Institutional Arbitration: The Basics

Relationships are single and vulnerable “threads” which when tightened can be easily broken, this particular sentence becomes more relative and absolute when talking about commercial disputes. Where unnecessary conflicts arise between two or more parties arising out of common purposes such as money or work, they are solved by the arbitration committees and panels appointed by the Supreme Court. In this article, we’ll study the institutional form of arbitration and its functioning according to the Indian context.

Arbitration: An Overview

Arbitration may be defined as a process in which two or more parties settle their disputes on legal rights and liabilities by referring them to a particular person i.e the Arbitrator, who decides the dispute with a binding effect.[1]

It is to be noted that the decision once given by the panel is binding on the disputed parties, in the whole proceeding the arbitrators are required to treat both the parties with equality and give them equal opportunity to present their views and opinions regarding the matter. The arbitration proceedings tend to be easier but time-consuming as cases are solved with an immediate effect despite their rigidity. The decision once given by the arbitral committee is final and binding upon the disputed parties and they have to agree on the decision given by the adjudicating authorities.

History of Arbitration

England

Arbitration in its common-law form developed in England, in the Middle ages, tribunals such as the Courts of the Boroughs of the Fair and the Simple arose as the Royal Courts were not designed for trade disputes and trade with foreigners was otherwise unenforceable.[2]

Courts became suspicious of arbitration For Example, in Kill v. Hollister (1746), an English court ruled that the arbitration agreement could ‘oust’ courts of law and equity of jurisdiction. Merchants, however, retained provisions to settle disputes amongst themselves, but the tension between the arbitration proceedings and courts eventually resulted in the Common Law Procedure Act 1854 which provided for the appointment of arbitrators. Empires allowed courts to ‘stay proceedings’ when a disputant filed a suit despite an agreement to arbitrate and provided a process for arbitrators to submit questions to a court. Later, the Arbitration Act, 1889 was passed, followed by other Arbitration Acts in 1950, 1975, 1979, and 1996. Arbitration Act 1979 in particular limited judicial review for arbitration awards.

United States of America

Arbitration was most commonly used and originated in the early United States, as there were disputes which arose between large corporations due to different commercial and economic views.

The U.S had a notable difference from England, however, in that unlike England, its courts generally did not enforce executory agreements to arbitrate.[3] This meant that prior to an award, a claimant could sue in court even if they had contractually agreed to settle disputes by arbitration.

India

Before 1996, India had 3 enactments which governed the process of arbitration. There was also a lot of interpretational reciprocation which meant that it was tough to achieve efficiency and speed in disposing of the disputes.

Types of Arbitration Processes

There are mainly two types of arbitration procedures, These are:

1. Ad-Hoc Arbitration

2. Institutional Arbitration

1. Ad-Hoc Arbitratation

Ad-Hoc Arbitration can be defined as a process of arbitration where a tribunal solves the disputes between the parties. However, there are no hard and fast rules, as different parties may choose to follow different rules. For instance, the rules laid by the trade union in which the disputing parties belong.[4]

2. Institutional Arbitration

In the case of Institutional Arbitration, the disputing parties submit their issue to an institution that has been designated to administer the arbitrational process. The dispute so admitted, is not, however, arbitrated by the Institution. The Institute selects a panel that administers the whole process. Some Institutes merely provide the guidelines and rules on which the process will be based, others provide a roster of arbitrators to the parties but do not appoint the arbitrators themselves. All the institutes do not provide the same type of services, they differ according to the functioning of the institutions.

Disadvantages of Institutional Arbitration

1. Administrative Fees

The main problem with Institutional Arbitration is that it doesn’t comply with its sublime nature but is more considerable with the fee structure. The institutional model of arbitration is costlier compared to ad-hoc arbitration and it becomes extravagant for the disputed parties to opt for institutional Arbitration.

2. Unnecessary Delay

Delays can also be seen in the working of institutional Arbitration due to bureaucracy.[5]

3. Time Issues

The parties sometimes lose their patience due to the system of timing of Institutional Arbitration as often the timings are not well defined or in a recognized way.

Institutional Arbitration in India

The state of institutional Arbitration in India is meagre and obscure. Despite the existence of several arbitral institutions, institutional arbitration in India remains in a nascent state.[6]

Functioning of Institutional Arbitration

The functioning of Institutional Arbitration is as outdated as its infrastructure as in many parts of the country. There exists no proper and well-equipped site for the functioning of arbitral hearings. Most arbitral institutions provide little besides “rudimentary” physical infrastructure for arbitration. The arbitral Institutions have, to an extent, outdated and prejudiced rules of procedure; inadequately trained staff; and poorly staffed panels of arbitrators.

The Mumbai Centre for Infrastructure is the only place in India which offers the infrastructure to resolve such disputes in an 18-month time frame.[7]

The centre was inaugurated on 8th October 2016 and has administered 4 domestic and one international hearing which is an achievement by itself. Under the MCIA rules, the claimant submitting an application is the first step followed by an arbitrator giving them, i.e., the disputing parties a time frame for their hearing while simultaneously explaining the process.

There are some factors kept in mind by the parties while deciding which institution to approach.

1. Flexibility

One of the reasons why people don’t approach particular institutions is their complexity with rules and procedures. The rules and regulations must be flexible in nature and, at the same time, easy to follow. The parties must also be clarified regarding the same.[8]

2. Efficiency

The parties engaged in the disputes expect from the arbitral institutions that they must be efficient in their working systems.

3. Timings

Following the maxim, “time is the most powerful weapon” the parties usually select an arbitral institution with flexible timings.

4. Infrastructure

It is imperative for arbitration proceedings to have good infrastructure, a fact which is duly noted by the parties involved. A good mechanism must also be in place before the proceedings take place.

Conclusion and Suggestions

The principal conclusion highlighted by the preceding text was the diagnosis of unstructured forms of institutional arbitration centres across the country. The Government must reform its functioning starting with better-equipped infrastructure. Steps should also be taken to ensure that proper authorities are appointed to solve commercial disputes. In addition to the above, the government also needs to build more arbitration centres in different parts of India as currently, not only is the country faced with a dearth, but those in place are meagre and obscure. Hence, efficient steps need to be taken to ensure a proper and systematic working of the society.           


[1] Butterworth, HALSBURY’S LAW OF ENGLAND (4th edition,1991) chapter 5 ,para 1

[2] Nausea Dr Kyriaki (1 January 2010) “The History, Importance and Modern Use of Arbitration “ 12 July 2017 

[3] “Lew, Julian, Mistelis, Loukas, (2003) -Comparative International Commercial Arbitration

[4] “Types of Arbitration Procedures”-Robert Fredrick (2010) Para 2,

[5] “Institutional vs ad-hoc arbitration-Out Law Guide (2011) <https://www.pinsentmasons.com&gt;|out-law|guide|institutional-vs-ad-hoc-arbitration> 12th  Aug 2011|10:56 am| accessed 10th Amy 2020

[6] Anjali Anchayit, Megha Srivastava – “Pushing Institutional Arbitration in India” live Mint,(17th August 2017) 

[7] Sonam Saigal, “Arbitration Centre in City Pushes To Be Among Global Best” The Hindu[05th August 2019]

[8] Elvira Gadelshina , “What plays the key role in the success of an arbitration institution” Financier Worldwide(2013) http://www.financierworldwide.com/What-plays-the-key-role-in-the-success-of-an-arbitration-institution accessed on 12th may 2020

Prabhjot Singh from Fairfield Institute of Management and Technology

EditoR: Sanskriti Sood

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