediation, and conciliation, arbitration seems to be the most desirable option, primarily because the outcome of its resolution – the arbitral award – is placed at par with the order or judgment of a civil court.

The characteristics of being a private proceeding governed by party autonomy inevitably acclaims arbitration as a procedure for speedy disposal of disputes. However, despite the common advantages of arbitration as a procedure, the question remains – is arbitration truly helpful in the quick disposal of cases in India? The answer lies in scrutinizing how far and how fair the positives of arbitration have gone in practicality.

Origin and Transformation of Arbitration in India

The origin of arbitration in India can be traced back to international trade law initiatives. Recognizing the growing trade between nations, the United Nations introduced the UNCITRAL (United Nations Commission on International Trade Law) Model Laws in 1985 to establish international laws that would facilitate free-flowing trade. The main objective of these Model Laws was to bring countries onto a common platform and help resolve disputes through the arbitration procedure, thus opening the scope of international commercial arbitration.

In India, the government adopted arbitration as a mechanism for the speedy settlement of commercial disputes and introduced the Arbitration and Conciliation Act, 1996. This Act was the first of its kind to adopt the UNCITRAL Model Laws and make provisions for the enforcement of arbitral awards passed under international commercial arbitration.

The transformation of arbitration in India has been a two-fold process. The first phase involved revamping the Arbitration Act, 1940 into the Arbitration and Conciliation Act, 1996, based on the UNCITRAL Model Laws. The second phase focused on amending the 1996 Act with revolutionary revisions in 2015, 2019, and 2021. The end goal has been to build arbitration in India as the most friendly, time-saving, independent, and efficient mechanism, not just domestically but also internationally.

Attempts to Positively Transform Arbitration in India

Several practical changes have been brought about to instill confidence in arbitration as a method for speedy dispute resolution. The amendments were introduced in two major forms: within the Arbitration and Conciliation Act and through various other Acts.

2015 Amendment: The 2015 Amendment ensured that even at the stage of appointing an arbitrator, the courts' prerogative would be limited to examining the existence of a valid arbitration agreement, while the rest would fall under the jurisdiction of the Arbitral Tribunal. The declaration by the arbitrator about their independence and impartiality was made more onerous. Section 24 clarified that if the Arbitral Tribunal conducts oral hearings, they shall be held on a day-to-day basis, with no adjournments granted without sufficient cause. The Tribunal also had the power to impose costs on the party seeking adjournments without sufficient cause. Furthermore, the amended Section 36 provided that no arbitral award being challenged under Section 34 would be stayed by default unless the parties had obtained a specific order from the Court to that effect.

2019 Amendment: The 2019 Amendment introduced additional provisions, including a mandate that the award in domestic arbitration proceedings shall be completed within 12 months from the date of completion of pleadings, while for international arbitration proceedings, efforts should be made to complete the award within 12 months. To make arbitration more flexible and align with international trends, the concept of 'arbitral institutions' was given a boost under Section 11, bringing it at par with international arbitral institutions.

The 2019 amendment also marked a step towards regularizing the conduct of arbitration and mediation institutions. A separate provision under the head of 'Part IA- Arbitration Council of India' was introduced for ranking and regulating the conduct of all arbitral institutions throughout India. The Council aimed to grade arbitration institutions, accredit associated arbitrators, and pass arbitral awards, with the main objective of establishing uniform standards for ADR mechanisms in India, thereby making the country a hub for arbitration globally.

Inclusion of Arbitration and Mediation in Other Acts: Aside from the provisions of the Arbitration and Conciliation Act, the effort to promote arbitration has also been seen through the conduct of the courts. Arbitration has been incorporated into special legislations like the Commercial Courts Act, 2015, and the Micro, Small, and Medium Enterprise Development Act, 2006 (MSME Act), as a prerequisite before initiating legal proceedings. Under Section 18 of the MSME Act, disputes are referred to a Micro and Small Enterprise Facilitation Council, which acts as an Arbitral Tribunal and attempts to resolve disputes under the Arbitration and Conciliation Act, 1996. Similarly, the Commercial Courts Act mandates that all disputes above Rs. 3,00,000/- shall first be referred to mediation before being entertained by commercial courts.

Role of Precedents: The Indian courts have played a vital role in reiterating the independence of arbitration as an Act and reasonably interpreting the provisions that require the courts to do so. The courts have limited the scope of judicial intervention in Section 34 petitions, maintaining the essence of the arbitral award. The object has been to act as a "supervisory court" instead of an "appeal court" and not indulge in re-examining the plausible view adopted by the arbitrator. The courts have also narrowed the interpretation of the term 'public policy' to ensure that not every arbitral award comes under the purview of challenge.

