WORD COUNT – 5162

NATIONAL LAW UNIVERSITY ODISHA, CUTTACK

PROJECT ON

ADHOC AND INSTITUTIONAL ARBITRATION: INDIAN SCENARIO

In

ALTERNATE DISPUTE RESOLUTION

SUBMITTED TO

MR. AKASH KUMAR

ASSISTANT PROFESSOR OF LAW

SUBMITTED BY

HEMANT PRAJAPATI - [2014(R)/BA.LLB./017]

 ~Ad-hoc And Institutional Arbitration: Indian Scenario~

ACKNOWLEDGEMENT

We take this opportunity to express our profound gratitude and deep regards to our guide
respected Asst. Prof. Akash Kumar sir for his exemplary guidance and constant
encouragement throughout the course of this project. We have taken efforts in this project.

However, it would not have been possible without your kind support and help. We would like
to extend our sincere thanks to Akash Kumar sir and we are highly indebted to him for his
guidance and constant supervision and consultation as well as for providing necessary
information regarding the project and also for his support in completing the project.

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TABLE OF CONTENTS

Acknowledgement..........................................................................................................................2

Table of Authorities.......................................................................................................................4

Chapter I - Introduction...............................................................................................................7

Chapter II – Ad-Hoc Arbitration.................................................................................................9

1. What it is...............................................................................................................................9

2. Advantages.........................................................................................................................10

3. Disadvantages.....................................................................................................................11

Chapter III - Institutional Arbitration......................................................................................14

1. What it is.............................................................................................................................14

2. Advantages.........................................................................................................................14

3. Disadvantages.....................................................................................................................16

Chapter IV - Major Hurdles in Indian Arbitration.................................................................18

1. Lack of Proper Institutional Arbitration Centres................................................................18

2. Cost.....................................................................................................................................18

3. Enforcement........................................................................................................................20

Chapter V - Conclusion...............................................................................................................21

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TABLE OF AUTHORITIES

CASES

Insigma Technology Co Ltd v Alstom Technology Ltd. [2009] SGCA 24...............................13

Permasteelisa Pacific Holdings Ltd v Hyundai Engineering & Construction Co Ltd, [2005] 2
SLR (R) 270........................................................................................................................13
Union of India v. Singh Builders Syndicate (2009) 4 SCC 523...............................................19
Yee Hong Pte Ltd v Powen Electrical Engineering Pte Ltd [2005] 3 SLR (R) 512................12

STATUTES

The Arbitration and Conciliation Act, 1996..............................................................................8

UNCITRAL Model Law..........................................................................................................12

OTHER AUTHORITIES

Technical Publication Series Center for Democracy and Governance, ‘Alternative Dispute
Resolution Practitioners’ Guide’ (March 1998), Bureau for Global Programs, Field
Support, and Research U.S. Agency for International Development Washington, D.C.
20523-3100..........................................................................................................................11

RULES

ICC Arbitration Rules..............................................................................................................15

BOOKS

Halsbury’s Laws of England (4th edition, 1991).......................................................................7

Lew, Julian DM, Loukas A. Mistelis, and Stefan Kröll. Comparative international
commercial arbitration. Kluwer Law International, 2003..................................................10
Sara Dillon, International trade and economic law and the European Union (Bloomsbury
Publishing, 2002) 256..........................................................................................................14

