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Arbitration Council of India: The Regulator in Disguise

Ayush Chugh & Anugya Jain

5th Year, Institute of Law, Nirma University

Introduction

India is on the run to become an arbitration friendly jurisdiction and a hub for International commercial Arbitration. A high-level committee was recently formed under the chairmanship of Justice B.N Srikrishna which suggested reforms related to accreditation and institutionalization of arbitration in India. The idea of establishing an Arbitration Council of India [“ACI”] was put forth to give birth to an autonomous body.

The ACI is supposed to be established by virtue of 2019 Amendment[1] which is yet to be notified to come into effect. It was emphasized in the report[2] that ACI is not a regulator and would merely act to grade arbitral institutions and evolve minimum standards for the institutions that are administering arbitration in India.

The need of such autonomous body is questioned given the fact that various institutions are already existing with a set of rules and pool of experts. These existing institutions could have served the purpose instead a regulator-like body was established and added stock to the issue of intervention with Arbitration in India.

Compositions and Functions of ACI

The members of ACI include Retired Judges and members of various ministries appointed by the Central Government. Central government not only has huge involvement in appointment of the members but also in grant of salary and allowance. The functions of ACI include, framing policies for grading arbitral institutions and accrediting arbitrators, making policies for a uniform professional standards and maintaining a repository of arbitral awards. Moreover, ACI has been given powers as wide as making regulations in consistence with the Act, in consultation with the Central Government.

Thus, the functioning of ACI corresponds to that of a regulator which can be a start of the new licensing raj[3] in arbitration. The creation of ACI has encouraged problems of intervention as the composition is not autonomous but appointed by the central government and has functions of a regulatory body.

Problems of Intervention with Arbitration in India

ACI is to help the parties in a way that they can apply to the designated appointing authorities by relevant Supreme Court or High Court instead of taking assistance of court in appointment. One of the objectives of ACI seems to be minimizing the judicial intervention by the courts. However, its effect can potentially drive international arbitration away from India.

India has long witnessed the issue of judicial intervention in Arbitration which inarguably slows down the process. The courts have tried to curb the judicial intervention to make India arbitration friendly jurisdiction. However, the creation of ACI has contributed to the issue of intervention not by the judiciary but by the central government.

The creation of such a body by the legislature is encouraging another kind of intervention which can be coined as executive intervention in arbitration. The amendment is very complex in nature and may create mistrust[4] among foreign investors. We might do away with judicial intervention to some extent in future but involvement of the central government in appointment of members and thus directly in accreditation will encourage whole different kind of intervention. Foreign parties prefer to remain away from the seats which have substantial interference from the government, thus it will act as a deterrent for foreign parties to choose India as their preferred seat of arbitration.

Effects on Party Autonomy

Party autonomy is a guiding principle of arbitration. The parties have autonomy to choose various aspects of arbitration such as procedure to be followed, arbitrators, laws applicable etc. It makes arbitration a more favorable and attractive option for dispute resolution. However, the establishment of ACI will result in curtailment of party autonomy.

The uncertainty over appointment of arbitrator who is of other nationality than India not only leads to India being less of a preferred seat but also it restricts Indian parties in appointing foreign origin arbitrators. Moreover, the restricted pool of arbitrators to be maintained by ACI limits the options of parties to appoint an arbitrator overall. The mandate of High Courts and Supreme Court in appointment of arbitrators is also restricted and subject to accreditation by the council. It can be said that party autonomy will be compromised to a certain extent owing to increased intervention.

ACI can also set standard procedure, and make regulations with respect to the Act, which can further curtail the party autonomy. This is although for the purpose of maintaining a minimum standard in arbitration, however, will curtail party autonomy and increase intervention. This makes the situation in arbitration similar to conventional litigation and these restrictions are against the very objective of minimum intervention.

Arbitrator’s Expertise in Question

The ACI is bestowed with a task of accreditation of arbitrators and the 2019 amendment only brought in Section 43J of the Act which specifies 8 categories which are eligible to be the arbitrators. These categories are: Judges, Advocates, Engineers, Chartered Accountants, Executives, Maritime experts, Businessmen and Foreign Nationals having degree of their expertise and a minimum 10-year experience. A party cannot choose a judge as per its whims but it can do so while appointing an arbitrator. This feature of ‘arbitrator shopping’ is thus of great importance and one of the main characteristics of the arbitration which differentiates it from conventional litigation. The major issue lies where legislature has equated requirement of expertise with years of experience or a person’s association with government. In other words, it can be put as judges or ex-judges with 10-year experience may get the accreditation and perhaps still be unqualified in their job as arbitrators.

