A conversation with ADR Board, NLUO on Arbitration, Mediation, Institutional Arbitration….

First published on : https://www.nluo.ac.in/wp-content/uploads/2020/03/ADR-E-Newsletter-Vol.-I.pdf

You have been on the different ends of the spectrum, from being an independent practicing lawyer to a judge, and now a partner at L&L Partners, one of the top law firms in India. What is your opinion of Alternative Dispute Resolution methods from all those different perspectives? Is the intention of the legislature of promoting ADR, being met, or is it being lost in the way it is implemented?

ADR is definitely the way forward. Having experienced this up close, having been a civil judge myself, I can say that people are turning away from civil actions. Contrary to popular misconceptions, India does not have a very litigious population; our civil litigation ratios are amongst the lowest in the world. People do not like to take even their just and legitimate claims to civil courts for the fear of them remaining pending for years and years, which is well founded. Unfortunately, India has over three crore cases pending across the Supreme Court, the High Courts, and the subordinate courts (As of April 2018). This problematic reality, while keeping courts clogged, also keeps people away from approaching them. 

The trials and tribulations of a litigant do not end after obtaining a decree or an award since execution of a decree or an award is a greater mess. Realizing the fruits of the decree in one’s hands is a different challenge altogether, 

In this background, ADR is definitely the way forward. There has been a huge emphasis on mediation and arbitration in the recent times and for good reason. For instance, statutorily, under the Code of Civil Procedure, 1908 (CPC), there is a strong focus on mediation. This comes in the form of Section 89 of the CPC, which encourages a civil court to proactively refer disputes before it to mediation, and Order X Rules A-G, place a lot of emphasis on pre litigation mediation. 

In August 2018, the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 was amended to require mediation as a mandatory pre-action procedure prior to the filing of a commercial suit (unless a party required urgent interim relief from the courts). These requirements would apply equally to disputes of an international nature being litigated in India

In the context of arbitration, ‘The United Nations Convention on International Settlement Agreements Resulting from Mediation’ or more conveniently, the Singapore Mediation Convention, is a huge step forward. India is, in fact, one of the initial signatories of this convention, having ratified it in August 2019. The Convention gives legitimacy and sanctity to mediation settlements and makes them enforceable in the same way as an international commercial arbitration award. The Convention allows parties to a cross-border mediated settlement agreement to directly seek enforcement of the settlement agreement before the competent authority of a country, without facing the challenges associated with incorporating the terms of settlement in an arbitral award or judgment.

It is envisaged that ratification of the Convention will be accompanied by the adoption of the UNCITRAL Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation (the “Model Law on Mediation”). The Model Law on Mediation provides a template for a National legislation through which the Model Law on Mediation will be implemented. The success of the Model Law on Mediation will depend to a significant extent on its global adoption by India along with other countries, who will have to enact a national legislation along the lines of the Model Law on Mediation for its effective implementation. This would prove to be a huge shot in the arm for international mediation settlements. 

Earlier people were not inclined to opt for mediation in big international commercial disputes for the reason that there were substantial concerns regarding enforceability. Sometimes a mediated settlement would only be taken as a contract which would have to be taken to a court in a particular country, made a decree of that court and then enforced. This two-tier enforcement structure turned away a lot of parties from mediation, but this is changing now. 

Apart from India, even US and China have also ratified the Singapore Mediation convention, and US and China being on one page for anything is an un-expectedly pleasant surprise in today’s day and age so this is a promising step in the right direction. 

The 2019 Amendments to the Arbitration and Conciliation Act (“the 2019 Amendment Act”) are a welcome change and addition to the law already in place. There are some concerns on the constitution of the Arbitration Council of India (ACI), with the government being the biggest litigator on the one hand and having a say in the accreditation of arbitral institutions and gradation of arbitrators. However, the move towards institutionalization is welcome. Indian arbitration has suffered from ad hoc-ism for a long time which turns out to be costlier than institutional arbitration. In my opinion, moving towards institutions would not only provide a better framework to Indian arbitration but would also provide a huge impetus to formation of a dedicated arbitration bar in India. If you look at the SIAC statistics, India is one of the biggest consumers of SIAC and what the amendment seeks to do is to create a robust arbitral institution within the country. This intention of the legislature to promote ADR is being met, with judicial intervention and activism becoming a thing of the past. 