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JOURNAL ARTICLES

Aksen ‘Ad-hoc Versus Institutional arbitration’, (1991) 2(1) ICC Bulletin 8...........................7
Aloke Ray and Dipen Sabharwal, ‘What Next for Indian Arbitration?’ 29 August 2006, The
Economic Times....................................................................................................................8
Anjanette H. Raymond and Abbey Stemler. ‘Trusting Strangers: Dispute Resolution in the
Crowd’ Cardozo J. Conflict Resol. 16 (2014): 357.............................................................18
Arpinder Singh, ‘Ernst & Young Survey. Changing Face of Arbitration in India: A study by
Fraud Investigation and Dispute Services’, (2011).............................................................20
Eze, Felix Chukwuemeka. ‘An Analysis of the Concept of Negotiation and Arbitration As
Methods of Alternative Dispute Resolution in International Law.’ Phd Diss., 2002, 64....10
Harry L. Arkin, ‘International ad hoc arbitration: a practical alternative.’ Int'l Bus. Law. 15
(1987): 5..............................................................................................................................16
Indian Institute of Arbitration & Mediation, ‘The Indian Arbitrator’ Volume 1 Issue
1,February 2009...................................................................................................................12
Krishna, Sharma et al., ‘Development and Practice of Arbitration in India—Has it Evolved as
an Effective Legal Institution (Stanford Ctr. on Democracy, Dev., and the Rule of Law,
Working Paper No. 103, 2009)...........................................................................................20
Lecuyer-Thieffry, Christine, and Patrick Thieffry. ‘Negotiating Settlement of Disputes
Provisions in International Business Contracts: Recent Developments in Arbitration and
Other Processes.’ The Business Lawyer (1990): 577-623..................................................10
Rohit Bafna and Rhea Srivastava, ‘Arbitration & Alternative Dispute Resolution in India:
Issues & Challenges in International Commercial Arbitration’ Available at SSRN 2126954
(2012)..................................................................................................................................16
Sabra A. Jones, ‘Historical Development of Commercial Arbitration in the United States.’
Minn. L. Rev. 12 (1927): 240................................................................................................7
Soia Mentschikoff, ‘Commercial arbitration’ Columbia Law Review 61, no. 5 (1961) 846. .14
Sundra Rajoo, ‘Institutional and Ad hoc Arbitrations: Advantages and Disadvantages’ Law
Review (2010): 548.............................................................................................................16
Walter Mattli, ‘Private Justice in a global economy: from litigation to arbitration.’
International Organization 55, no. 04 (2001) 919...............................................................14

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ONLINE JOURNALS

Girard Gibbs LLP and Lazareff Le Bars AARPI, ‘Ad hoc Arbitration’ ,
<http://www.internationalarbitrationlaw.com/international-ad-hoc-arbitration/> accessed
on 24 August 2016................................................................................................................9
Girard Gibbs LLP and Lazareff Le Bars AARPI, ‘International Arbitration: Ad hoc
Arbitration’ < http://internationalarbitrationlaw.com/about-arbitration/international-
arbitration/ad-hoc-arbitration/ />, (Accessed on 24 August 2015)........................................9
Institutional vs. ‘ad hoc’ arbitration, (Outlaw – 1 may, 2011), <http://www.out-
law.com/en/topics/projects--construction/international-arbitration/institutional-vs-ad-hoc-
arbitration/> accessed on 24 August 2016............................................................................9
Law Commission of India, Amendments to the Arbitration and Conciliation Act 1996 (246,
2014) ¶ 6 <http://lawcommissionofindia.nic.in/reports/Report246.pdf> accessed on 24
August 2016..........................................................................................................................7
Namrata Shah, ‘Arbitration: One Size Does Not Fit All: Necessity of Developing Institutional
Arbitration in Developing Countries’ Journal of International Commercial Law and
Technology, (2011)Vol. 6, Issue 4, Pg. 145
<http://www.jiclt.com/index.php/jiclt/article/viewFile/142/140> accessed on 24 August
2016.......................................................................................................................................9
Sumeet Kachwaha and Dharmendra Rautray, Kachwaha & Partners, ‘Arbitration In India: An
Overview’, Pg. 124 <
http://www.kaplegal.com/upload/pdf/AIAJ_V4_N1_2008_Book_(Sumeet_Kachwaha).pdf
> accessed on 27 August 2016............................................................................................11
The Advantages and Disadvantages of Ad Hoc Arbitration, (Arbitration– Mar’23, 2011),
<http://www.arbitration.com/articledetail.aspx/article/ad-hoc-arbitration> (Accessed on
26th August 2016)...............................................................................................................10
The Advantages and Disadvantages of Ad-hoc Arbitration,
<http://www.arbitration.com/articledetail.aspx/article/ad-hoc-arbitration> accessed on 23
August 2016..........................................................................................................................7

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CHAPTER I - INTRODUCTION

In order to understand the two different types of arbitrations and their advantages over one
another, it’s important to understand what arbitration is, in the first place. ‘Arbitration’ is
defined as “the process by which a dispute or difference between two or more parties as to
their mutual legal rights as well as liabilities is referred to and determined judicially and
with binding effect by the application of law by one or more persons in the arbitral tribunal
instead of by a court of law”1.

