Could ad hoc domestic arbitrations in India do with a bit of help?

One keeps hearing that one of the biggest dissatisfactions with India’s arbitration regime is that a majority of arbitrations in India are ad hoc in nature.

Recently, there appears to be a frenzy in India to promote institutional arbitration. The 2019 amendments to the Arbitration and Conciliation Act, 1996 (A&C Act) will make it difficult to avoid institutional interventions even in ad hoc arbitrations, for example, because designated institutions will now have the power to make default appointments under Section 11 of the A&C Act.

As an arbitration practitioner, I do not necessarily agree with the view that there is anything “more majestic, more dignified and more comforting about institutional arbitral awards” [See, Francis J. Higgins et al., Pitfalls in International Commercial Arbitration, 35 BUS. L. 1035, 1051 (1980)].

While institutional arbitrations provide a robust and more predictable arbitration regime, that by itself is not a good reason to discard ad hoc arbitrations entirely, specifically, in a country like India, where ad hoc arbitrations have traditionally dominated the landscape. To do so would be to throw the baby out with the bath water.

This concern is further accentuated by issues relating to party autonomy, where the parties in India appear to consciously choose ad hoc arbitrations. Even Chief Justice Sundaresh Menon of Singapore noted in his 2018 keynote address at the SIAC Congress, that while vast majority of users prefer institutional arbitration, India appears to be an exception.

In my view, there should be a sustained and continuing effort to address issues that undermine ad hoc arbitrations in India. I also believe that these efforts should be more focused around ad hoc domestic arbitrations in India.

Since the Government of India has now constituted an expert committee to review the working of arbitration law in India, it might be just the right stage to initiate a discussion around ideas for legislative intervention, which can make ad hoc domestic arbitrations more efficient.

There is a persuasive case for legislatively prescribing a model set of procedural directions and rules for taking evidence for ad hoc domestic arbitrations where the parties have themselves not done so (Model Procedural Directions).

Section 19 of the A&C Act only affirms that the Tribunal has the power to determine matters of procedure and evidence, failing parties’ agreement. It provides no guidance as to how the Tribunal could actually do so; unlike Section 34(2) of the English Arbitration Act, 1996 which even goes on to provide an indicative list of eight procedural and evidentiary issues that could be regulated by the Tribunal or by parties’ agreement.

Faced with this vacuum, parties and tribunals often proceed to ad hoc domestic arbitrations in India without clarity from the outset regarding procedural and evidentiary standards that might apply at the time of final hearing and adjudication. 

To their credit, some tribunals in ad hoc domestic arbitrations address this vacuum by starting the arbitration proceedings with a detailed set of procedural directions upon entering into reference. These directions provide some clarity from the outset regarding the procedural and evidentiary standards that would apply throughout the arbitration. However, this practice is not widespread. As a matter of fact, even when such procedural directions are adopted from the outset, they are often silent on a number of procedural and evidentiary issues. Additionally, tribunals in ad hoc domestic arbitrations are reluctant to apply arbitration-related soft law instruments relied upon in international commercial arbitrations, such as IBA Rules for Taking of Evidence, or CIArb Protocol for Use of Party-Appointed Expert Witnesses.

The net effect of these factors is that tribunals in ad hoc domestic arbitrations routinely feel the need to fall back on the principles in the Code of Civil Procedure, 1908 (CPC) and Evidence Act, 1872 (Evidence Act). Unfortunately, this has resulted in making ad hoc domestic arbitrations not much different from prolonged trials before civil courts in India.

Liberating arbitration from rigours of the CPC and the Evidence Act, in the manner provided in Section 19(1) of the A&C Act, will not have any practical effect without legislative guidance in the form of Model Procedural Directions, in a specific schedule to the A&C Act, applicable only to ad hoc domestic arbitrations.

Having said that, parties should be free to contract out of the Model Procedural Directions, in whatever manner that they consider appropriate, by an agreement in writing, either before or after the commencement of arbitration. This would even allow the parties to contract out of the Model Procedural Directions at the time of entering into the arbitration agreement itself. Implicit in this modified ad hoc domestic arbitration regime would be an invitation to the parties (and the Tribunal, where the arbitration has started) to apply their mind and prescribe, with clarity, the procedural and evidentiary standards that will apply throughout the arbitration.

