What do we think when we hear the term Institutional Arbitration? Well, before diving into the meaning and significance of Institutional Arbitration, let us understand what does Arbitration mean. Arbitration is defined as a procedure in which a dispute is submitted, by an agreement of the parties, to one or more arbitrators who make a binding decision on the dispute. It is a form of Alternative Dispute Resolution (ADR) that resolves disputes outside the courts. In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court. Typical ADR processes include Mediation, Arbitration, Negotiation, and Conciliation. For an instance, we can assume that 2 people who are divorcing cannot come to a conclusion or cannot agree on terms and therefore a third party comes into play that helps them negotiate and to come to a mutual conclusion. But there are limited rights of review and appeal of arbitration awards.
On the other hand, talking about Institutional Arbitration that the topic pertains to, is one in which a specialized institution intervenes and takes on the role of administering the arbitration process. In which, each institution has its own set of rules which provide a framework for arbitration, and its own form of administration to assist in the process.
The Union Cabinet approved The Arbitration and Conciliation (Amendment) Act Bill, 2018, which was said to be an important effort of the Government of India to encourage Institutional Arbitration and to make India a center of robust ADR mechanism. The objective of the Bill seemed to be taking steps towards institutionalizing the arbitrations in India and to make certain changes and amendments to the Arbitration Act. This Act was an addition to the ‘New Delhi International Arbitration Centre Bill, 2018‘, which was introduced in the Lok Sabha (Lower House of the Parliament of India) on the 5th January 2018.
Types of Arbitration
The main types of Arbitration are Compulsory Arbitration and Voluntary Arbitration.
The main types of Arbitration recognized in India on the basis of procedures and rules are –
Fast Track Arbitration
Institutional Arbitration in India
In India, up till now, arbitrations have been synonymous with ad-hoc arbitrations. In an ad-hoc system of arbitration, the parties are required to make their own arrangements for the selection of arbitrators, for designation of rules, applicable law, procedures and administrative support. The ad-hoc proceedings can be more flexible than an administered proceeding. Parties are the masters of Arbitration, where the institution effectively acquires the parties’ powers to make decisions – such as the appointment of arbitrators – and can impose their will upon the parties.
Some of the most prominent Indian Arbitral Institutions are the Indian Council of Arbitration (ICA), the Delhi International Arbitration Centre (DIAC), the Mumbai Centre for International Arbitration (MCIA) and the ICADR. Talking about the Institutional Arbitration system, The New Delhi International Arbitration Centre Act, 2019, provides for establishment and incorporation of the New Delhi International Arbitration Centre (NDIAC) for the purpose of creating an independent and autonomous regime for institutionalized arbitration.
Advantages of Institutional Arbitration
It all depends on whether one can afford such a type of Arbitration or not. But the ones who do opt for this particular Arbitration, have various advantages such as:
The availability of pre-established rules and procedures which ensure the arbitration proceedings begin in a timely manner.
Administrative assistance from the institution, which will provide a secretariat or court of arbitration.
A list of qualified arbitrators to choose from.
Assistance in encouraging reluctant parties to proceed with arbitration.
An established format with a proven record.
Why do people opt for approaching an Arbitrator and a Mediator, and not opt for fighting cases in the Court of Law? It is due to the time and efforts that one has to take for fighting the case and to prevent exertion.
Institutional Arbitration saves parties and their lawyers the effort of determining the arbitration procedure and of drafting an arbitration clause, which is provided by the institution. A further benefit of such type of arbitration is that the parties and arbitrators can seek assistance and advice from institutional staff. The process provides established and up to date arbitration rules, support, supervision and monitoring of the arbitration, review of the awards and strengthens the awards’ credibility.
Disadvantages of Institutional Arbitration
Every coin has two sides. Similarly, Institutional Arbitration not only bounds to its Advantages but also possesses Disadvantages. Few of the primary disadvantages are as mentioned below:
Administrative fees for services and use of the facilities, which can be considerable if there is a large amount in dispute – sometimes, more than the actual amount in dispute.
Bureaucracy from within the institution, which can lead to delays and additional costs.
The parties may be required to respond within unrealistic time frames.
Reality Check of Institutional Arbitration in India
In India, The Arbitration and Conciliation Act, 1996, provided provisions relating to Ad- hoc Arbitration but was completely silent on the part of the provisions pertaining to Institutional Arbitration. A survey conducted in 2013 said that most of the Indian parties were seen to be preferring Ad- hoc Arbitration as a primary method of arbitration in comparison with Institutional Arbitration.
There is a huge confusion that which of the arbitration is suitable for the Indian context? There is a clear-cut advantage under the Institutional Arbitration which provides a clear adopted rule of arbitration, proper timelines for the conduct of proceedings, the expertise of staff for smooth proceedings and list relating to the panel of trained arbitrators, available under the particular institution.
In India, specifically, there are certain reasons for the failure of the Institutional Arbitration that includes-
Lack of support from the Central and State governments for the development of Institutional Arbitration.
More judicial intervention in the procedure of Arbitration.
Lack of infrastructure in the arbitral institutions.
Absence of important and credible arbitral institutions.
Absence of provisions relating to Institutional Arbitration in the Arbitration and Conciliation Act, 1996.
Lack of legislative support.
Overwhelming confusion relating to the Institutional Arbitration.
In my opinion, the growth of institutional arbitration mechanism is inevitable. Also, the support of the Courts to the institutional arbitration mechanism gives it a huge boost.
The Arbitration and Conciliation Act is based on The United Nations Commission on International Trade Law (UNCITRAL) Model Law, which provides it with a lot of stability and uniformity, and it is at par with international standards of arbitration, which will surely be very beneficial for the Institutional Arbitration mechanism in the long run.
Editor’s Note There has been an increase in people preferring Alternate Dispute Resolution (ADR) methods in order to solve their disputes. Arbitration is one among the many ADR mechanisms of solving disputes. This article explains the concept of arbitration and the types of arbitration, in particular the institutional arbitration.
The author has also enlisted certain advantages as well as disadvantages of institutional arbitration, particularly in the Indian context. Also, the author has thrown some light upon the realistic situation of arbitration that prevails in India and the factors that has led to the failure of this type of arbitration in India. The author concludes by saying that the growth of institutional arbitration mechanism is inevitable and for that the support of the Courts would be a huge boost.