Tuesday, June 26, 2012

Guest Post: Problems in the implementation of Alternative Dispute Resolution in India

Below is a guest post from Sanskriti Rastogi, final year student at GNLU. The article looks at certain important angles of the arbitration scene in India , which, though known and were neglected.

Although Indian law favours dispute resolution by arbitration, Indian sentiment has always abhorred the finality attaching to arbitral awards. A substantial volume of Indian case law bears testimony to the long and arduous struggle to be freed from the binding arbitral decisions. Aided and abetted by the legal fraternity, the aim of every party to an arbitration is: “try to win if you can; if you cannot, do your best to see that the other side cannot enforce the award for as long as possible”
Over the years our judges have despaired. Under the 1940 law of arbitration an award was subject to the scrutiny of courts at three stages: in the court where the award was filed, in an appeal to a higher court against an order refusing to set aside the award; and the supreme court of India if that court decided to entertain another appeal ( by special leave) under its supervisory jurisdiction under article 136 of the constitution of India.
Nowadays things are quite different. In so many large international arbitrations the defendant will do everything to postpone the moment of the award; at and before the hearing the parties will deploy all conceivable, and some inconceivable procedural devices to gain advantage; the element of mutual respect is lacking and the loser, rather than paying up with fortitude, will try either to have the award upset, or at least to have its enforcement long postponed.
It is in this background that the new Indian Law (of arbitration and conciliation) was conceived and enacted- as from January 25, 1996 based on UNCITRAL Model Law and Rules.
Commercial arbitration in India and in many countries in Asia- has been for too long, filled with lawyers- in the Mexican sense. And for a while they nearly succeeded in making a mess of it. We can profit by their experience. We should use different tools. With them, we could do better.
In India after the enactment into the parliamentary law of the existing provisions of the arbitration and conciliation in ordinance 1996- we will need active encouragement from our courts and our lawyers in the different avenues of ADR- most of all in encouraging negotiation and conciliation as a first  filter before recourse is to be taken to arbitration. ADR offers a variety of interesting innovations- ADR to be successful must be implemented in an indigenous “home-grown” manner.

 “Ideally, the handling of arbitral disputes should resemble a relay race. In the initial stages, before the arbitrators are seized of the dispute, the baton is in the grasp of the court; for at that stage there is no other organization which could take steps to prevent the arbitration agreement from being ineffectual. When the arbitrators take charge they take over the baton and retain it until they have made an award. At this point, having no longer a function to fulfill, the arbitrators hand back the baton so that the court can in case of need lend its coercive powers to the enforcement of the award.”                                                                         -Lord Mustill

