ARTICLE ON

THE TREND OF INSTITUTIONAL ARBITRATION IN

INDIA VIS A VIS AD HOC ARBITRATION

(Subject- International Commercial Arbitration)

SUBMITTED TO- SUBMITTED BY-

Ms. PALLAVI BAJPAI ADITI JAIN 16LLB004

ASST. PROF AVTAR SINGH RATHORE 16LLB014

 ABSTRACT

Arbitration is a form of alternative dispute resolution (ADR) which allows disagreements

between two parties to be resolved outside of the traditional court system. In an arbitration case
the parties to a dispute will refer it to one or more persons - known as the 'arbitrators' or an
'arbitral tribunal' - by whose decision or award they agree to be bound. Arbitration is often used
to resolve commercial disputes, particularly in the context of international commercial
transactions.

This article considers the differences between institutional and 'ad hoc' arbitration methods, and
the advantages and disadvantages of each.

There are two basic forms of arbitration, ad hoc and institutional. The present contribution
investigates the traditional distinction between ad hoc and institutional arbitration in more detail.
In the context of international commercial disputes, one may argue that institutional arbitration is
more suitable, even though apparently it is more expensive, time consuming and rigid than ad
hoc arbitration, keeping in mind the fact that it provides established & updated arbitration rules,
support, supervision & monitoring of the arbitration, review of awards and most importantly,
strengthens the credibility of the awards. However it must be said that it is hard to claim that
institutional arbitration is superior to ad hoc proceedings or vice versa.

1
 INTRODUCTION

India isn’t new to the world of arbitration. Ancient India recognized arbitration as an efficacious
means of dispute resolution. Disputes were typically determined with the intervention of Kulas
(members involved with the social matters of a community), Shrenis (people engaged with in the
same business or profession) and Pugas (local courts), that were jointly referred to as Panchayats.
This form of arbitration of disputes was well institutional in nature and was quite similar to
certain forms of institutional arbitration currently prevailing today. For example, resolution of
disputes between two professionals or tradesmen done through Shrenis was contemporarily
equivalent of arbitration underneath the aegis of a trade body or a chamber of commerce.1

Arbitration could also be outlined as the process by which a dispute or difference between two or
more parties as to their mutual legal rights and liabilities is mentioned to and determined
judicially and with binding impact by the application of law by one or more persons (the arbitral
tribunal) rather than by a court of law.2 Arbitration is another method of solving disputes, and
hence, it coexists with the system of proceedings. The main objective of having an arbitration
proceeding is to provide fair and impartial resolution of disputes while not inflicting unnecessary
delay or cost which also has a binding effect, without going to the Court of law and getting
engaged within the long-drawn judicial procedure. In India, the alternative method of solving
disputes has been present from a long time, since trade and commerce began to grow outside the
country.
Parties are entitled to choose the form of arbitration which they hold acceptable and appropriate
in the facts and circumstances of their dispute. This Paper considers the differences between
Institutional and 'Ad hoc' arbitration methods, and the benefits and drawbacks of each.

1
https://www.mondaq.com/india, Article name:- the future of Institutional arbitration in India, visited on 10 April
2020 at 12:15 PM
2
Butterworths, Halsbury’s Laws of England (4th edition, 1991)

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 TYPES OF ARBITRATION

There may be differing expectations and possible misunderstandings as parties of various

nationalities come together seeking to resolve disputes before an arbitral tribunal of also
different nationalities. These are the basic two forms of arbitration followed in varying
Degrees in different nations across the globe.3

 Ad Hoc Arbitration
 Institutional Arbitration

AD HOC ARBITRATION

An ad hoc arbitration is one that isn’t administered by an institution and therefore, the parties are
required to determine all aspects of the arbitration like the number of arbitrators, manner of their
appointment, procedure for conducting the arbitration, etc.

The parties then ought to confirm all aspects of the arbitration just like the choice and manner of
appointment of the arbitral tribunal, applicable law, procedure for conducting the arbitration and
administrative support without assistance from or recourse to an arbitral institution. The arbitral
mechanism is thus structured specifically for the actual agreement or dispute. If the parties
cannot agree on such arbitral detail or, in default of agreement, laid down by the arbitral tribunal
at a preliminary meeting once the arbitration has begun, it will be resolved by the law of the seat
of arbitration.4

Ad hoc arbitration is a proceeding that is not administered by others and needs the parties to
make their own arrangements for choice of arbitrators and for designation of rules, applicable
law, procedures and administrative support. Provided the parties approach the arbitration in a
very spirit of cooperation, ad hoc proceedings can be more flexible,5 cheaper and quicker than an
administered proceeding. The absence of administrative fees alone make this a well-liked
alternative.