The arbitration process does not replace the judicial machinery but it is only an alternative of
litigation and it co-exists with the judicial system. 2 Arbitration basically allows for easier
implementation and disputes can be handled much more quickly. The second advantage has
to do with cost. There are fewer administrative costs and fees to contend with, so parties with
less financial capability can use this process over the court system. 3 There are two kinds of
arbitration, one being, ad-hoc and institutional arbitration methods, and each has its own
advantages over the other.4

Parties have an option to either go for an ad hoc arbitration or for institutional procedures and
rules. If the parties choose the ad hoc arbitration, they have the option of choosing and
drafting their own procedures and rules which they deemed fit.5 On the other hand if the
parties adopted the institutional arbitration process, they will not have so much independence
but in this case a specialized institution with an enduring character interferes and undertakes
the functions of administering and aiding the process of arbitration.6

1
Halsbury’s Laws of England (4th ed, 1991) para 601,332
2
Ibid
3
The Advantages and Disadvantages of Ad-hoc Arbitration,
<http://www.arbitration.com/articledetail.aspx/article/ad-hoc-arbitration> accessed on 23 August 2016
4
Aksen ‘Ad-hoc Versus Institutional arbitration’, (1991) 2(1) ICC Bulletin 8
5
Law Commission of India, Amendments to the Arbitration and Conciliation Act 1996 (246, 2014) para 6
<http://lawcommissionofindia.nic.in/reports/Report246.pdf> accessed on 24 August 2016
6
Sabra A. Jones, ‘Historical Development of Commercial Arbitration in the United States.’ Minn. L. Rev. 12
(1927): 240

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Many disputes that end up in arbitration lend themselves to an array of lawyer’s strategies to
gain advantage, frequently involving a multitude of opportunities to gain advantage. 7 The
Arbitration and Conciliation Act, 1996, in India has effectively resolved disputed through the
ADR process.8

7
Aloke Ray and Dipen Sabharwal, ‘What Next for Indian Arbitration?’ 29 August 2006, The Economic Times
8
The Arbitration and Conciliation Act, 1996

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CHAPTER II – AD-HOC ARBITRATION

1. What it is

Ad-hoc arbitration can be defined as “arbitration where the parties and the arbitral tribunal
will conduct the arbitration according to the procedures:

a. Which will either be previously agreed upon by the parties or

b. In the absence of such agreement be laid down by the arbitral tribunal, at the preliminary
meeting once the arbitration has begun.”9

In an ad-hoc arbitration, parties do not take recourse of any arbitral institution, nor is it
administered by any of them, such as DIAC, ICC, DIFC or LCIA.10 The duty is on the parties
to determine who the arbitrator will be, what procedure of law the parties ought to follow,
how many arbitrators are to be appointed, location of arbitration, language of the arbitration 11,
the time limit within which the tribunal must render its final award and other incidental
matters.

Also, where parties are silent and have not selected institutional arbitration, the arbitration
shall be deemed to be ad hoc.12 For instance, where terms between the parties state that
“Disputes between parties shall be arbitrated in India”, it basically means that the mode of
arbitration which is to be followed is ad hoc.

Parties have an option to choose UNCITRAL Model Rules of arbitration for conducting ad-
hoc arbitration as these rules have found widespread acceptance in general commercial
arbitrations and in arbitrations between states and individuals.13

9
Namrata Shah, ‘Arbitration: One Size Does Not Fit All: Necessity of Developing Institutional Arbitration in
Developing Countries’ Journal of International Commercial Law and Technology, (2011)Vol. 6, Issue 4, Pg.
145 <http://www.jiclt.com/index.php/jiclt/article/viewFile/142/140> accessed on 24 August 2016
10
Institutional vs. ‘ad hoc’ arbitration, (Outlaw – 1 may, 2011), <http://www.out-law.com/en/topics/projects--
construction/international-arbitration/institutional-vs-ad-hoc-arbitration/> accessed on 24 August 2016
11
Girard Gibbs LLP and Lazareff Le Bars AARPI, ‘Ad hoc Arbitration’ ,
<http://www.internationalarbitrationlaw.com/international-ad-hoc-arbitration/> accessed on 24 August 2016
12
Principal Forms of Arbitration, Chapter 3, Page No. 32
13
Girard Gibbs LLP and Lazareff Le Bars AARPI, ‘International Arbitration: Ad hoc Arbitration’ <
http://internationalarbitrationlaw.com/about-arbitration/international-arbitration/ad-hoc-arbitration/ />,
(Accessed on 24 August 2015)

