This is the first guest post on The Boardroom Lawyer and has been written by Ajar Rab. Mr. Rab is a Partner at Rab & Rab Associates, LLP. He graduated from NLSIU in 2011, completed a masters dual degree in Law and Business from Bucerius Law School/WHU Otto Beisheim School of Management and is presently pursuing his PhD in International Commercial Arbitration.
Arbitration in India has struggled to fully take-off, as opposed to other international jurisdictions such as Switzerland, Germany, USA etc. The judges have a misplaced distrust in the abilities of arbitrators and the process of arbitration, resulting in judicial intervention and judicial review at each step of an arbitration proceeding. Seeking possible solutions to address the limping arbitration process in India, the government constituted a High-Level Committee with Justice B.H. Srikrishna as the Chairman (“Committee”). The mandate of the Committee was to suggest reforms and suggestions with respect to institutionalising the mechanism of arbitration in India.
The Committee in its report suggested various changes including the creation of an autonomous body for the grading of arbitral institutions and accreditation of arbitrators, setting up of an Arbitration Bar, provisions relating to arbitrator immunity etc. However, the most novel recommendation with large-scale ramifications was the proposal to set up the Arbitration Council of India (“ACI”)
Recently, the Union Cabinet approved Arbitration and Conciliation (Amendment Bill 2018) (“Bill”) which contains the composition and functions of the ACI in Part 1A of the Bill with the objective of promotion of institutional arbitration in India.
Functions of the ACI
Section 43B of the Bill provides for the creation of the ACI, a body corporate, and Section 43(D)(2) of the Bill states that the ACI shall undertake the following functions:
(a) frame policies governing the grading of arbitral institutions;
(b) recognise professional institutes providing accreditation of arbitrators;
(c) review the grading of arbitral institutions and arbitrators;
(d) hold training, workshops and courses in the area of arbitration in collaboration of law firms, law universities and arbitral institutes;
(e) set up, review and update norms and ensure a satisfactory level of arbitration and conciliation;
(f) act as a forum for the exchange of reviews and techniques to be adopted for creating a platform to make India a robust centre for domestic and international arbitration and conciliation;
(g) make recommendations to the Central Government on various measures to be adopted to make provision for easy resolution of commercial disputes;
(h) promote institutional arbitration by strengthening arbitral institutions;
(i) conduct examination and training on various subjects relating to arbitration and conciliation and award certificates thereof;
(j) establish and maintain a depository of arbitral awards made both in India and overseas;
(k) make recommendations regarding personnel, training and infrastructure of arbitral institutions; and
(l) such other functions as may be decided by the Central Government.
A bare reading of the functions to be discharged by the ACI does not prima facie raise concerns. However, it is the composition of the ACI, which will severely impact the practical implementation of these functions.
Members of the ACI
Interestingly, Section 43C (1)(a) of the Bill provides for the following members:
(a) a person, who has been, a Judge of the Supreme Court or, Chief Justice of a High Court or, a Judge of a High Court or an eminent person, having special knowledge and experience in the conduct or administration of arbitration, to be appointed by the Central Government in consultation with the Chief Justice of India—Chairperson;
(b) an eminent arbitration practitioner having substantial knowledge and experience in institutional arbitration, both domestic and international, to be nominated by the Central Government—Member;
(c) an eminent academician having experience in research and teaching in the field of arbitration and alternative dispute resolution laws, to be appointed by the Central Government in consultation with the Chairperson—Member;
(d) Secretary to the Government of India in the Department of Legal Affairs, Ministry of Law and Justice or his representative not below the rank of Joint Secretary—Member, ex officio;
(e) Secretary to the Government of India in the Department of Expenditure, Ministry of Finance or his representative not below the rank of Joint Secretary— Member, ex officio;
(f) one representative of a recognized body of commerce and industry, chosen on a rotational basis by the Central Government—Part-time Member; and
(g) Chief Executive Officer—Member-Secretary, ex officio
As is the problem with most policy formulations, the Bill turns the recommendations of the Committee on its head. The report of the Committee had recommended that the ACI would serve as a benchmark for assessing arbitral institutions and had categorically emphasized that the ACI would not act as a regulator set up by the government. The ACI would only grade arbitral institutions and therefore only evolve minimum standards for institutions in India.