3
Gerald Aksen, ‘Ad hoc Verses Institutional Arbitration’, 2(1) ICC Bulletin (1991): 8-14
4
Sundra Rajoo, ‘Institutional and Ad hoc Arbitrations: Advantages and Disadvantages’, The Law Review
(2010), visited on 10 April 2020 at 12:40
5
Supra, note4

3
The arbitration agreement, whether or not found out before or when the dispute arises, might
simply state that "disputes between the parties will be arbitrated", and if the place of arbitration is
designated, that will suffice. If the parties cannot agree on arbitral detail, all unresolved issues
and queries attending implementation of the arbitration, for example "how the arbitral tribunal
will be appointed", "how the proceedings will be conducted" or "how the award will be
enforced" will be determined by the law of the place selected for the arbitration, i.e., the "seat" of
the arbitration. Such an abbreviated approach will work on a condition that the jurisdiction
chosen has an established arbitration law. The ad hoc proceeding need not be entirely divorced
from its institutional counterpart. Oftentimes the appointment of a qualified and/or impartial
arbitrator (actual or perceived) constitutes a sticking point in ad hoc proceedings. In such case,
the parties will conform to designate an institutional provider as the appointing authority.
Further, the parties can at any time within the course of an ad hoc proceeding decide to engage
an institutional provider to administer the arbitration.

Parties wishing to include an ad hoc arbitration clause within the underlying contract between
them, or seeking to arrive at terms of arbitration once a dispute has arisen, have the choice of
negotiating a whole set of rules, establishing procedures that match exactly which their particular
needs. Expertise has shown that this approach can require considerable time, attention and
expense without providing assurance that the terms agreed will address all eventualities.
Other choices available to parties wishing to proceed ad hoc, who are not in need of rules drawn
particularly for them, or of formal administration and oversight, include:6

i. adaption of the rules of an arbitral institution, amending provisions for choice of the
arbitrator(s) and removing provisions for administration of the arbitration by the
institution,
ii. incorporating statutory procedures like the The United States Federal Arbitration Act (or
applicable state law) or the English Arbitration Act 1996,
iii. adopting rules crafted specifically for ad hoc arbitral proceedings like the UNCITRAL
Rules (U.N. Commission on International Trade Law) or CPR Rules (International
Institute for Conflict Prevention and Resolution), which may be used in both domestic
and international disputes, and

6
http://www.legalserviceindia.com, article- ad hoc and institutional arbitration, visited on 10 April 2020 at 12:50

4
 iv. adopting an ad hoc provision traced from another contract. Risks incidental to two of the
available options are worthy of particular note.

Incorporating rules drawn by an institutional arbitration provider, amending provisions for

appointment of the arbitrator(s) and excising provisions requiring administration by the provider,
carries with it the risk of creating ambiguities within the institutional rules as amended, despite
efforts to redraw them to suit an ad hoc proceeding. It is also possible that in the adaptation
process the parties may unknowingly create an institutional process. Copying an ad hoc
arbitration clause from another contract may also result in later grief if the copied clause was
originally crafted for a specific, possibly distinctive and unique, set of circumstances and/or was
drafted taking into consideration different applicable arbitration law.

INSTITUTIONAL ARBITRATION

An institutional arbitration is one within which a specialized institution with a permanent

character intervenes and assumes the functions of aiding and administering the arbitral process,
as provided by the principles of that institution. It is pertinent to notice that these institutions do
not arbitrate the dispute, it is the arbitrators who arbitrate, and so the term arbitration institution
is inappropriate and solely the principles of the institution apply.7
In an institutional arbitration, the arbitration agreement designates an arbitral institution to
administer the arbitration. The parties then submit their disputes to the institution that intervenes
and administers the arbitral process as provided by the rules and principles of that institution.
The institution does not arbitrate the dispute. It is the arbitral panel that arbitrates the dispute.8
Often, the contract between the parties will contain an arbitration clause which will designate an
institution as the arbitration administrator. If the institutional administrative charges, which may
be substantial, and doesn’t seem to be a factor, the institutional approach is generally preferred.
The primary disadvantages attending the institutional approach are:

7
Abraham, C, “Importance of Institutional Arbitration in International Commercial Arbitration”, Symposium on
Need for Speed: International Institutional Arbitration, Federation House, New Delhi, India, and November 22,
2008.
8
Alan Redfern and Martin Hunter, ‘Law and Practice of International Commercial Arbitration’, 47(4th ed.,
2004)

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 (i) administrative fees for services and use of facilities may be high in disputes over large
amounts, particularly wherever fees are related to the amount in dispute. For lesser
amounts in dispute, institutional fees may be greater than the amount in controversy;
(ii) the institution's bureaucracy may lead to added costs and delays and
(iii) the disputants may be required to respond within unrealistic time frames.

