Regulatory Body in the field of Arbitration: Boon or Bane?

‘Winter is coming’, warned Gary Born in 2016. In a lecture in New York in May 2016, Born
said that the arbitration community should be prepared to defend itself from those who would
demand more government control of the arbitration process in the future. A ‘long golden
summer’ when everything went right for arbitration might be reaching its end.1

The Indian Arbitration has hustled from years contrary to various other international
jurisdictions. This struggle is due to the disbelief and suspicion of the Judiciary in the process
of Arbitration and the capabilities which the arbitrators hold resulting in judicial intervention
and judicial review in lieu of arbitral proceedings, i.e., the excessive court involvement in the
arbitral process.2 In this context that a ‘High Level Committee’ was established to identify the
obstructions to the development of institutional arbitration, examine certain issues affecting
the Indian arbitration landscape, and thinking of a way to make India “a robust centre for
international and domestic arbitration.”3 This Committee worked under Justice B.H.
Srikrishna as the Chairman of the Committee set up to recommend and suggest reforms and
modifications to institutionalize the arbitration mechanism of India.

The Committee in its report dated July 30, 2017 recommended various changes including the
creation of an autonomous body for the grading of arbitral institutions and accreditation of
arbitrators, creation of a specialist Arbitration Bar, provisions relating to confidentiality of
arbitral proceedings and arbitrator immunity and, a proposal to set up the Arbitration Council
of India (hereinafter referred as ‘ACI’) However, it is pertinent to note here that in the report
the committee strongly cautioned against the council acting as a regulator: “it should be
emphasised that the body would not act as a regulator set up by the government, but only
grade arbitral institutions and thereby evolve minimum standards for centres administering
institutional arbitration in India.” The functions of the Council were submitted as to frame
policies for governing the grading of arbitral institutions, providing norms for conduct of

1
‘Winter Is Coming’ For Commercial Arbitration, Born Says, Law360, (May 20, 2016),
https://www.law360.com/articles/798830).
2
Report of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India,
(July 30, 2017), http://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf.
3
Press Release, ‘Constitution of high level committee to review Institutionalization of Arbitration Mechanism in
India’, PIB, (Dec. 29, 2016), http://pib.nic.in/newsite/PrintRele ase.aspx?relid=155959 (accessed on May 15,
2020).
arbitrations, ensure a satisfactory level of arbitration, taking steps for creating India as a
centre of domestic and international arbitrations, etc.4

The Union Cabinet approved Arbitration and Conciliation (Amendment) Bill 20195 which
contains several changes to the arbitration laws and the composition and functions of the ACI
in Part 1A of the Bill. Though the functions and objectives of the report were meant to reduce
the judicial intervention in the conduct of arbitration,6 the Bill gives power to the council of
making regulations, which would have force of law. Thereby completely changing the nature
of the body from the one contemplated under the report.

There are various other established international arbitration jurisdictions like Singapore,
Hong Kong or the UK, which do not provide for regulation of arbitral institutions by the
government.7 The ACI, according to the report, will consist of a Chairperson who is either: (i)
a Judge of the Supreme Court; or (ii) a Judge of a High Court; or (iii) Chief Justice of a High
Court; or (iv) an eminent person with expert knowledge in conduct of arbitration.  Other
members will include an eminent arbitration practitioner, an academician with experience in
arbitration, and government appointees.8

A plain reading of the functions to be discharged by the ACI does not prima facie raise any
concern. It is this above-mentioned composition of the ACI, which may severely impact the
practical implementation of these functions.9 The Bill has turned the recommendations of the
Committee on its head. The recommendation in the report was that the ACI would serve as a
benchmark for assessing arbitral institutions and it specifically emphasized that the ACI
would not act as a regulator set up by the government. The ACI was supposed to be an
independent and self-sustaining body (only initially funded by the Government) which would
be run by a Governing Board and that the Chairperson was to be selected by the Governing