The problems have been exacerbated by judicial intervention. Unnecessary judicial legislation has created uncertainty about the position of the law. The single most remarkable aspect of the experience over the last decade has been the propensity for judicial intervention — while the Act bolted the front door and limited judicial intervention to a few strictly defined instances, courts have found means to break down the back door. Their readiness to become involved in contentious disputes is exemplified by the decisions of the Supreme Court in Saw Pipes[1] and SBP[2], which threaten key goals of arbitration — speed and efficiency.
 Court observed in M/S Guru Nanak Foundation v. M/S Rattan Singh and sons, (1981):[3]
Interminable, time consuming, complex and expensive court procedures impelled jurists to search for an alternative forum , less formal, more effective and speedy for resolution of disputes avoiding procedural claptrap and this led them to the arbitration act, 1940. However, the way in which the proceedings under that act are conducted and without exception challenged in courts, has made lawyers laugh and legal philosophers weep. Experience shows and law reports bear ample testimony that the proceedings under the act have become highly technical, accompanied by unending prolixity , at every stage providing a legal trap to the unwary. Informal forum chosen by the parties for expeditious disposal of their disputes has by the decisions of the courts, been clothed with “legalese” of unforeseeable complexity. This case amply demonstrates the same.[4]
  • Great expense, delays and uncertainty and almost extinguishes the advantages of arbitration over court litigation.
  • Erodes the principle of respecting the disputing parties’ decision to resolve their disputes by arbitration rather than in a national court.
  • It also inevitably leads to a loss of confidentiality which is another key attraction of arbitration.
“If longevity of litigation is made an item in Olympics, no doubt the Gold will come to India”           -Nani Palkhivala
Besides the above mentioned court intervention, the process of Alternative Dispute Mechanism suffers from inherent infirmities. In India, the most common form of arbitration is ad hoc arbitration. There is already a dearth of institutionalized arbitration and the members of the arbitration panel are mostly retired judges who have already become used to of the tardy court proceedings.
From the above discussion the problems which prevail in the Indian system as to the implementation of the ADR mechanism are listed below coupled with their remedial solutions:
  1. Tardy and expensive: The much envisaged twin objectives of the arbitration being a time and money saving mechanism have come to a naught. In case of ad hoc arbitration , the time taken for setting the terms of reference , time for hearing the reference and time up for making of the award, all put together , usually consume a lot of time. In certain cases arbitration is as expensive as the court litigation.
There is a need to provide with fast track arbitration which ensures speed and economy. To popularize the concept of fast track arbitration, a serious effort is required from all concerned for giving wide publicity to its efficacy in resolving disputes especially commercial disputes rapidly and economically.
  1. Abuse of arbitration and inflated claim: Many a times parties resort to dilatory or other unfair tactics such as making inflated claims which robs of its preference over litigation.In order to curb this menace the heavy cost should be awarded to the other party but the party making such inflated claims could be deprived of the cost.
  2. Contestants avoid finality: As has been already discussed that Indian sentiments avoid finality attaching to the arbitral awards. This again adds on the burden of already existing cases in the courts. A change is required in order to truly achieve the much discussed purpose of the Arbitration and Conciliation, Act 1996.
  3. Lawyers responsible for loss:  This phrase connotes the problem of too many lawyers engaged in the arbitral proceedings and their habit of delaying the process by showcasing their pedantic attitude. A lawyer –orchestrated dispute resolution system is not frequently resorted to, nor is it recommended.
A lot of professional training is required for implementation of ADR systems. Arbitration is not always conciliation. And mediation is not always negotiation; nor it is always conciliation. Counseling is different skill altogether. As of today, practically none is professionally trained in these skills. Lawyers who are ready in the profession and are desirous of learning the ADR techniques should be provided with necessary training to acquire necessary skills in order to avoid lawyering. The development of arbitration along non- litigious, non- adversarial lines; in other words . Less lawyer- techniques less “court- craft”; lawyers are certainly useful but not in their confrontational capacity, but in their more meaningful role as negotiators and mediators.
  1. Lack of institutional framework and infrastructural facilities: There is dearth of institutional framework which again militates against the purpose of the arbitration and conciliation act, 1996. As a result there are absolutely no support facilities such as assistance of suitable arbitral institutions in appointing qualified arbitrators, in providing supporting staff like court clerks, stenographers etc.
As a remedial action each arbitral institution should have a list of arbitrators consisting of retired judges, eminent lawyers, bureaucrats, qualified civil engineers, chartered accountants, social workers, academics, industrialists and other experts who would be willing to act as arbitrators. These arbitrators should exhibit qualities like –impartiality, integrity, rectitude, uprightness and courteous behavior and the preparedness and the patience to learn and listen. 
  1. No prescribed court fees: An arbitrators’ fee may vary between a few thousands to a few lakhs. While ad hoc arbitration charge varying fee for their services, even the institutionalized ones have readymade list of fees which do not appear to be uniform.
There should be standardization of fees: The fees payable to arbitrators need to be standardized and a uniform rate needs to be fixed for arbitration of various types of disputes. In this regard, the present arbitration law may be suitably amended so as to have clear provisions for scales of fees payable to arbitrators according to the nature of and the amounts involved in the disputes. The amendment in the Court Fees Act with regard to getting back the court fee paid in a arbitration plaint is a welcome change however it has still not been enforced.
F.S. Nariman in one of his articles has strongly opined that the arbitration process has become more and more assimilated to a proceeding in a court. The legal jargons such as “jurisdiction” and “legal misconduct” are not properly defined and moreover the lawyers and judges haven’t been too reluctant to find them.
 Part of NLP (National Law Policy)
One more new facet which has given importance to the concept of Alternative Dispute Resolution is the coming up of the National Litigation Policy (NCP) as proposed by Verappa Moiley in order to curtail the litigation time from 15 years to 3 years. 
1. It has been realized that nowadays all the government and Public sector units are resorting to arbitration in matters of drilling contracts, hire of ships, construction of highways, etc.  Therefore the arbitrators should be trained well for the careful drafting of such contracts.  The Ministry of Law and Justice has re iterated the importance of the same.
2. The party which deliberately tries to drag on the arbitration award in order to get time for fabricating the same should not be encouraged. In this way the whole process becomes tardy. Such a practice should be put to an end and expedite disposal should be encouraged or else it will lose its true essence.
4.  The Head of Department (HOD) should call for the daily records of the arbitration proceedings. They should obtain a copy of roznama for the same and in case of repetitive adjournments should enquire about the reasons for the same. Inefficient and unethical practitioners should be debarred from becoming the part of arbitration proceedings anytime in future and must also be penalized.  It shall be the responsibility of the Head of Department to call for regular review meetings to assess the status of pending arbitration cases.
5. It is very important to note that lack of precision in drafting arbitration agreements is a major cause of delay in arbitration proceedings.  This leads to disputes about appointment of arbitrators and arbitrability which results in prolonged litigation even before the start of arbitration  It must correctly and clearly reflect the intention of the parties particularly if certain items are required to be left to the decision of named persons such as engineers are not meant to be referred to arbitration. Also, sole arbitrators may be preferred over a panel of 3 arbitrators. The panel must contain an expert as regards to the subject matter of arbitration.
7. The concept of preferred arbitrators in various departments should not be encouraged. The arbitrator must be chosen on grounds of his expertise, knowledge and experience in that particular field. Care should be taken in order to ensure if the arbitrators can devote sufficient time for the same.   
Arbitration as a method of dispute resolution had been practiced from time immemorial. But of late, it has been considered as no better than court-litigation.
Other legislative changes
The above suggested remedies would bolster support and give impetus to mitigate all the drawbacks in the implementation of the ADR mechanism in India. Besides the above the legislature should also make amendment in the arbitration and conciliation act, 1996 so as to segregate the arbitration and conciliation matters. Also, the government is thinking to amend the advocates act, 1961 [by Advocates (Amendment) Bill 2003] to the effect that the functions of the Bar Council of India shall be to promote legal education and law down standards of such education in accordance with the recommendations of the Bar Council Legal Education Committee arrived at in the manner specified in section 10AA, including in the matter promoting alternative dispute resolution as a subject of academic study in the law schools for students and promoting continuing education on alternative dispute resolution for legal practitioners .
 It’s important that the all key stakeholders such as bar, the bench, the arbitral tribunal and other people associated with it should strive for the successful implementation of the same. Since we in India appear to have lost the art of conciliation, and have not yet acquired the necessary modern expertise , we must learn from other countries , then evolve our own standards for strengthening the mechanism of conciliation.