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 ~Ad-hoc And Institutional Arbitration: Indian Scenario~

1. Advantages

The advantages of ad-hoc arbitration could be summarized as follows:

a. The Choice of Arbitrators: It is one of the most crucial reason for parties to choose ad
hoc arbitration. The parties therein have the freedom to choose who the arbitrator or
arbitrators are to be. It is the sole discretion of the parties and there is no limitation for
choosing a definite arbitrator.14
b. Flexibility of Procedures: The procedure of ad hoc arbitration is drafted by the parties.
The freedom of such a facility is that they are not bound by any procedure established by
law, and hence could use one procedure for proceedings of arbitration and another for
15
awards. They could have any procedure for production of evidences as well as
recording statements. This does provide flexibility to the parties.
c. Cost: It is a perceived but, not necessarily a settled factor that whenever parties have the
liberty to choose the arbitrator, location, language, procedure etc., there is a high chance
that they bring in the concept of mutually reducing the cost of the entire process, unlike in
institutional, wherein they have to pay a specified fixed cost. 16 But this situation entirely
depends upon the fact as to whether the parties cooperate among themselves and facilitate
the arbitration process.17

If parties approach an ad hoc proceeding with an intention to amicably resolve dispute among
themselves, it can be more flexible, cheaper and faster than an arbitration administered by an
institution.18 Moreover, the fact that there lies no fees for administration makes parties choose
this form, frequently. It also takes away the burden of drafting a well-designed contract,
which must expressly state the terms of arbitration. This method of arbitration is also best

14
Lecuyer-Thieffry, Christine, and Patrick Thieffry. ‘Negotiating Settlement of Disputes Provisions in
International Business Contracts: Recent Developments in Arbitration and Other Processes.’ The Business
Lawyer (1990): 577-623
15
The Advantages and Disadvantages of Ad Hoc Arbitration, (Arbitration– Mar’23, 2011),
<http://www.arbitration.com/articledetail.aspx/article/ad-hoc-arbitration> (Accessed on 26th August 2016)
16
Eze, Felix Chukwuemeka. ‘An Analysis of the Concept of Negotiation and Arbitration As Methods of
Alternative Dispute Resolution in International Law.’ Phd Diss., 2002, 64
17
Supra Note 9, Pg 147
18
Lew, Julian DM, Loukas A. Mistelis, and Stefan Kröll. Comparative international commercial arbitration.
Kluwer Law International, 2003

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suited when one of the parties in the dispute is State, as it is always in the best interest of the
State to not give away its sovereignty to be handled about by any institution.19

2. Disadvantages

There are situations where the ad hoc arbitration process lags behind the institutional
arbitration procedures:

a. Selection of the arbitral panel: In ad hoc arbitrations, the parties have to rely on their
own decision as to the identity and quality of the individual arbitrator. 20 This may be
predominantly difficult, in the context of international arbitration, as a party may not be
able to choose a good arbitrator from his country due to objections of national bias and
would have little or maybe no knowledge of arbitrators outside his country.21

b. Lack of expertise: It is an accepted fact that the arbitration clause is the last thing in a
particular contract which the draftsman looks at or even pays attention to. As a result it
may be lacking in various respects. Arbitration may be subject to national laws which
provide for default provisions in the absence of agreement. 22 Parties when represented by
lay persons may lack the necessary knowledge and expertise to set up the arrangements to
conduct an ad hoc arbitration.23 Such parties, especially if of different nationalities, may
make misinformed decisions which may affect the arbitration proceedings.
Further in ad hoc arbitration, which is not conducted under rules like those of
UNCITRAL, the parties will have to refer a challenge to the national courts in accordance
with lex arbitri of the place of arbitration.24 If the lex arbitri is based on the UNCITRAL
Model Law, then there will be a two-step process.25
19
Technical Publication Series Center for Democracy and Governance, ‘Alternative Dispute Resolution
Practitioners’ Guide’ (March 1998), Bureau for Global Programs, Field Support, and Research U.S. Agency for
International Development Washington, D.C. 20523-3100
20
Justice Ashok Bhan in his inaugural speech delivered at the conference on ‘Dispute Prevention and Dispute
Resolution’ held at Ludhiana, India, October 8, 2005. Also Arbitration and Conciliation Act, 1996
21
Ibid
22
Sumeet Kachwaha and Dharmendra Rautray, Kachwaha & Partners, ‘Arbitration In India: An Overview’, Pg.
124 < http://www.kaplegal.com/upload/pdf/AIAJ_V4_N1_2008_Book_(Sumeet_Kachwaha).pdf > accessed on
27 August 2016
23
Ibid
24
UNCITRAL Model Law, Art. 13 ¶ 2 and ¶ 3
25
Ibid

