Institutional and Non-Institutional Arbitration

Author: Komal Saloni

Introduction

The problem of backlog and pendency of cases afflict the Indian legal system and an ever-augmenting economy which intensify the challenges. Arbitration was supposed to be a solution for the same. It was in practice even before the codified law came into force. The institutionalisation of arbitration in India and the procedure of resolving disputes outside the Court is not new. In due course, there is comprehensive promotion and use of Alternative Dispute Resolution (ADR). In India, the alternative method of solving disputes have been existed for prolonged, since trade and commerce started to grow outside the country. For a very long in India, societies have been using indigenous and non-judicial methods to settle disputes. Settling a dispute by mentioning it to a third party was well familiar in ancient and medieval India. The recent amendments presented to the existing arbitration law in India aimed at spotting out the glitches. Only time will tell if these amendments will have the desired result.

Background

India had three enactments before 1996 that governed the process of arbitration. These were the Arbitration (Protocol and Convention) Act, 1937, the Arbitration Act, 1940, and the Foreign Awards (Recognition and Enforcement) Act, 1961. These legislations never confined the disputing parties to proceed towards the court at any stage they felt alike. There was also a plethora of interpretational reciprocation between these acts, which meant that it was difficult to attain efficiency and momentum in disposing of the disputes. In 1996 backing much encouragement from various bodies the Government introduced the Arbitration and Conciliation Act, 1996, which was formed on the United Nations Commission on International Trade Law (UNCITRAL) Model. This makes sure that there was a definite level of consistency and uniformity in the law. After the establishment of this Act, it restricted the circumstances in which the disputing parties could approach the Court and also provided the legitimate and bona-fide powers to Arbitration Tribunals. The Arbitration and Conciliation Act, 1996, which replaced the Act of 1940, was enacted to provide parties with an alternate method to effectively settle their disputes in a time frame. Unfortunately, the act of 1996 was not successful in meeting its desired purpose and intent. This result in the Legislature refurbishing the entire framework of arbitration law in India. In consequence, major amendments were introduced in 2015 under the 1996 Act to make it speedy and to reduce court interference. However, unquestionable practical difficulties come out even with the 2015 Amendment, including the unreasonable record and agenda anticipated in its scope. The legislature, after due deliberation and consideration intending to address these implementation-related issues, hence, proposed the Arbitration and Conciliation (Amendment) Bill, 2018. This Bill was approved by the Cabinet of Ministers on March 7, 2018, and came into effect after that recently the major amendments were made under the act of 1996 and hence proposed as the Arbitration and Conciliation (Amendment) Act, 2021 which is now in effect.

Definitions

The arbitration may be defined as an alternative process in which two or more parties settle their disputes as to their legal rights and liabilities by referring the dispute to a particular person (the arbitrator or an arbitral tribunal) who decides the dispute hurriedly, with a binding effect and by applying the law, rather the parties going to the Court of law and getting engaged in the lengthy judicial procedure. Arbitration is particularly used to resolve commercial disputes mainly within this framework of international commercial transactions.

Choosing between Institutional and Non-Institutional Arbitration

 There are mainly two types of arbitration procedures: –

• Institutional Arbitration is also known as Administered arbitration
• Ad- Hoc Arbitration is also known as Non – Administrative Arbitration and non – Institutional Arbitration.

Institutional Arbitration

Institutional arbitration is one in which a specialised institution intervenes on behalf of another under the rules of an arbitral institution (such as the ICC), where the parties pay the institution to assist, following its rules, in the commencement of the arbitration and the constitution of the arbitral tribunal, to intervene as appropriate before the arbitrators are selected (and occasionally after), and to assist throughout the process with matters such as payments, mailings, notices, and arranging for hearing facilities.

There are some common institutions like the London Court of International Arbitration (LCIA), the Dubai International Arbitration Centre (DIAC), the Dubai International Finance Centre (DIFC) and the International Chamber of Commerce (ICC). 

There are almost 1200 institutions globally that offer arbitration services and some deal with a particular trade or industry. Notwithstanding, the rising demand for institutional arbitration, the widening of institutional arbitration procedures have been slow. However, in recent times, prestigious institutional arbitration associations like the London Court of International Arbitration, the International Chamber of Commerce and The Permanent Court of Arbitration have opened Centres in India. This could be seen as very affirmative because these institutes are very familiar and prestigious and wouldn’t have established centres in India in case, they did not see potential expansion in Institutional Arbitration.

Advantages of institutional arbitration

1. Reputation

One of the tremendous advantages of choosing for institutional arbitration is the reputation of the institution like., LCIA, DIFC, DIAC and ICC. Decisions given under the name of any prestigious institution is easier to implement as it is accepted by a majority of other bodies.

2. Efficient Administration

One of the advantages of going for institutional arbitration is that such institutes provide trained staff to the parties for administering the whole process. The administrative staff will pre-establish the rules and procedures to ensure that the workers are being complied with the arbitration proceedings promptly on time and work effortlessly.

3. Clear Rules

In the matter of institutional arbitration, the rules of the arbitration are normally fixed by the institution. There is no additional dispute between the parties concerning the rules of the procedure, which might happen in the case of ad-hoc arbitration. Also, the rules are framed keeping all the outcomes in mind, as these institutions have ongoing experience through various arbitration proceedings and are aware of what eventualities may arise. Also, the rules are flexible. There is the procedure to oppose the part of the process which is inconsistent with the law.

4. Quality of Arbitral Panel

An institution’s panel of arbitrators will usually be made up of experts from different countries of the world. Big institutions like ICC have a network of national committees for the appointment of arbitrators to make certain that there is no bias to be made based on the country to which the parties belong. These institutions have arbitrators who specialized in different areas so that any type of dispute can be resolved. This authorize parties to select an arbitrator owning the relevant and requisite skill, expertise and experience to provide a seedy and effective dispute resolution process.