Since this proposal is not intended to convert ad hoc domestic arbitrations into institutional arbitrations in any manner, the Model Procedural Directions would not require administering by an institution; nor would they result in excessively formalizing ad hoc domestic arbitrations. On the contrary, it will only equip domestic ad hoc arbitration with well thought through procedural and evidentiary benchmarks, which in any event, should not mirror all the rigors of the CPC and the Evidence Act.

While the above suggestion might sound a little unconventional at first blush, it is certainly not unprecedented. The UNCITRAL Notes on Organizing Arbitral Procedures (UNCITRAL Notes), which were intended to provide guidance for ad hoc arbitrations, give a good flavour of what the subject matter of these Model Procedural Directions could be.

For example, directions relating to the consideration of documentary evidence as a whole will be helpful in making ad hoc domestic arbitrations more efficient. Surprisingly, some ad hoc domestic arbitral tribunals spend several sittings for carrying out admission or denial of documents and marking them as exhibits,  as is done by some civil courts. The Model Procedural Directions could provide simpler and straightforward mechanisms for contesting documentary evidence. For example, with respect to objections regarding documentary evidence generally, paragraph 80 of the UNCITRAL Notes provides that unless a party raises objections to any of the following conclusions within a specified period of time, it will be understood that (a) documentary evidence is accepted as having originated from the source indicated in it; (b) a dispatched communication is accepted without further proof that it has been received by the addressee; and (c) a copy is accepted as a faithful reproduction of the original.

Further, the Model Procedural Directions could facilitate a faster process of discovery and production of documents in ad hoc domestic arbitrations by legislatively prescribing the test for discovery and production, which need not necessarily mirror the test applicable before civil courts. The lack of guidance at this stage sees ad hoc domestic arbitrations often getting stuck for long durations and for several hearings at the stage of discovery and production alone.

The strongest argument against this suggestion is that some of the issues proposed to be covered in these Model Procedural Directions, are meant to be guided by contract between the parties. Some may argue that incorporating the guidance of soft law into legislation impinges on party autonomy. Others may argue that matters relating to procedural and evidentiary benchmarks are best left to the parties and the Tribunal to decide during the arbitration.

If we analyze these counter-arguments, they are really not persuasive.

First, codifying soft law is not new to the A&C Act in India. The Fifth Schedule and Seventh Schedule were inserted to translate the guidance of soft law into hard law. The guidance that was then available in the “Orange List” and “Red List” of the IBA Guidelines on the Conflicts of Interest in International Arbitration was specifically incorporated in Section 12 read with Fifth and Seventh Schedules of the A&C Act.

Second, India’s domestic arbitration regime serves policy objectives that are peculiar to our country. Domestic arbitrations in India increasingly serve as a complete substitute (and not just an alternative) to the civil court system in some areas, which is overloaded and clogged. This is a good reason for the legislature to come up with tailor-made solutions to address problem areas specific to India’s domestic arbitration regime.

For example, the Fourth Schedule was introduced in the A&C Act to address the problem of uncertainty over arbitrators’ fees, specifically, in ad hoc arbitrations. Even the Supreme Court of India has prescribed guidelines regarding the manner in which  arbitrators should fix their fees, absent an agreement between the parties in an ad hoc arbitration. [See, ONGC v. Afcons Gunanusa JV, reported at 2022 SCC OnLine SC 1122 at paragraph 124]. Section 29A of the A&C Act is another such example.

By now, India has sufficient precedent of legislature defining the scope and contours of India’s ad hoc domestic arbitration regime, by introduction of Schedules to the A&C Act. In any event, the suggestion with respect to the Model Procedural Directions respects party autonomy to the extent it allows parties the freedom to contract out, substitute or modify them, to suit their needs.

In the long term, the benefit of prescribing the Model Procedural Directions suggested above can facilitate transparency, greater confidence, speedy and predictable procedures in arbitration. Additionally, I am intuitively of the view that this strategy would further reduce the scope of unmeritorious challenges to awards in ad hoc domestic arbitrations.

The Srikrishna Committee Report also made a similar recommendation, which is another reason why the suggestion requires further discussion and consideration.

Gaurav Pachnanda is a Senior Advocate, based in New Delhi, whose practice before the Supreme Court and other courts and tribunals includes a wide range of commercial litigation and international commercial arbitration, with a significant multi-jurisdictional component.

The author gratefully acknowledges the assistance of his junior, Varun Srinivasan, Advocate in research and preparation of this article.