Application of Arbitration in Different Kinds of Disputes: The development of arbitration has been seen as a mechanism accepted for resolving various types of disputes. Initially, the Supreme Court laid down the manner to assess whether a particular judgment could be subjected to arbitration or not. However, with the increased use of arbitration, owing to several recent precedents, the scope of its application has expanded to cover many kinds of disputes as 'arbitrable,' including commercial disputes, intellectual property disputes, family and divorce matters, landlord-tenant disputes (except those covered by the Rent Act), technology-related disputes, and investment treaties, including Bilateral Investment Treaties (BITs). However, criminal matters have not been resolved through arbitration, as they involve acts against the State and require trial before the courts.

Procedure for Arbitration: The procedure provided in the Arbitration and Conciliation Act, 1996, remains straightforward and simple. As a party autonomy-led mechanism, arbitration arises when the parties include it in their agreement as the method for resolving present and future disputes (the 'arbitration clause'). Once a dispute arises, arbitration proceedings are conducted under the following stages:

1. Notice of invocation of arbitration: The party raising the dispute sends a written notice to the other party, containing the agreement that led to the relationship, the dispute in detail, and the intention to invoke arbitration.
2. Appointment of arbitrator(s): Usually, the party invoking arbitration nominates an arbitrator, seeking the other party's consent. If the parties fail to agree, they can apply to the appropriate court to have an arbitrator appointed.
3. Schedule of arbitration: Once the arbitrator is appointed, the first meeting is held for all parties to mutually agree upon a schedule of filings, documents, and hearings.
4. Statement of Claim: The Claimant (the party raising the dispute) submits their statement of claim, detailing their case and the relief sought against the other party.
5. Statement of Defense: The Respondent/Defendant files their statement of defense, refuting the allegations in the statement of claim.
6. Hearings: After the submission of the statements, the parties are given a chance to lead evidence, examine and cross-examine witnesses, and build their case. Multiple hearings take place for this purpose, after which the parties present their final arguments.
7. Award: The final stage is the passing of the award by the arbitrator(s), which is required to be stamped and bear their signature and the parties' signatures. The award is treated as a decree passed by a civil court and is enforceable in the same manner.

The above procedure is usually followed in cases of ad-hoc arbitrations. Similarly, arbitral institutions have their own set of rules and procedures, which the parties agree to follow once they choose a particular institution.

Backlashes Faced by the Transformation in Arbitration

Despite the transformation in the field of arbitration, there have been frequent clashes and back-and-forth positions regarding these laws, hampering the purpose for which the mechanism was adopted in the first place. Some of the primary aspects of concern in the Indian arbitral system have been as follows:

Unnecessary Applications Filed Before the Courts to Seek Permission: The constant interference by the courts, permitted under the 1996 Act (and subsequent amendments), has been a significant problem. For instance, in cases where parties fail or default in appointing arbitrator(s) by mutual consent as stated under Section 11 of the Act, the appointment is required to be made by the competent court through a Section 11 Application. This application gets heard before the court, taking additional months. Even at this stage, the courts examine the validity of the arbitration agreement, further delaying the arbitrator(s)' appointment process.

If the period of one year from the date of completion of pleadings in the arbitration process lapses, the Act mandates an extension of the arbitrator's mandate by way of an Application before the Competent Court. This requirement has further added to the plight of unnecessary applications, thereby delaying the completion of an arbitration.

Court Interference Giving Confusing Stands on Long-Drawn Arbitration Principles: On the one hand, the courts have held that Arbitral Tribunals have the power and authority to decide their own jurisdiction (kompetenz-kompetenz). However, the courts still interfere in interpreting the agreements to ascertain whether the same should be referred to arbitration or not. This clash between deciding the jurisdiction of arbitral cases regardless of upholding the doctrine of kompetenz-kompetenz is yet another form of counter-stands taken by the courts.

Inconsistent Judgments: The contrary stands taken by courts in first holding certain issues arbitrable and then the contrary have also added to the confusion, due to which the masses do not have faith in the procedure. For instance, in the case of McDermott International Inc. v. Burn Std Co. Ltd. (2006), it was held that court intervention into correcting the mistakes of the arbitrators could take place only in circumstances like fraud or bias by the arbitrator. Subsequently, in a 2014 judgment, the Supreme Court eased arbitrability with respect to cases involving allegations of fraud by referring such disputes to foreign-seated arbitrations. However, again, in the case of Zee Sports Ltd. v. Nimbus Media Pvt. (2017), the Bombay High Court referred to the McDermott judgment and held that the courts cannot correct the errors of the arbitrator except when it comprises a case of fraud, bias, or violation of natural justice.