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Any arbitrator appointed to hear the dispute must also be experienced, have the time to
focus on the arbitration, so that parties will have confidence in his impartiality and good
judgment. Without these factors, it is common for misunderstandings to occur, which can
delay or complicate the arbitration. An example of such a result occurred in the case of
Yee Hong Pvt. Ltd. v. Power Electrical Engineering Pvt. Ltd.26.

c. Fees of Arbitrator: One of the problem faced by parties in ad hoc arbitration is the high
cost accompanying the same that includes unilateral, arbitrary and disproportionate
fixation of fees. According to the 276th Law Commissions Report if for dispute resolution,
arbitration is really supposed to become a cost effective solution then there should be
some mechanism, in the domestic context, so that fee structure can be rationalized for
arbitrations.27

d. Failure of parties to cooperate between each other: The dependency of ad hoc

arbitration on the spirit of cooperation between the parties and their lawyers which is
backed by an adequate legal system in place of arbitration also, for its full effectiveness
becomes a huge disadvantage. But it may not exist necessarily.28 Anticipation of all
eventualities have to be done by the parties and they should also provide for them. Each
party will have different views on the process to deal with the eventualities and thus, find
difficult to reach an agreement.29

e. Not always a time and money effective and can be opposite at times: Unnecessary
expense and time would be involved if one has to meet again prior to the hearing to
remove procedural defects. Either party can easily delay the arbitral proceedings by
refusing to appoint an arbitrator or by raising a challenge to the impartiality of arbitral
tribunal or jurisdiction.30

26
Yee Hong Pte Ltd v Powen Electrical Engineering Pte Ltd [2005] 3 SLR (R) 512
27
Law Commission of India, Amendments to the Arbitration and Conciliation Act 1996 (246, 2014) ¶ 6
<http://lawcommissionofindia.nic.in/reports/Report246.pdf> accessed on 24 August 2016
28
Indian Institute of Arbitration & Mediation, ‘The Indian Arbitrator’ Volume 1 Issue 1,February 2009
29
Ibid
30
Lew, Julian DM, Loukas A. Mistelis, and Stefan Kröll. Comparative international commercial arbitration.
(Kluwer Law International, 2003) 56

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In situations like this, the provisions of arbitration laws would be helpful in extending
necessary support. If parties are not willing to cooperate in relation to arbitration process
as a choice, they can also seek court intervention. But it must be noted that asking for
such interventions would increase litigation costs, and would negate the ad hoc
arbitration’s cost-effectiveness that would militate against the very intention of dispute
resolution.31

f. The tribunal secretary and complexions: Where it is seen by the Tribunal that there is a
considerable amount of administrative work especially in complex cases, it can appoint a
secretary to administer the arbitration whose fees would be borne by the parties that adds
up to the cost of the arbitration.32
There is a risk of creating inconsistencies and ambiguities in institutional rules as they
were amended. This risk is well illustrated by the case of Insigma Technology Co Ltd v.
Alstom Technology Ltd.33 This case dealt with a “hybrid” arbitration clause that provided
for the arbitration to take place before the Singapore International Arbitration Centre
(SIAC)34 in connection with the Rules of Arbitration of International Chamber of
Commerce.