The recent amendments have minimized the scope of judicial intervention, resulting in the burial of the ghost of patent illegality in international commercial arbitration and to a great extent in the taming of the unruly horse of public policy, by defining strictly what public policy means in the context of a domestic and international arbitration. With this, the challenges are now confined only to cases where the most basic notions of morality and justice and the most fundamental policy of Indian law are under challenge. The recent judicial decisions in this regard are extremely welcome and a mere transgression of law is not taken to be something that may make the court refuse to recognize a foreign award. 

  • ADR is currently in the limelight and is getting a lot of hype in Law Schools. How different is ADR when it comes to practice?

Again, ADR in India suffers from ad-hocism and there’s a need to move towards institutionalization. Sometimes, although well-intentioned, ADR in certain cases turns into private hotel room justice which takes away transparency, takes away systematic approach to dispute resolution, and takes away accountability. 

These are the challenges which still persist with ADR in India, which the 2019 Amendment Act seeks to do away with. Courts, though sometimes extremely slow, are taken to be more transparent places compared to an ad-hoc arbitration, but I think now with the new amendments, the strict rules regarding conflict of interest, along with the IBA guidelines being incorporated into the scheme of the Arbitration Act itself, India would go a long way in making arbitration as a means of dispute resolution more accountable and transparent, thus making it worth the hype. The hype, in such a scenario, is justified because arbitration is coming up as a huge practice area with more and more commercial disputes going to arbitration instead of courts of law.  

         Having said the above, I do believe that ADR as taught in law schools is appreciably different from its professional practice. This observation isn’t intended to suggest that what is taught in law schools is wrong, but there are many more background processes and finer nuances that go into practicing ADR, which remain invisible to someone looking at ADR through a theoretical lens alone. 

          For instance, there is back-breaking, mind bending reading that is required for one to successfully represent a client in an arbitration. Similarly, one requires enormous insight into a dispute and incisive knowledge of the facts involved to be a mediator. Apart from knowing the facts of each case, one needs to be immensely well-versed with the law applicable to a dispute. 

         While ADR deserves the interest it commands among the student community in our country, it is important for aspiring ADR practitioners, law students or otherwise to know and witness these proceedings as they pan out in professional settings. I would exhort all students reading this answer, not only to pay attention to the theory of ADR that is taught in law schools, but also to witness the practice of ADR and actively engage in it as interns and moot court participants. This would help them gain insight into the toil that accompanies the practice of ADR. This is extremely important.  

  • Indian dispute resolution system has definitely seen a paradigm shift, majority of the parties to the transactions are willing to take up arbitration as the primary method for settlement over courts. However, the statistics reflect that majority of the arbitral awards have been challenged against in the courts. What do you think is lacking in the system, which compels party to pursue litigation post an arbitration?

No award would satisfy both the parties. One party would always be dissatisfied with the award and there might be an incentive to delay the proceedings in order to delay the inevitable enforcement of the award. Judicial recourse against an arbitral award is something that cannot be taken away because there will have to be remedies against an arbitral award. However, given the fact that an arbitrator is somebody that is chosen by the parties, a greater amount of leeway and latitude is given to the arbitrator to decide the disputes in a way that he thinks is just and fair, provided that the broad rules of fair play are observed and each party is given adequate opportunity within that framework. There is obviously a need for some amount of judicial oversight and that remedy cannot be taken away, however, that remedy also cannot be a first appeal where the court gets into a re-examination of facts and a re-appreciation of evidence. In my opinion, the recent amendments have made it abundantly clear that when the matter comes to a court after an arbitral award, the court ought not to re-appreciate evidence or re-look into the merits of the case. The arbitrator is the ultimate master of the quality and quantity of evidence and the questions of fact; it is only in cases of most egregious disregard of law or the specific grounds laid down in Section 34 of the Arbitration Act that an intervention is called for and I think the data in this regard presents a less negative picture where most awards withstand judicial scrutiny. Also, since now there is no automatic stay on the execution of the awards till the pendency of the challenge, there are less judicial bottlenecks than there used to be so obviously we can expedite the decision on the 34 petitions and other cases in relation to arbitration pending before courts but for that we need more commercially minded judges who can dispose off such matters in a  time bound manner. There would always be an incentive for one of the parties to pursue litigation, but yes, it is for the system to filter out these frivolous cases at the very outset so that people realize the fruits of their arbitral award.

