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International Arbitration Challenges in India


 Ad-hoc arbitration in India vs Indian institutional arbitration

There is no arbitration body in Ad hoc arbitration to oversee the proceedings, trials, and prosecutions. Ad-hoc arbitration allows the parties in dispute to establish their own agreed rules. These rules include the arbitrator selection process, the arbitration adjudication process, the type of award sought, the rule of law used during arbitration, and the venue for arbitration. An organization does not enforce any time limits to speed up the operation, and the fees are unregulated. Furthermore, there is no specialized panel from which to choose arbitrators. There are no dismissal provisions for non-compliance with the negotiated laws, so candor and ethics problems will still arise. Furthermore, there are no replacement arbitrators, and if appropriate, the parties must come to an agreement on a newly named arbitrator in the middle of the arbitration, significantly raising the time. Finally, there is no scrutiny on pre-award. Hence, there are likely to be appeals.

On the other hand, the institution chosen sets out the rules that will govern the arbitration in institutional arbitrations. The institution provides the parties with an arbitrator panel to choose from (allowing timely proceedings), the institution has a hearing facility (less expensive than finding an expensive venue in an ad hoc fashion), Fees are monitored, fines for non-compliance are lifted, pre-award review (limiting appeals and time-consuming procedures) is carried out and substitute arbitrators (cost and time-efficient service) are available.

Major Indigenous Arbitration Hurdles

  • Time and Judicial Intervention: Indian arbitration is known to be a timely and protracted alternative to litigation. The backlog of cases within the Indian court system does not support the practice of arbitration, given their "independence" under Section 5 of the 1996 Arbitration and Conciliation Act. Judicial intervention extends the arbitration proceeding, especially since during the proceedings Indian courts are seeking adjournments. Enforcements of awards and challenges to an award are both highly time-consuming and lengthy procedures that discourage arbitration by the parties.
  • Price: The cost effectiveness can vary depending on the current conflict and/or the form of arbitration (ad hoc or institutional) used. High fees will be paid to arbitrators and Party representatives in both types of arbitration, varying in degree. The parties would have to pay in ad hoc arbitration for costly venues, many times expensive hotels. The parties would have to pay legal costs for managing the arbitration within formal arbitration. Arbitration is a cost-efficient alternative to litigation in many countries. In India, however, arbitration is expensive given the lengthy practice of arbitration.
  • Enforcement: The enforcement of foreign arbitral awards in India is largely guided by the 1958 New York Convention, incorporated into Parts I and II of the 1996 Act. Domestic awards are governed by sec. 36 of the 1996 Act, which states that 'an arbitral award shall be enforceable as a court order and may be imposed as a decision in a suit under the rules of the Code of Civil Procedure, 1908. In India, it may take up to eight years for an award to be enforced that would usually take six months at an international institution. Furthermore, "A New York Convention State may also refuse to recognize or enforce arbitral awards if the subject-matter of the dispute cannot be settled by arbitration under its own national law; Or where such recognition or compliance would be counter to the conceptions of public policy of the individual State. "Public policy" in Indian arbitration has become a large and ever-expanding concept, primarily seen in the appeals. Regulation delays are a significant obstacle in Indian arbitration, which discourages foreign investors from investing in Indian companies.
  • Appeals: pursuant to Article 34(2)(b)(ii) of the 1996 Act, a party to an arbitration may appeal an award if: 1) the party is in a situation of incapacity, 2) the arbitration agreement is invalid, 3) the party is unable to present the case and is not given a proper notice, 4) the award goes beyond the terms of reference and 5) the award conflicts with public policy. Indian courts have yet to define the word "public policy," which provides a subjective ground for arbitral appeals, decided on a case-by - case basis. That increases arbitration length and cost. It also lowers the predictability of outcomes, failing to provide a sense of security for foreign investors in the Indian arbitration process.

In Renusagar Power Co. v. General Electric Co.[1], the Court held that an arbitral award would be contrary to India's public policy if it contravened: (1) a basic Indian law policy, (2) India's interest, or (3) justice or morality. This holding extends the scope of the term 'public policy' and does not assist arbitrators and officials in interpreting the law, Establishing space for unpredictability and contradictory precedent. The term's subjectivity allows any party to attempt to appeal on "public policy" grounds, adding to the already backlogged court system.

All these major obstacles in Indian arbitration have led the international community to believe that India is no preferred destination for international arbitration. Nevertheless, India continually tries to overcome these hurdles and to follow legislation accordingly, without any loopholes and with less subjectiveness.


[1] Renusagar Power Co. v. General Electric Co., (1994) 1S.C.R.22

  • Ad-hoc arbitration in India vs Indian institutional arbitration
  • Major Indigenous Arbitration Hurdles
  • Conclusion

BY : Sunaina Jain

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