31
Institutional vs. 'ad hoc' arbitration, (Outlaw – 1 may, 2011), <http://www.out-law.com/en/topics/projects--
construction/international-arbitration/institutional-vs-ad-hoc-arbitration/>, (Accessed on 28 August 2016)
32
Permasteelisa Pacific Holdings Ltd v Hyundai Engineering & Construction Co Ltd, [2005] 2 SLR (R) 270
33
Insigma Technology Co Ltd v Alstom Technology Ltd. [2009] SGCA 24
34
Singapore International Arbitration Centre, <http://www.singaporelaw.sg/sglaw/arbitration-adr/arbitration-
adr-institutions/singapore-international-arbitration-centre> (Accessed on 26th August 2016)

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CHAPTER III - INSTITUTIONAL ARBITRATION

1. What it is

A specialized institution that has a permanent character intervenes and assumes the basic
functions of administering and aiding arbitral procedures, as given under rules of that
institution would be termed as a ‘specialized arbitration.’ Generally, the contract between
parties contains a clause specifying or designating as institution to be the arbitration
administrator.35

The first issue arising in an institutional arbitration for agreement of parties, is the choice of
the institution arising out of contract between them appropriate for dispute resolution. Some
of the factors to be considered while making such a choice are, nature & commercial value of
dispute, rules of institution, past records and the institution’s reputation. Also the rules of the
institution should be in sync with the latest developments in the practice of international
commercial arbitration. Institutional arbitration administrators are also associated with trade
association and some are independent too.36

These kinds of arbitrations are conducted under the supervision and well-tested rules of a
recognized arbitral organization like ICC (International Criminal Court), Dubai International
Arbitration Centre (DIAC), The Bahrain Chamber for Dispute Resolution (BCDR) etc.

3. Advantages

Each formal arbitral institution has its own features and parties should consider the pertinent
rules and fee structures in addition to the level of administrative support before deciding.
Institutional arbitration has substantial number of advantages over ad hoc, they have been
listed below:37

a. Reputation: Institutional arbitration has a reputation and prestige attached to it. An

arbitral award as generally perceived, if issued under a well-known institution is helpful
in terms of enforcement. Parties have the advantage of knowing that arbitration
35
Walter Mattli, ‘Private Justice in a global economy: from litigation to arbitration.’ International Organization
55, no. 04 (2001) 919
36
Sara Dillon, International trade and economic law and the European Union (Bloomsbury Publishing, 2002)
256
37
Soia Mentschikoff, ‘Commercial arbitration’ Columbia Law Review 61, no. 5 (1961) 846

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institutions have experience in ensuring arbitral tribunal’s constitution and the hearing
and publication of award.

b. Arbitration rules: A predefined specific set of rules are applied in this case. When the
parties to the arbitration sign the agreement they agree to follow the procedure in
accordance with the rules of a particular institution. One of the principle advantages of
institutional arbitration is the automatic incorporation of book of rules that would provide
for such factual situations arising in arbitration.38

c. Administration: Most arbitral institutions provide trained staff for administration of the
arbitration that is a significant advantage. Appointment of arbitral tribunal is ensured by
them, advance payments in respect of expenses and fees of arbitrators are made, and they
also see that time limits are adhered to and that arbitration is run very smoothly.

d. Supervision: Certain arbitral institutions in addition to administration, examine an award

before publication to the parties that ensures that the reasoning and content of award deal
with counterclaims and claims portrayed by the parties. They also see to it that the due
process principles have been adhered throughout the course of proceedings.

e. Remuneration of arbitral tribunal: The discomfort of the parties is avoided by the

institutional arbitration as arbitral tribunal’s remuneration are fixed. The mechanisms to
determine scale of remuneration and collecting from the parties’ money for arbitral
tribunal are stated by most of the institutions without directly involving the arbitrators. A
certain amount of material detachment is maintained by the Tribunal.39
f. Speed: The crux of all arbitrations is, speed. Strict time limits have to be adhered to for
the exchange of pleadings of the parties, main hearing and final award publication when
an arbitral institution is in picture. Such time limits guide the parties and also the tribunal
for resolving disputes swiftly even if non-compliance with deadline given is fatal and
parties agree for more flexible time.40

38
ICC Arbitration Rules, art 21.2 (If any of the parties, although duly summoned, fails to appear without valid
excuse the Arbitral Tribunal shall have the power to proceed with the hearing)
39
LCIA, India charges (20000 INR per hour)
40
Supra Note 31