  • How progressive in your opinion are the changes brought about by the Arbitration and Conciliation (Amendment) Act, 2019? Will these help India become a hub for arbitration for International Commercial Transactions? 
  • The changes carried out by the Amendment Act are largely progressive in nature. The amendment to Section 11, to ensure speedy appointment of arbitrators by arbitral institutions designated by the Supreme Court and the High Courts, is in line with practices followed in other arbitration-friendly jurisdictions such as Singapore and Hong Kong, where the task of appointment of arbitrators is assigned to institutions such as SIAC and HKIAC. However, appointment of chairperson of the ACI by the Central Government raises questions of independence of the ACI, thus bringing under the scanner the concept of separation of powers in cases where the government itself is a party. 

Another progressive change is the introduction of the phrase “proof on the basis of the record of the arbitral tribunal” to Section 34 of the Act. This is in line with the judgments of the Supreme Court in Girdhar Sondhi and Fiza Developers, in which the Court had held that the proceedings under S. 34 will not require anything beyond the record that is before the arbitrator and that Section 34 proceedings are not in the nature of full-fledged civil suits but are in the nature of summary proceedings.

The Amendment Act provides immunity to arbitrators against suits or other legal proceedings for anything which is done in good faith or intended to be done under the Arbitration Act or the rules thereunder. The proposed amendment is in line with international practices in this regard. For instance, in Singapore, arbitrators are not to be held liable for negligence in the capacity of an arbitrator, and for mistake in law, fact or procedure in the course of arbitral proceedings or in the making of an arbitral award.

The Act has also amended Section 45 which deals with the power of judicial authorities to refer parties to arbitration in international commercial arbitrations. The amendment has introduced the words prima facie in Section 45, presumably to prevent Courts from undertaking a full-scale trial to decide the reference to arbitration. This is in line with the recommendation of the Justice B.N. Srikrishna High Level Committee which had recommended the introduction of a prima facie standard of review in Section 45. The Committee’s recommendation, in turn, is based on the language used in Section 8 which also requires a prima facie standard of scrutiny and the decision of the Supreme Court in Shin-Etsu v. Aksh Optifibre Ltd.. The Court in the aforesaid decision had held that judicial authorities, at the Section 45 stage, should only decide the reference to arbitration on a prima facie basis and not undertake a full-scale trial since that would defeat the objective of the parties to avoid litigation and pursue arbitration. Dharmadhikari J. who had concurred with Srikrishna J. in his majority opinion, had held that the prima facie standard of scrutiny would only apply in case the judicial authority decides to refer the parties to arbitration. If the judicial authority, on a prime facie standard,decides not to refer the parties to arbitration, it would have to try the issue like a preliminary issue, allow the parties to lead evidence and pass a reasoned order rejecting the reference to arbitration. This is important because any rejection at the Section 45 stage is an appealable order under Section 50 of the Act. The effect of the introduction of the words prima facie is that it may be construed to mean that the refusal to refer parties to arbitration has to only be a prima facie conclusion, without any reasoned decision. Clearly, the decision to not refer the parties to arbitration, especially when it is appealable, should be reached only after an opportunity has been given to both them to make out their cases. It will be interesting to the see how the Courts interpret the provision. In fact, Justice Nariman has, at a public gathering, indicated that the Court will reject the application of the words prima facie because of the absurdity it creates.

The Parliament has also added Section 42A which requires the arbitrator, arbitral institution, and parties to the arbitration to maintain confidentiality of all arbitration proceedings except the award where its disclosure is necessary for the purpose of implementation and enforcement. The language used in the provision is a little vague and flies in the face of party autonomy especially when rules of most arbitral institutions permit the publication of awards only when the parties consent to it and that too in redacted form. A collective reading of this provision along with Section 43K which mandates the Arbitration Council of India (ACI) to maintain a depository of electronic awards, indicates that there is no opt-out procedure for the parties who don’t wish to publish their award or who wish to publish in a redacted form.

