Relevance: GS II – Judiciary
Growth in economic activity – both domestic and between nations, invariably means growth in trade and commerce and also a rise in commercial disputes associated with the same.
- An overburdened Indian court – litigation system is insufficient to deal with these disputes which are time bound, need technical knowhow and also involves huge sums of money value. Thus arises the need for specialised arbitral institutions.
What is Arbitration ?
According to Britannica, arbitration is a “nonjudicial legal technique for resolving disputes by referring them to a neutral party for a binding decision, or “award.” An arbitrator may consist of a single person or an arbitration board, usually of three members.
- Arbitration is most commonly used in the resolution of commercial disputes and is distinct from mediation and conciliation, both of which are common in the settlement of labour disputes between management and labour unions.
- In mediation, the parties resort to a third person to offer a recommendation for a settlement or to help them to reach a compromise. Such intervention by a third party, which also occurs in international disputes between states in the form of diplomatic intervention and good offices, has no binding force upon the disputants, unlike the arbitrator’s ruling.
Commercial arbitration
Commercial arbitration is a means of settling disputes by referring them to a neutral person, an arbitrator, selected by the parties for a decision based on the evidence and arguments presented to the arbitration tribunal. The parties agree in advance that the decision will be accepted as final and binding.
- Historically, commercial arbitration was used in resolving controversies between medieval merchants in fairs and marketplaces in England and on the European continent and in the Mediterranean and Baltic sea trade.”
Strengthening India’s Arbitration Environment
There are frequent deliberations on legislative reforms or for the need of less judicial hindrances, but, the focus, more often than not, escapes the contributors who are the arbitrators themselves, functioning as the decision makers.
- It is in fact the arbitrators who are crucial for the efficient functioning of the proceedings, having the power to dictate not just the procedural framework but also to decide on timelines, smoothen small trivialities and penalise the parties concerned with monetary fines, if the need arises.
Their awards can be challenged before the concerned court in India or overseas. - Even Justice D.Y Chandrachud, the former Chief Justice of India, on March 2024 had questioned on the absence of Indian arbitrators in international disputes which had no domestic concerns.
It is so observed that Indians seem to be excluded in the informal community of elite international arbitrators too.
Current Challenges in India’s Arbitration Practices
Indian courts tend to appoint former judges as arbitrators, which has in the due course of time affected the appointment practices of litigants, lawyers and arbitral institutions.
- In June 2024, the Ministry of Finance published guidelines which showed how the aforementioned way of appointments translates into the nature of arbitral proceedings which were lengthy, expensive, and mostly similar to court proceedings. These had poor reasoning eventually resulting to challenges and again put aside, thus entering the cycle of litigation again instead of being dusted and done with.
Building a World-Class Arbitration Ecosystem
The elite arbitrator must be legally versed but is also expected to excel in other roles too like deft management of procedures with a fresh approach and dexterity. The arbitrator should be able to adapt and adopt to international practices in arbitration.
- The world of arbitration sees stakeholders from a diverse group of cultures and nationalities. Relevant soft-skills are needed for the arbitrator to navigate this dynamic which requires special training.
Way Forward
- The arbitration award needs detail oriented assessment of huge files and evidence of facts and expert witnesses and also a rigorous financial analysis to also measure compensation value or damages, wherever required.
- The Indian arbitration ecosystem must comprise of not only advocates or retirees of judicial service but also proficient experts from different fields thus bringing with them fresh perspectives which will lead to nuanced decisions too.
The arbitrators must also be trained with the requisite specialised courses and accreditation processes. - Arbitration is more than routine court litigation. The objective should be to create a diversified and nuanced arbitration ecosystem with an equal impetus on upskilling arbitrators to the elite global standard.
PYQ Q. What are the major changes brought in the Arbitration and Conciliation Act, 1996 through the recent Ordinance promulgated by the President? How far will it improve India’s dispute resolution mechanism? Discuss. (2015) |
Practice Question
- “The future of commercial dispute resolution lies in arbitration, not litigation.” Discuss in the context of India’s growing economic and commercial engagements.
UPSC General Studies Paper Preparation
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About the Author: Nitin Kumar Singh