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There are around 1200 institutions in worldwide which offers arbitration services, and some
of them deal particularly with trade or industry. Care should be taken during selection
processes as some institutions may act under the rules which are not adequately drafted. The
contract between the parties would contain an arbitration clause designating the particular
institution as the arbitration administrator. If the institutional administrative charges are not
concern to the parties, the approach preferred to less formal “ad hoc” method of arbitration.41

4. Disadvantages

a. Administration fees: The costs of the arbitrator, lawyers and other representatives have to
be borne by the parties. As institutional arbitration involves additional fees of another
party (his institution) it is viewed negatively sometimes also.42 As the institutional
arbitration involves increasing expenses and consumes time it is believed by many to be
itself. The costs of arbitrator’s fees is also involved in the increasing administrative costs.

b. Unnecessary red tape: Some procedural requirements of certain institution can be viewed
to introduce the unnecessary red tape by practice that is an informal method of dispute
resolution. But, some amount of red tape in the beginning would reduce the uncertainty
and procedural disputes mid-way through proceedings.

c. Sovereignty issues: If a party is State, institutional arbitration would be inappropriate.

Sovereignty entitles often reluctant as the matter of politics for submit, the authority of
the institution regardless of its standing, to do so would be to the devalue or the deny its
sovereignty.43

Institutional arbitration is suitable if the parties want a proper degree of the supervision. The
administrative fees of services and use of facilities can be considerable in the institutional
arbitration. Delays and additional costs are the consequences of bureaucracy from within the
institution. Parities may require to respond within the unrealistic time frame.

41
Harry L. Arkin, ‘International ad hoc arbitration: a practical alternative.’ Int'l Bus. Law. 15 (1987): 5
42
Sundra Rajoo, ‘Institutional and Ad hoc Arbitrations: Advantages and Disadvantages’ Law Review (2010):
548
43
Rohit Bafna and Rhea Srivastava, ‘Arbitration & Alternative Dispute Resolution in India: Issues & Challenges
in International Commercial Arbitration’ Available at SSRN 2126954 (2012)

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CHAPTER IV - MAJOR HURDLES IN INDIAN ARBITRATION

In this chapter we will discuss about the major problems with both the kinds of the
arbitrations and will see if any solution is provided by 276 th Law Commission Report as
published in 2015. Also whether any of the potential solutions as suggested by the Law
Commission were implemented by the Indian Legislature in the Arbitration and Conciliation
(Amendment) Act of 2015.

1. Lack of Proper Institutional Arbitration Centres

Institutional arbitration has minimal reach in India and unfortunately has not even kick-
started. The Act thus, is skeptic in institutional arbitration, i.e. it neither discourages nor
promotes parties to take up this process. The Commission on the other hand, suggests
changes that attempt to encourage the culture of such arbitration in India. The Commission
believes that institutional arbitration would go a long way in redressing systematic malaise
affecting the growth of arbitration.

In India, the spread of Institutions for the arbitration is minimal and unfortunately not really
kick started.44 According to the Law Commission Report, the A & C Act, 1996 neither
promotes nor discourages the institutional arbitration. The 276th Law Commission attempted
to encourage the culture of institutional arbitration in the country by suggesting the changes
in Section 11 (6) of the A & C Act, 1996.

The 276th Law Commission recommended to add two new explanations to Section 11 clause
6 so that the courts can be persuaded to push the matters for arbitration rather than regular
court proceedings. But the Legislature has not agreed with the law commission report and
hence did not added the explanations to Section 11(6); rather, the Legislature amended
Section 8 and replaced it with the text which enables and empowers the Supreme Court and
High Courts to push the parties for arbitration, especially for institutional arbitration.

5. Cost

The dispute at hand or the type of arbitration used are conditions that creates varied cost
effectiveness for different processes. In both types of arbitration, varying in degree,
arbitrators and party representatives will be paid high fees. In ad hoc arbitration, the parties
will have to pay for expensive venues, often times expensive hotels. In institutional
44
Anjanette H. Raymond and Abbey Stemler. ‘Trusting Strangers: Dispute Resolution in the Crowd’ Cardozo J.
Conflict Resol. 16 (2014): 357

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arbitration, the parties will have to pay administrative fees for administering the arbitration.
In many countries, arbitration is a cost-effective alternative to litigation. However, in India,
arbitration is costly because of the lengthy arbitration practice as described above.