The Committee had also recommended that the accreditation of the arbitral institutions should not be a condition for recognition and enforcement of awards and the grading would not be mandatory but only voluntary. The broad idea was to set up a body with representations from stakeholders such as parties, counsels, arbitral institutions and the government. Therefore, the ACI was supposed to be an autonomous and self-sustaining body (only initially funded by the Government) which would be run by a Governing Board and that the Chairperson was to be selected by the Governing Board.
The recommendation to have the Chairperson of the ACI elected by the Governing Board was extremely necessary to detach arbitration from the clutches of the judiciary which has reduced arbitration in India to a mechanism by the presiding judges, for the retired judges. Keeping the Chairperson as a retired judge will not cure, but only further perpetuate the existing problem of appointment of retired judges, who sadly are the worst arbitrators and continue to apply the ills of the existing judicial procedure to arbitration.
To make matters worse, Section 11 (3A) of the Bill grants power to the Supreme Court and the High Court to designate arbitral institutions from time to time which has been graded by the ACI. In States where there are no arbitral institutions, the Chief Justice of the concerned High court has been granted the power to maintain a panel of arbitrators who shall discharge the functions and duties of an arbitral institution and any reference to an arbitrator shall be deemed to be a reference to such arbitral institutions/panel of arbitrators. In effect, the Bill provides for perpetual interference, regulation and nepotism of the judiciary.
As is the situation currently, the majority of the applications for appointment of arbitrators are usually decided with retired judges being appointed as arbitrators. After the creation of the ACI, the retired judges, senior counsels, and lawyers will simply become panelled arbitrators, leading to a pool of members who would serve as an extension of the existing judicial mindset, instead of actually providing an effective alternative dispute resolution mechanism.
Furthermore, in complete contrast to the idea of autonomy of the ACI, all appointments are either (a) to be nominated by the Government; or (b) are ex officio members of the Government. The irony is that even the Chairperson, who according to the Committee report was to be appointed by the Chief justice of India, is now to be appointed by the Central Government in consultation with the Chief justice of India. Needless to say, the ACI is going to be the hallmark of a new ‘Arbitration Licensing Raj’ in India perpetuating government control, red-tapism, retired PSU personnel and political influence in what ought to be an independent and impartial body. It is necessary to highlight that there exists no similar body in any other country in the world and while having a regulatory body was enough of a slap in the face of party autonomy, the current composition of the ACI will ensure that only institutions with necessary political clout get graded.
The Bill completely skips the recommendation pertaining to the grading of arbitral institutions as being voluntary and not mandatory. This provision was imperative to facilitate the growth of new arbitral institutions and also necessary to ensure that the freedom of parties to have their dispute adjudicated by an arbitral institution of their choice is not affected by questions of the grade of the arbitral institutions and consequently recognition and enforcement of their awards. By failing to incorporate this key recommendation, the Bill makes ACI a regulator instead of a facilitator.
There are several other provisions, which instead of fostering the growth of arbitral institutions and making India pro-arbitration, would further hinder arbitration. The ACI is definitely going to be the new watchdog of arbitration and given its entrenchment with the existing problem-makers such as the Judiciary and the Government, arbitration in this country is, unfortunately, going to be at the mercy of political whim, Government clout, possible corruption and judicial nepotism.
Thus, while the Committee report succeeded in its intent to provide effective solutions to the ailing arbitration regime, the Bill, in its current form, has ensured that instead of institutionalising the arbitration mechanism, the pre-existing problems related to arbitration in India get institutionalised as a body i.e. Arbitration Council of India.