5. Seek assistance 

An additional benefit of institutional arbitration is that the parties and arbitrators can take advice and assistance from institutional employees.

6. Supervision

Instead of the administration of the arbitrational process, some institute also superintends the process, i.e., examine the compensation, award or penalty sanctioned guarantee that the due process of law has been followed and proper rationality and prudence have been given to the parties for taking appropriate decision.

7. Remuneration of the Tribunal

One of the recognized edges of arbitration is that it provides a binding and fixed award that cannot be appealed. However, there is an imminent risk that a mistake done by a tribunal could not be fixed at a later stage. The disputing parties do not have to negotiate with the arbitrators to decide the terms and amount of remuneration also the money that is paid to the arbitrators is without their direct involvement. To counteraction this risk, some institutional laid down the rules to provide for inspection of the draft award before the final award has proceeded. 

8. Default Procedure

Many institutional arbitrators explicitly provide the rule that the proceedings will continue and not stop in the middle, despite one of the parties’ defaults in the judicial proceedings. Similarly, Article 21 (2) of the International Chamber of Commerce Rules states that., in case any party fails to appear for the proceeding without giving any valid reason despite it has been duly summoned by the institution, the tribunal will move further with the proceedings.

Disadvantages of institutional arbitration

• There may be situations where the parties need to reply to the institution or according to its rules within impractical time frames, though the parties may be able to agree to time frames that is more appropriate for the situation.
• Bureaucrats from inside the institution, which can lead to supplementary costs and delay in the process. Some users tend to oppose an excessively “bureaucratic” feeling to the procedure.
• Several institutional fees may be expensive, in specific where they reflect a percentage of the value of the notable amount in dispute.
• Inflexible and obstinate as it takes away the absolute autonomy of the parties over the arbitration proceeding.

Ad-Hoc Arbitration

Non-institutional Arbitration can be defined as a procedure of arbitration where a tribunal disputed parties will consolidate and conduct arbitration between the parties, come behind the rules which have been agreed by the party beforehand or the rules laid down by the tribunal, in case the parties do not have any agreement between them.

Advantages of ad hoc arbitration

• An appropriately organized ad hoc arbitration should be more economical, and therefore best suited to smaller claims and less affluent parties. 
• The key advantages of the ad hoc process are its flexibility, suppleness and it enables the parties to determine the dispute resolution procedure themselves.
• This process reduces deliberation, thoughts and legal fees, and parties will be able to embark on proceedings early as they will not have to captivate in negotiating specific rules. 
• The parties will only have to pay fees for the arbitrators, representatives or lawyers and the costs incurred in managing and controlling the proceedings preferably than paying fees to an arbitration institution.
• The arbitrators’ fees will be negotiated straight between the parties and the arbitrators whereas in institutional arbitration the arbitrators’ fees will be set by the institution and not to be negotiated. 

Disadvantages of ad hoc proceedings

• A distinctive disadvantage is that its efficacy is dependent on how willing the parties are to agree on the arbitration procedures at the time of the dispute. The failure of one or both parties to fully cooperate can result in an ultimate possibility to court or time spent in resolving issues.
• In the case of ad-hoc arbitration, when the arbitrator himself has to do all the administrative work, it may divert him from his primary objective.
• In a lesser formal ad hoc arrangement, parties to the arbitration would have to proceed towards the court to take the arbitration forward and this would unavoidable experience further expenditure.

Which form is acceptable in the present Indian Scenario?

The Indian Arbitration and Conciliation Act, 1996 is the lawful adoption of the United Nations Commission on International Trade Law (UNCITRAL) Model for international commercial arbitration and the UNCITRAL rules of arbitration, with relevant alteration to accord with its institutional framework. 

In the case of Sumitomo Heavy Industries Ltd. v ONGC Ltd. & Or’s, the Apex Court gave a pro-arbitrational judgment, where it stated that if the reasoning of the arbitrator is based on a possible view of the particular matter the Court is not anticipated to interfere with the award. This judgment also shows that the Courts are not very much likely to interfere in the process of arbitration and thereby confer their support to this system of Alternative Dispute Resolution (ADR). 

Section 89 of the Civil Procedure Code, 1908 also hold up the settlement of disputes outside the court via Alternate Dispute Resolutions. It is generally accepted that India prefers Ad Hoc Arbitration over Institutional Arbitration since the concept of Institutional Arbitration is comparatively new to Indian society.

Conclusion

It is articulated that parties are the masters of arbitration. The development of the Institutional Arbitration method is unavoidable. Also, the assist of the courts to the institutional arbitration mechanism gives it a massive boost. However, this is questionable in institutional arbitration, where the institution efficaciously acquires the parties’ powers to compel decisions such as the appointment of arbitrators and can impose their will upon the parties. This seems against the ethos of arbitration. Although ad hoc arbitration may seem more desirable in today’s modern and commercially multiplex world, it is accordingly best suited for smaller claims involving less prosperous parties in domestic arbitrations. In connection with the international commercial disputes, institutional arbitrations may be more suitable notwithstanding being more expensive, rigid and time-consuming. However, International arbitration brings together the parties from different countries in an organised manner to resolve disputes before an unprejudiced arbitral tribunal. The parties have a choice between the type of proceedings that suits their purpose and objective. The institutional procedure provides established and contemporary arbitration rules, assisting, supervising and monitoring the arbitration. Ad hoc arbitration is worthy if parties themselves want to be masters of the arbitration whereas institutional arbitration is satisfactory if parties want a proper degree of administration and supervision. The defined circumstances of the parties and the nature of the dispute will eventually determine whether institutional or ad hoc arbitration should persuade.