Amendment in Court Fees Act, 1870: However the amendment hasn’t been enforced up till now in India.
S.16: where the court refers the parties to the suit to any one of the mode of settlement of dispute referred to in section 89 of the code of civil procedure, 1908 the plaintiff shall be entitled to a certificate from the court authorizing him to receive back from the collector, the full amount of fee paid in respect of such a plaint.”

Proposal of Nyaya Panchayat Bill, 2006
The objective of the proposed Nyaya Panchayat Bill is to provide a sound institutionalized forum at the grassroots level for alternative dispute resolution through mediation and conciliation with community involvement. Sources stated that it was felt that delegation of judicial powers to local elected representatives could promote “khap panchayat”-like establishments Also it would violate article 50 of our Indian constitution which provodes for separation of judiciary form the executive, thereby it was rejected by the cabinet[6].
The necessity of Alternative Dispute Resolution is owing to the burden of cases at all the three levels. The Alternative Dispute Mechanism broadly comprises of 4 ways of dispute settlement:
  1. Arbitration 2. Mediation 3. Negotiation 4. Conciliation
The above process aims at speedy remedy in a cost effective manner. However the whole system is infirmed with many difficulties at the grass root level. At some places they have done excellent job e.g. mediation centers in Tamil Nadu. However, at most parts it has proved out to be a mirror of the court litigation. This defeats the whole purpose of the Arbitration and Conciliation Act, 1996. However, in order to work in collaboration with the government, an entire revamping of the whole system is required where institutionalized arbitrations should be encouraged; lawyers should be trained for effective drafting of the plaint, the above discussed amendment in the court fees act( where the plaintiff’s money is refunded) should be enforced. More over the unethical lawyers who are diluting the whole arbitration system should be debarred from becoming a part of the Alternative Dispute System and must be heavily penalized.
It’s important to bring about a change or it will always remain on its probation forever.

[1] (2003 5 SCC 705)
[2] (2005 8 SCC 618)
[3] AIR 1981 SC 2075, at 2076
[4] Trustees of the Port of Madras v. Engineering Constructions Corporations Ltd, 1995 (4) SCALE 742
[6] http://www.deccanchronicle.com/chennai/nyaya-panchayat-bill-rejected-054

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