4
Report of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India,
(July 30, 2017), http://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf.
5
AZB & Partners, India: The Arbitration And Conciliation (Amendment) Act, 2019 – Key Highlights, Mondaq,
(Aug. 27, 2019), https://www.mondaq.com/india/arbitration-dispute-resolution/840292/the-arbitration-and-
conciliation-amendment-act-2019-key-highlights.
6
Utkarsh Trivedi, ‘The Arbitration Council of India: A Critical Analysis’, RMLNUSEAL, (Oct. 14, 2019),
https://rmlnluseal.home.blog/2019/10/14/the-arbitration-council-of-india-a-critical-analysis/.
7
Report of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India,
(July 30, 2017), http://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf.
8
Supra nt. 6.
9
Ashish Kabra, Arbitration Council: The birth of a new regulator?, FE, April 04, 2018.
Board to separate arbitration from the control and interference of the judiciary. In effect, the
Bill provides for perpetual interference, regulation and nepotism of the judiciary.10

Currently, majority of the applications for appointment of arbitrators are decided by the
retired judges which would include senior counsels and lawyers after the creation of ACI.
This would serve as an extension of the existing judicial mindset, instead of actually
providing an effective alternative dispute resolution mechanism. Ironically, the Chairperson,
who according to the Committee report was to be appointed by the Chief justice of India, is
now to be appointed by the Central Government in consultation with the Chief justice of
India thus, giving more power of regulation to the government.

The Supreme Court in Shin-Etsu Chemical Co Ltd v. Aksh Optifibre Ltd & Anr.11 inter
alia held that the approach to be taken by the judicial authority in reviewing the validity of
the arbitration agreement under section 4512 is that of a prima facie review. The majority
judgment reasoned that to take a “final and determinative approach” would result in
proceedings being prolonged at an early stage, increasing costs and uncertainty for parties.
However, the concurring judgement added a qualification that where the judicial authority
refuses to refer the parties to arbitration, it would have to decide on whether the arbitration
agreement is null and void, inoperative, or incapable of being performed after recording its
detailed reasoning.

Amendment to Section 45 by introducing the phrase ‘unless it ‘prima facie finds’ appears to

undermine the observations of the Supreme Court in Shin-Etsu Chemical Case Co. Ltd.
above.13 As such the phrase in the 2019 Act can lead to refusal of reference without assigning
detailed reasons thereto.14

Regulations generally are mutually incompatible to growth. Over the past decade there has
been a significant growth in the field of arbitration in India, the Apex Court has overruled its
own judgements and government made changes to the law bringing in the much needed
breath of fresh air in an otherwise coldly treated ADR Mechanism in the country but this
flight is definitely going to be a short one. ADR- Alternate Dispute Redressal, a body
10
Supra note 5.
11
Shin-Etsu Chemical Co Ltd v. Aksh Optifibre Ltd & Anr (2005) 7 SCC 234.
12
The Arbitration and Conciliation (Amendment) Act, 2015, No. 3 of 2016, § 45.
13
The Arbitration and Conciliation (Amendment) Act, 2019, No. 33 Of 2019.
14
Sumeet Lall, Sidhant Kapoor & Ananya Pratap Singh, Arbitration & Conciliation Act of India 2019: Intent
v Purpose?, Clyde & Co LLP, https://www.lexology.com/library/detail.aspx?g=72c2f0c9-c0c8-4df6-84c5-
61df597831a1.
constituted with view to settle as many disputes as possible out of the court. The ADR
mechanisms were introduced to lessen the burden of the courts, as this mechanism would
reduce the number of pending cases in the court and that as a result would help courts provide
and the aggrieved be provided with speedy justice. But with the introduction of Arbitration
and Conciliation (Amendment) Bill 2019, the pendency of the cases in court, seems, won’t be
affected much as the bill leaves the discretion in the hands of courts and executive to decide
who gets to be a part of this reform.