Especially in ad hoc arbitration most of the parties complain about the high fees associated
with it due to arbitrary fees fixation by the arbitrators. According to the 276 th Law
Commission, to make arbitration cost effective in practicality, some rational mechanism for
fee structure should be imposed.

Also in the case of Union of India v. Singh Builders Syndicate 45, the Hon’ble Supreme Court
has observed about the fee structure of the arbitrators;

“[T]he cost of arbitration can be high if the arbitral tribunal consists of retired
Judges… There is no doubt a prevalent opinion that the cost of arbitration becomes
very high in many cases where retired Judges are arbitrators. The large number of
sittings and charging of very high fees per sitting, with several add-ons, without any
ceiling, have many a time resulted in the cost of arbitration approaching or even
exceeding the amount involved in the dispute or the amount of the award. When an
arbitrator is appointed by a court without indicating fees, either both parties or at
least one party is at a disadvantage. Firstly, the parties feel constrained to agree to
whatever fees is suggested by the arbitrator, even if it is high or beyond their
capacity. Secondly, if a high fee is claimed by the arbitrator and one party agrees to
pay such fee, the other party, who is unable to afford such fee or reluctant to pay such
high fee, is put to an embarrassing position. He will not be in a position to express his
reservation or objection to the high fee, owing to an apprehension that refusal by him
to agree for the fee suggested by the arbitrator, may prejudice his case or create a
bias in favour of the other party who readily agreed to pay the high fee.”

In order to provide a workable solution to this problem, the Commission has recommended a
model schedule of fees and has empowered the High Court to frame appropriate rules for
fixation of fees for arbitrators and for which purpose it may take the said model schedule of
fees into account.46 The model schedule of fees are based on the fee schedule set by the Delhi
High Court International Arbitration Centre, which are over 5 years old, and which have been

45
Union of India v. Singh Builders Syndicate (2009) 4 SCC 523
46
Law Commission of India, Amendments to the Arbitration and Conciliation Act 1996 (246, 2014) ¶ 13
<http://lawcommissionofindia.nic.in/reports/Report246.pdf> accessed on 24 August 2016

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suitably revised. The schedule of fees would require regular updating, 12 and must be
reviewed every 3-4 years to ensure that they continue to stay realistic.

6. Enforcement

Enforcement of foreign arbitral awards in India are largely guided by the New York
Convention of 1958, which is incorporated in parts II of the amended 1996 Act. Domestic
awards are guided by §36 of the new 1996 Act, which states that “an arbitral award is
enforceable as a decree of the court, and could be executed like a decree in a suit under the
provisions of the Civil Procedure Code, 1908.”47

In India, an enforcement of an award that would usually take six months in an international
institution, may take up to eight years.48 Enforcement delays are a big hurdle in Indian
arbitration, deterring foreign investors from engaging in Indian companies.

All of these major hurdles in Indian arbitration have led the international community to
believe that India is not a preferred international arbitration destination. However, India is
continuously attempting to overcome these hurdles.

47
Krishna, Sharma et al., ‘Development and Practice of Arbitration in India—Has it Evolved as an Effective
Legal Institution (Stanford Ctr. on Democracy, Dev., and the Rule of Law, Working Paper No. 103, 2009),
<http://iis-db.stanford.edu/pubs/22693/no_103_sarma_india_arbitration_india_509.pdf>, (Accessed on 21st
Aug, 2016)
48
Arpinder Singh, ‘Ernst & Young Survey. Changing Face of Arbitration in India: A study by Fraud
Investigation and Dispute Services’, (2011),
<http://www.ey.com/publication/vwluassets/changing_face_of_arbitration>, (Accessed on 21st Aug, 2016)

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CHAPTER V - CONCLUSION

Having discussed the history of India’s arbitration practice, ranging from the 1770s to the
1990s, it is evident that arbitration is a common alternative dispute resolution in India. There
are hurdles as discussed above, but nonetheless, India has continuously tried to amend its
legislation regarding arbitration to meet the nations’ needs and its growing market. If India
implements these changes to regulate these major issues, it can be a preferred international
arbitration destination. Though such changes are already underway and may take years to
fully develop, they are worth the effort and time. Further, it will increase India’s legal
credibility, something that has always been under strict scrutiny and criticism.

Overall, India’s market will always attract foreign investors. It is this risk analysis that will
help analyze when to invest, why they should invest and how much to invest.

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