In institutional arbitration, the primary issue arising for agreement of the parties is choice of the
institution, appropriate for the resolution of disputes, arising out of their contract. While making
such choice, there are various factors to be thought of i.e. nature & commercial value of the
dispute, rules of the institution as the rules dissent, past record and reputation of the institution
and also that the institutional rules are in tune with the most recent developments in international
commercial arbitration practice. There are several institutional arbitration administrators, a
number of which are associated with a trade association and many of which are independent. The
London Court of International Arbitration, The Chartered Institute of Arbitrators (UK), The
National Arbitration Forum (USA) and The International Court of Arbitration (Paris) are four of
many.9

At present, India has more than 35 arbitral institutions. Some of the 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.
While ICADR was envisaged as a model arbitral institution, it failed miserably at achieving its
objectives, including promotion of ADR, providing administrative and logistical support for
ADR, appointment of arbitrators and providing training in ADR. Not only did ICADR failed to
keep pace with the developments in arbitration law worldwide, it had been additionally unable to
promote itself as a credible alternative to ad-hoc arbitration. Backed by inefficiency, the ICADR
had a large and ineffective governing council. However, the largest cause for ICADR's eventual
demise was its failure to handle and market itself to prospective parties at the stage of contract
formation. Further, not just private sector entities, however even public sector bodies (including
public sector undertakings) were reluctant to submit to ICADR managed arbitrations. The death
knell for the (stillborn) ICADR finally sounded after more than 23 years of its birth with the
passing of the New Delhi International Arbitration Centre Act, 2019 (the "NDIAC Act, 2019").

9
Government of Kuwait and Aminoil (1982, 21 International legal materials 976)

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The NDIAC Act, 2019 replaces the ICADR with a contemporary arbitral institution which shall
be called the New Delhi International Arbitration Centre ("NDIAC").10

While the ICADR is a case in point on how not to run an arbitration institution, there have been
other arbitral institutions which have tasted moderate success and are gradually rising as trusted
alternatives to ad-hoc arbitration. The DIAC (located within the Delhi High Court complex) has
emerged as a robust institution and has administered more than 900 cases since its inception. The
MCIA, whereas still in its infancy, is taking large steps and was recently in the news for being
chosen as one of the authorized institutions for arbitration by the Maharashtra Government
which has made institutional arbitration mandatory for all contracts valued at more than Rupees
Five Crores. The ICA and other arbitral institutions are handling a low volume of cases with
value ranging from medium to low. Insofar as international arbitral institutions are concerned,
Singapore International Arbitration Centre ("SIAC") maintains an Indian office in Mumbai since
2013 for the limited purpose of promoting activities of SIAC. The London Court of International
Arbitration ("LCIA") closed down its operations in India because to insufficient case load after
operating from 2009 till 2016.

A STEP TOWARDS STRENGTHENING INSTITUTIONAL ARBITRATION IN INDIA -

NEW DELHI INTERNATIONAL ARBITRATION CENTRE ACT, 2019

With a view to promote institutional arbitration and to form India a destination for conducting
international arbitration, a new bill was introduced and has been passed by both the Houses of
the Indian Parliament and assented by the President of India – The New Delhi International
Arbitration Centre Act, 2019.11

The Act replaces the New Delhi International Arbitration Centre Ordinance, 2019 (“the
Ordinance”) which was promulgated on 2nd March 2019.

The objective of the Act is to push institutional arbitration in India and it is based on the
recommendations of the High-Level Committee headed by Mr. Justice B.N. Srikrishna, former
10
Ibid, note 1
11
http://legalaffairs.gov.in/acts-rules-policies, the new Delhi international arbitration act,2019, visited on 10 April at
1:30

7
 Judge, and Supreme Court of India. The recommendations of the Committee, inter alia, urged
that the International Centre for Alternative Dispute Resolution at New Delhi (ICADR),
established within the year 1995 to promote alternative dispute resolution mechanism, had not
been able to achieve its objectives and should be taken over by the proposed New Delhi
International Arbitration Centre (“the Centre”). It has also been projected to declare the Centre
an institution of national importance.

A shift in policy towards promoting ease of business in India, increasing pendency of cases in
courts, lack of choices for institutional arbitration in India and problems being long-faced by
parties in ad-hoc arbitrations are a few of the reasons that led to the present Act.