In the view of the authors, the Arbitration Council of India is going to be the hallmark of a
new Arbitration licensing Era in India and indefinitely continuing governmental control, red-
tapism, PSU Personnel and Political influence in what ought to be an independent body. It is
specified that there exists no similar body in any other countries in the world with significant
international arbitration jurisdictions which do not provide for regulation of arbitral
institutions by the government like ACI in India. The main drawback of this scheme is that it
limits party autonomy in international arbitration through governmental and court
interference. The 2019 Amendment, albeit aimed at institutionalizing the arbitration scene in
India, leaves the discretion in the hands of courts and executive to decide who gets to be a
part of this reform.  Another problem associated with this governmental control over the
institutionalization process is the (possible) nepotism, lack of objectivity and lack of
transparency in the grading process. A foreign party often prefers to stay away from an
arbitration regime with significant degree of court or governmental interference.

While the Committee has succeeded in its intent to provide effective solutions in the Bill and
that, in its current form, has ensured that instead of institutionalising the arbitration
mechanism, the pre-existing problems related to arbitration in India get institutionalised as a
body i.e. Arbitration Council of India.15

As suggested in the report, the council has different functions, for instance, to review arbitral
institutions in India and set benchmarks, recognizing professional institutions that give
accreditation to arbitrators, giving proposals and rules for arbitral foundations, and taking
steps for creating India as a centre of domestic and international arbitrations. While
suggesting the constitution of such a council, the committee unequivocally advised against
the council going about as a regulator. However, the government seems not to have paid
enough attention to this warning. The 2019 Bill gives power to the council of making

15
Arbitration Council of India: The ‘Arbitration Regulator’?, THE BOARDROOM LAWYER, July 16, 2018,
https://theboardroomlawyer.com/2018/07/16/arbitration-council-of-india-the-arbitration-regulator/.
regulations, which would have force of law, therefore, completely changing the structure of
the body from the one recommended under the report. The council was only supposed to
provide the guidelines and not act as the regulator or the controller, which it will, if it goes by
the prudence of the powers provided with in the 2019 Bill.

Contrary to the suggestions of the committee, the administering body of ACI is supposed to
comprise of individuals selected by the government according to the bill. This raises major
issues of irreconcilable circumstance. Arbitral institutions perform significant functions
requiring a high level of autonomy and fairness. The government is the biggest litigator and,
by prudence of council, can review arbitral institutions and set benchmarks for them.

However not every new incorporation through the amendment is a bane to the Arbitration
regime in India. According to the recently presented Section 42A16, the arbitrator, the arbitral
institution and the parties to the arbitration will keep up the confidentiality of every single
arbitral proceedings let alone be the arbitral award, where its exposure is important for
execution and authorization of award.

According to update under the ICC Rules of Arbitration, w.e.f. 1 January 2019, all awards
made from January 1, 2019 may be executed, within two years of its notification, however
not on the basis of a withdrawal method also known as, ‘Opt out procedure’ according to
which any party to the proceeding may at any time before the publication of the award may
oppose to such an act and ask to water down the award. In such a case scenario, the award
will either not be published or if published will be censored or redacted in accordance with
the requesting party's free will.

India in terms of publication and execution of an arbitral award may be in line with globally
recognised arbitration institution but the non-incorporation of the Opt out procedure in the
newly presented bill only adds to the suspense as to who will decide that the disclosure of an
award is necessary for its implementation? Will it mean full disclosure or will parties be
allowed to agree on a redacted award? Having said that it is pointed that these uncertainties
have made the legislature miss the opportunity to bring clarity to the fate of an award in terms
of its publication.17

16
Supra, note 13.
17
Subhisksh Vasudev, The 2019 amendment to the Indian Arbitration Act: A Classic Case of one step forward,
two steps backward, Wolters Kluwer, (Aug. 25, 2019)
http://arbitrationblog.kluwerarbitration.com/2019/08/25/the-2019-amendment-to-the-indian-arbitration-act-a-
classic-case-of-one-step-forward-twostepsbackward/?doing_wp_cron =15906769603854820728302001953125.
The government, while taking the expansive suggestions under the report, has hypercritically
adjusted the proposed constitution of the body and gave itself lot more extensive powers. In
this way, however it might be guaranteed that ACI isn't a regulator and only a promoter of
arbitration, the Bill clearly permits it to act like one in the event that it decided to do as such.
Therefore, the establishment of ACI officially as a regulator, could be a bane if the provision
relating to its composition is altered and which leads to less judicial intervention in the same.