The applicability of the amendment has been notified as it will apply to proceedings commencing after October 23, 2015. However, there are several in contracts which have been entered before the above mentioned date. There are cases such as Aravali Power Company Pvt. Ltd. v. M/s. Era Infra Engineering Ltd.[5] where the dispute resolution clause specifically states that the project manager shall be the sole arbitrator as and when the dispute arises. Technically, the arbitrator shall be ineligible to act post the amendment and the amendment shall be applicable to these proceedings as well. In this scenario the contract would be said to be against the public policy and hence void. It is important that the legislature contemplates such a scenario so that these contracts shall not get void on account of such amendment.

A deep analysis of the amendment also reveals that foreign scholars, foreign-registered lawyers or a retired foreign officer may not be eligible to act in the arbitration held in India as one of the requirements of eighth schedule is that the person shall be an advocate as per Indian Advocates Act, 1961.  The same has been upheld by the Supreme Court in the case of Bar Council of India vs. A.K. Balaji and Ors.[6] For instance, the parties are now not allowed to appoint the most distinguished scholar Mr. Gary Born in arbitration where India is the seat. These flaws are apparently serious in nature!

To put it other way, the arbitration community is already small and restricting it further to a smaller pool will raise more concerns about independence and impartiality of an arbitrator. Especially in the cases where the arbitrator has dealt with similar issues and there is biasness or a strong opinion of the arbitrator related to the issue.

Why are seats like Singapore, Hong Kong doing better than us?

India has tried to follow approach of Singapore and Hong Kong where the designated authorities are Singapore International Arbitration Centre (SIAC) and the Hong Kong International Arbitration Centre (HKIAC) respectively. However, there is no precedent of having such regulator anywhere in the world. The committee has proposed that there is a requirement for recognizing accreditations provided by premier institutions like Chartered Institute of Arbitrators (CIArb), the Singapore Institute of Arbitrators (SIArb). On the other hand, the committee has overlooked certain Indian institutions which provide accreditations and have their own panel of arbitrators such as Mumbai Centre of International Arbitration (MCIA), Indian Chamber of Commerce, and Construction Industry Arbitration Council. Recognition of accreditations would have simply saved duplicity of efforts and thereby reduced intervention. There are no such requirements in other preferred seats and India should reduce intervention to minimum in order to improve its Arbitration regime.

Conclusion

The purpose of the legislature by introducing ACI was to provide better arbitrators with qualifications. However, arbitrators will still be appointed on a contractual basis and they can still be challenged under Section 12(3)(b) due to not having certain qualifications as required. Therefore, the purpose of the amendment stands defeated as even if the arbitrator has proper accreditation and satisfies all the requirements of the eighth schedule, he could be challenged as not having proper qualifications.

Establishment of ACI does have some positive effects such as maintaining repository of arbitral awards and accreditation of arbitration institutions can increase the quality of the awards and institutions. However, the composition and functions of ACI indicates a credible threat of executive intervention and curtailment of party autonomy. This can result in taking us back from where we are with the idea presently to make India a hub of International Arbitration. The legislature should re-assess the need of having such a council which almost functions like a regulatory body and whether such an intervention is called for.


[1] Arbitration and Conciliation (Amendment) Act, sec. 42 (2019).

[2] Ministry of Law and Justice, Report of the High Level Committee to review the institutionalisation of Arbitration Mechanism in India (2017).   

[3] Ajar Rab, Arbitration Council of India: The ‘Arbitration Regulator’?, The Boardroom Lawyer (Jul. 16, 2018), available at: https://theboardroomlawyer.wordpress.com/2018/07/16/arbitration-council-of-india-the-arbitration-regulator/

[4] Deiya Goswami, Light Of The Day For The Arbitration Council Of India Through Arbitration And Conciliation (Amendment) Bill, 2019, Mondaq (Aug. 7, 2019), available at: https://www.mondaq.com/india/arbitration-dispute-resolution/834386/light-of-the-day-for-the-arbitration-council-of-india-through-arbitration-and-conciliation-amendment-bill-2019

[5] Aravali Power Company Pvt. Ltd. v. M/s. Era Infra Engineering Ltd., Civil Appeal Nos. 12627-12628 of 2017. 

[6] Bar Council Of India v. A.K. Balaji, Civil Appeal Nos.7875-7879 of 2015.

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