Key features of the Centre, as enshrined within the Act, are mentioned below12 :-

i. Members and Chairperson – The Centre shall be headed by a Chairperson appointed by

the Central Government in consultation with the Chief Justice of India and such person
should have been a judge of the Supreme Court or a High Court or an eminent person with
special knowledge and expertise in arbitration, law or management. The 7-member body
would consist of two eminent person having knowledge and expertise in international and
domestic institutional arbitration appointed by the Central Government; one representative
from a recognized body of commerce and industry selected by the Central Government;
Secretary, Department of Legal Affairs, Ministry of Law and Justice; a Financial Advisor
nominated by the Department of Expenditure, Ministry of Finance and a Chief Financial
Officer.
ii. Transfer of Undertakings of ICADR – The Act provides that, from a date that is specified
by the Central Government by a notification, the right, title and interest of the ICADR in
relation to any undertaking which forms part of or are relatable to ICADR, shall be meant
as transferred and vested in the Central Government, which shall in turn, direct by
notification that the undertakings shall vest in the Centre.
iii. Objects of the Centre – The Centre will be established with the object of (i) bringing
targeted reforms to develop itself as the flagship institution for conducting international and

12
https://www.lakshmisri.com, a step towards strengthening institutional, (Visited on April 10, 2020).

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 domestic arbitration; (ii) promoting research, study, training, teachings, seminars and
conferences etc. in ADR; (iii) providing facilities for arbitration, mediation and conciliation
proceedings; (iv) maintaining a panel of accredited arbitrators, conciliators and mediators;
(v) ensuring credibility of the Centre through collaborations with other organizations; (vi)
setting up facilities in India and abroad to promote the activities of the Centre; (vii) lay
down parameters for conducting ADR mechanisms of the Centre and so on.
iv. Functions of the Centre – The Centre shall facilitate conducting of arbitral proceedings;
provide cost effective and timely services for conduct of arbitral proceedings; promote
studies and reforms in ADR and settlement of disputes; undertake teachings and provide
certification therefor on procedures of ADR; provide training to those handling arbitration,
conciliation and mediation; cooperate with other organizations and societies for promoting
ADR and promote ADR as per Central Government’s instructions.
v. Conduct of Functions – The Centre shall constitute committees for discharging its
functions and meet at least four times a year and the meetings shall be presided by the
Chairperson. The decisions at the meetings shall be taken by majority. A Chief Executive
Officer shall be appointed at the Centre who shall be responsible for day to day
administration of the Centre. The Centre shall also have a Secretariat consisting of a
Registrar, Counsel and other officers and employees.
vi. Funds - The Centre shall maintain a fund that shall be applied towards salaries and
allowances of Members and expenses of the Centre.
vii. Chamber of Arbitration – A key feature of the Act is the establishment of a Chamber of
Arbitration through which the Centre shall appoint arbitrators at the national and
international level and maintain a permanent panel of arbitrators.
viii. Arbitration Academy – The Centre may also establish an Arbitration Academy to train the
arbitrators to bring them at par with international arbitration institutions; to conduct
research in the area of ADR and to give suggestions for achieving the objects of the Centre
under the Bill.

The provisions of the Act are largely based on the recommendations of the Report of the High-
Level Committee set up to review the Institutionalization of Arbitration Mechanism in India
under the chairmanship of Justice B.N. Srikrishna (retired), released in June 2017.

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While one cannot deny the urgent need for a premier flagship arbitration institution in India, it is
also true that the International Centre for Alternative Dispute Resolution at New Delhi (ICADR)
was set up with similar noble intentions and objectives which are also the driving force behind
the current New Delhi International Arbitration Centre Act, 2019. The onus lies on the Central
Government to ensure that the objectives of the Act are met by establishing a Centre that makes
India a desirable destination for international and domestic institutional arbitration.

CONCLUSION

It is aforesaid that the parties are the masters of the arbitration however in institutional
arbitration, the institutions virtually acquire certain powers of the parties' like appointment of
arbitrators, etc. and are in a position to impose their will upon the parties. This seems to be
against the very spirit of arbitration and one may say that this is not arbitration within its true
sense. Though ad hoc arbitration would then be preferred, it can be argued that in today's modern
and complex commercial world, ad hoc arbitration is suitable only to disputes involving smaller
claims and fewer affluent parties and to domestic arbitrations, excepting wherever state parties
are involved, for the reasons stated hereinabove. One could quote in support thereof that
“Whatever its merits in a purely domestic situation, ad hoc arbitration in an international setting
frequently frustrates the party seeking to enforce the contract” since international commercial
arbitrations involve complicated legal issues, which parties coming from completely different
jurisdictions may be unable to cope up with.

In the context of international commercial disputes, one may argue that institutional arbitration is
more suitable, even though apparently it is more expensive, time consuming and rigid than ad
hoc arbitration, keeping in mind the fact that it provides established & updated arbitration rules,
support, supervision & monitoring of the arbitration, review of awards and most importantly,
strengthens the credibility of the awards. Lastly, it must be said that it is hard to claim that
institutional arbitration is superior to ad hoc proceedings or vice versa.

10