The deletion of Section 26 of the 2015 Amendment Act by insertion of Section 87 by way of the 2019 Amendment Act was a regressive step. One can say that it was done to overturn the decision of the Supreme Court in Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd, in which the Supreme Court had held that Section 26 would apply to arbitrations and court proceedings commencing post October 23, 2015, thereby providing that Section 36 of the Act (amended by the 2015 amendment) would apply to all proceedings, thereby, effectively removing the automatic stay on enforcement of awards pursuant to filing of a set aside application which had plagued arbitration. This change has been recently negated by the Supreme Court in Hindustan Construction Company & Anr. v. Union of India & Ors., wherein it has struck down Section 87 for being manifestly arbitrary under Article 14 of the Constitution. An attempt to change the law on applicability of the 2015 Amendment Act ran the risk of creating chaos as thousands of proceedings across the country – several at a very advanced stage – and following the Supreme Court ruling, would have been set at naught. Such an amendment would not have augured well with the objectives of certainty and predictability, which are the cornerstones for any jurisdiction to establish itself an international arbitration hub. 

This also brings to light the aspect of there being the need to have a stable regulatory/legislative environment for India to grow as an international arbitration hub. The Arbitration friendly changes are not unwelcome but there should not be frequent cases of legislative/policy dissonance between the Supreme Court and the Parliament, as this can create a “roller-coaster” effect, which ultimately will make India an unattractive destination to arbitrate in or to even make investments in, which often become contentious and result in an international arbitration dispute.

  • The 2019 Amendment Act provides for an appointment procedure by arbitral institutions designated specifically by the Supreme Court in cases of International Commercial Arbitration and the High Court in the other cases. In light of the same, how important was it to set up New Delhi International Arbitration Centre (NDIAC) in place of International Centre for Alternative Dispute Resolution (ICADR)?
  • The 2019 Amendment Act by way of establishing NDIAC with an organised governance structure, seeks to replace the outdated ICADR and lay a strong foundation in the institutional arbitration setup in India. Per the recommendations of Justice Srikrishna Committee, NDIAC will take over of ICADR and overhaul its governance structure because of the procedural deficiencies in its functioning. ICADR failed at achieving its objectives, which included promotion of ADR, providing administrative and logistical support for ADR, appointment of arbitrators and providing training in ADR. ICADR was not able to gain any trust on the front of it being a credible alternative to ad-hoc arbitration. The ICADR had a large and ineffective governing council, which led to delays and invoked suspicion. However, the biggest cause for ICADR’s eventual demise was its failure to address and market itself to prospective parties at the stage of contract formation. Not just private sector entities, but even public/government bodies were reluctant to submit disputes to ICADR managed arbitrations. In NDIAC, these procedural and systemic difficulties are being tackled not only by setting up of a stream-lined governing structure but by also establishing the ACI which will periodically review and grade the arbitral institutions in India. The periodic review and grading will certainly help in promoting the credibility of NDIAC among the foreign investors. It is hoped that NDIAC will change the perception of doing business in our country and will expedite the dispute settlement mechanism. However, even in the case of NDIAC, the Chairperson shall be appointed by the Central Government in consultation with the Chief Justice of India, thus, the Government has not completely distanced itself from the running of the NDIAC. One issue which plagued the ICADR was that it not only suffered from the usual systemic issues which other Government offices in India also suffer from but also from the perception that it was an institution in which, good or bad, the Government had a lot of interference. This resulted in ICADR being witness to as few as 49 cases in 25 years, as compared to an institution such as SIAC which received more than 400 cases in 2018 alone. There has to be a pro-active and concerted effort by the government and the executive alike to iron out the creases of partiality which the NDIAC and ACI suffer from, as neutrality is a factor which attracts many parties to an international arbitration centre, more so in case of India where arbitration disputes with government bodies constitute a major chunk of high-stake arbitral disputes. 

Another area of concern is the ambiguity with respect to a foreign professional not being qualified for appointment as an arbitrator in India, as one of the requirements under the Eighth Schedule of the Act for a person to be appointed as an arbitrator is that he/she should either be an Advocate/Chartered Accountant/Cost Accountant or a professional within the four corners of an Indian service or an Indian undertaking. This may discourage foreign parties from seating their arbitrations in India as the parties may not be able to appoint foreign legal professionals as arbitrators or otherwise would be stuck in litigation over the ambiguity prevalent between the language of proposed Section 43J and the Eight Schedule. These two factors are in the teeth of the findings of the famous 2015 Queen Mary University Survey, which was also relied upon by the Srikrishna HLC Report, which states that perceived neutrality and the free choice of arbitrators (no exclusive list of arbitrators maintained by an arbitral institution) are 2 of the 4 most important factors which parties consider while choosing an arbitral institution.

