Significant changes have come this year to the Indian arbitration regime. A primary source of these changes can be seen through the insertion of Part 1A in the Arbitration and Conciliation Act, 1996 (“ACA”) which prescribes for the establishment of the Arbitration Council of India (“ACI”). These amendments were based on the report of the “High Level Committee to review the institutionalization of arbitration mechanism in India,” headed by retired Justice BN Shrikrishna. The committee recommended that the ACI be a governing body that would either comprise of members from different ministries of the government or instead be appointed by the Central Government. The role of the ACI is to grade arbitral institutions; this grading aims to lead to the improvement of the standards of the institutions by reviewing the accreditation of the Arbitrators to determine if the institution can be promoted in India.
However, there is no equivalent body like the ACI in the other international arbitration friendly jurisdictions, such as London or Singapore. Because of the ACI’s unique nature, its composition and its functions are as yet unclear, and the law passed by the Lok Sabha has a number of troubling aspects to it. As a result, the arbitration practice in India may suffer. Parties may move away from jurisdictions they deem too problematic.
There are three important issues:
The first issue is the constitution of the council itself. The ACI will be populated by the nominees of the Central government or there will otherwise be a critical role of the Central government in its governance. This immediately raises the question of neutrality and also the issues of inexperience and lack of expertise with regards to the international perspective. The ACI begins to appear as a government agency even if that was not the intention, and certainly in terms of perception it may be seen as that. There are also some precedents for how dangerous government interference or control of arbitration can be. For instance, we can look to the Arbitration Centre of Thailand. It was originally constituted and set up as an autonomous body but was later staffed with civil servants who were also working with the Thai government’s ministry of justice. This led to major problems in its development. Parties began to believe that it was neither independent nor neutral. This had an immediate negative impact on cases. Thai courts broadly interpreted public policy in order to set aside awards against state entities. This has only recently been addressed after several years of systemic issues. Taking into view this example, the constitutional make-up of the ACI is a major concern.
The second main concern is that the ACI’s function and power is unclear and ambiguous. Specifically, it is not clear what the exact work of the council entails, what powers the council has, the type of grading that the council will do, and lastly the process or procedure the council must follow in order to arrive at a grade. Will the ACI actually intervene in proceedings or will it be a guiding institution? Will institutions become dependent upon it or beholden to maintain that grading? If so, the ACI will do serious damage to the autonomy and independence of the institutions and it will be perceived as simply another encroachment by the States on the arbitral systems themselves.
The third concern is that whenever there is the imposition of additional rules and regulations, there is more opportunity for satellite litigation, i.e., the parties who will challenge whether or not the detail of the law has been properly complied with. If there is a grading system by the ACI then there is a possibility of challenges to that grading process by institutions, as well as challenges to an institution or award. This becomes complex, creates uncertainty, and threatens to waste resources of the government, parties, and institutions.
For the ACI to work there must be standardized benchmarking and it is imperative that the precise ambit of the powers of the council are absolutely clear and that there is no ambiguity. It is equally imperative that the constitution of the ACI be made acceptable for the international community. That means it must not be implemented or constituted simply by the Indian Central Government, but it must respect and incorporate the international perspective. For these reasons, the amendment made under the 2019 Act for the establishment of the ACI should be reconsidered because it is likely to give rise to several serious issues that may be damaging for arbitration in India as a whole. While some of the issues may be resolved through the judgments of the court, it would be wise to resolve these concerns at this early stage to avoid wasting valuable judicial time and resources.
By Guest Contributor:
2nd Year B.B.A LL.B
Gujarat National Law University, Gandhinagar.
Edited By: Leslie M. Castello, Managing Editor