Entertaining Challenges to Arbitral Awards: The courts have even sought to adjudicate over arbitral awards at the Section 34 stage, even after narrowing down their scope of interference. Not only this, but the courts have also entertained challenges to arbitral awards (interim and final) by way of writ petitions, which take a long time to get disposed of, leading to further delay in concluding the arbitration proceedings.

The issue of "non-responsive respondents" has also not been extinguished yet. Despite the agenda of minimal interference, the courts have entertained challenges against arbitral awards even though the parties abstained from appearing in the proceedings. In the case of Quippo Construction Equipment Ltd. v. Janardan Nirman Pvt. Ltd. (2020), the Court held that if a party fails to appear in the arbitration proceedings and convey his objections, he is estopped from challenging the award passed thereafter. However, despite this, the courts have been seen entertaining the petitions and appeals made in such cases on the grounds of the award being passed ex-parte.

No Regularization of New Concepts: Newer concepts like third-party funding in arbitration, two-tier arbitration, binding non-signatories to arbitration agreements, anti-arbitration injunctions, and emergency arbitrators have emerged, with fewer legislations to regulate them. The complications that come with foreign parties and international arbitrations have also posed challenges.

In the case of Raffles Design International India Pvt. Ltd. v. Educomp Professional Education Ltd. (2016), the Delhi High Court held that since the 1996 Act does not contain any provision for the enforcement of emergency/interim awards resulting from a foreign-seated arbitration, an emergency award was unenforceable in India. Therefore, even after a party has obtained an emergency/interim award in a foreign-seated arbitration, the only recourse to have it enforced in India is by filing an application under Section 9 (Interim Relief by the Court).

In the case of Tomorrow Sales Agency Pvt. Ltd. vs. SBS Holdings Pvt. Ltd. (2023), the Delhi High Court excused the liability of third-party funders in a case of international arbitration, holding that their liability towards the arbitration proceedings did not arise if their funded party lost. This left the Decree Holder with no fruit even after winning the arbitration while leaving the third-party funder scot-free in the absence of any legislation to regulate it.

In light of these scenarios, it becomes difficult to rely solely on the provisions adopted in the Act. It also gives an easy way to challenge the provisions and carve out a different interpretation each time.

Conclusion

In today's globalization-led era, when speaking of arbitration, Indian laws have to be mindful of international standards and not just domestic ones. The reason the present arbitral environment suffers backlashes is mainly because, while the market caters to parties from all across the globe, the laws are made (and modified time and again) based on Indian caliber. Thus, there is a dual responsibility on the Indian arbitral system to strengthen the quality, quantity, and awareness of arbitration within the country and to incorporate and cater to international needs.

With this premise, it can be concluded that while arbitration has the ingredients and potential to be helpful in the quick disposal of cases, and the process has quite begun, some hurdles still need to be crossed to keep the pace going systematically. With court interference, the faith of the general public takes a back seat, thereby reducing the seriousness of the country's arbitration laws. If this were to be the case to be continued, the laws would keep getting more stringent on one hand while drifting away from the people's belief in this resolution system.

Five-fold Solution to Upgrade the System

We can adopting a five-fold conclusion seems to be the ideal antidote:

1. Spreading awareness and educating the masses about arbitration and its benefits over the court system. This will instill the faith of the people in arbitration, and a peaceful approach to dispute resolution will be noticed, which will, in turn, result in getting one step closer to making arbitration a method for speedy disposal of disputes.
2. Making an active attempt at imbibing the culture of mediation in dispute resolution, along with or without arbitration. In a dispute where parties are at loggerheads with each other, getting them across the table can actually curtail the dispute or at least its extent and prevent a whole proceeding, and this itself is the most effective feature of mediation.
3. Ensuring and improving the quality of arbitrators and mediators through training programs so that they are persuasive enough to convince parties to reach a settlement before getting to the point of starting the proceeding. Improving the quality of arbitrators will also assure a detailed award, reducing the chances of court interference.
4. Encouraging a cultural shift from ad hoc to institutional arbitration among people as an attempt to maintain the sanctity of arbitration as a private mode of dispute resolution intact and furthering the intent of minimal court interference.
5. Reconsidering restricting the courts further from expanding the scope of interfering with arbitral awards in the minutest of claims.

It is evident that what needs to be done to enhance the success rate of arbitration, or ADR in general, is to abridge the gap between the intention with which the laws and amendments are brought into force and conveying and convincing the masses to understand this intention. Even if the presumption of arbitration being the most helpful tool for the quick disposal of cases were to be absolutely true today, the real question would be whether there exists a formula to sustain it the same way and if it is being utilized.