All in all, the setting up of NDIAC certainly qualifies as a step in the right direction, but for it to be a giant leap for institutional arbitration in India there are further changes required and for that an investor friendly procedural framework must be adopted. A transparent process for appointment and removal of the members must be incorporated. Separately, the Central Government’s involvement/ interference in the functioning and funding of NDIAC must be phased out to gain investors’ confidence.

  • In your opinion, will the NDIAC set up in 2019, be able to meet the high standards set up by the other institutions such as SIAC, LCIA and VIAC, which are preferred by parties across the globe?
  • SIAC, LCIA, VIAC, even HKIAC, are giants in the field of international institutional arbitration. NDIAC has the benefit of hindsight and can stand on the shoulder of giants like the SIAC and HKIAC, which have become a hub for international arbitration in such a short period of time, especially as far as the economic landscape of Asia is concerned. However, the growth of the NDIAC, or any such institution, is dependent on multiple complimentary factors which foster the practice of arbitration. SIAC, for example, grew by leaps and bounds because of having a national policy of minimal intervention of the Courts – one where Courts support and facilitate arbitral tribunals and do not aim to displace them. Further, courts in Singapore are also understood to be highly competent and quick when it comes to grappling with complex questions of international law, treaty interpretation, and international arbitral jurisprudence. In fact, one of the recommendations in the B.N. Srikrishna HLC Report of 2017, was the creation of specialist arbitration benches, with judges trained in arbitration law and practice, just as it is the case in Singapore, Hong Kong and the UK.

There are other policy measures which the Government must undertake in order to directly attract arbitrations to the jurisdiction of India and also to incentivize foreign professionals by reducing their barriers to enter and to participate in not only international commercial arbitrations seated in India but also local arbitrations. Singapore, for example, incentivized participation of foreign professional by relaxing their visa norms.

One huge advantage which India has, as a country, is the use of English as an official language. The growth of HKIAC and SIAC, if one pays close attention, is also due to how welcoming these two countries have been for international practitioners and corporates when it comes to dispute resolution as far as prominent usage of English language is concerned. 

  • What is your advice to students who want to pursue a career in ADR? 
  • Students, at times, view ADR as an area of practice where lawyers sit in swanky rooms, wearing their suave suits, and engage in a mellowed presentation of their client’s case to appeal to the rational senses of an Arbitrator. However, this is only the tip of the ice-berg and there is a multitude of other aspects which one ought to consider before deciding whether they should pursue a career in ADR or not. One has to realize that to practice and to pursue a career in ‘Alternative’ Dispute Resolution, one has to first equip themselves with the effective tools of resolving a dispute legally, irrespective of the forum. For this, students need to equip themselves with effective knowledge of substantive and procedural laws, which form the grundnorm of any legal regime. These subjects include but are not limited to Contract Law, Law of Evidence, Procedural Laws, Corporate Law, Principles of statutory and contractual interpretation, legal strategy, et al

There is a lot of background reading and extensive paper-work involved before one steps into an arbitration and puts their best foot forward for their client during the proceedings. Since arbitrations often involve ‘technical’ issues and questions, which are not in the realm of law, one has to extensively prepare and be on the same page as their client as far the subject matter of the dispute is concerned; this may include learning about almost any subject, ranging, for instance, from how high-rises are constructed to learning how off-shore under-water gas drilling takes place. Basically, a lawyer who wants to be on top of a matter should be a jack of all trades and a master of one – the one being the law involved in that dispute.

Unlike court proceedings, time is of the essence in arbitrations being conducted under the rules of an international institution and for this reason it is imperative that one inculcates the skill of time management; it is not only important but can also make or break your case if you are not concise and crisp in your argumentation and presentation. 

Students these days, I believe, have a plethora of avenues, such as moot courts and client counselling competitions, where they can practice and learn about essential soft-skills which are essential for arbitration. I have detailed what law students looking at a successful practice in ADR should do in answer 2 above. In conclusion, I believe that students must make the best of these opportunities, going forward in their journey to becoming successful legal practitioners. 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s