It is the hype of speakers at seminars on alternative disputes resolution (ADR) that India is a compelling choice to conduct international arbitration. They cite an open economy, cheaper legal service, speedy resolution, lower cost base, geographically central place in the continent and English language as advantages. “Side by side with the country’s staggering topographical variations is its cultural diversity, offering visitors a complete experience in itself,” says the Ficci Arbitration and Conciliation Tribunal website. The Indian Council of Arbitration also claims credit for its 40-year record in this field.
But the Supreme Court has consistently refuted this upbeat view. Its judgments are not read by many, since they are usually stacked in the upper rungs of the lawyers’ library. Nor do judges appear on public platforms to explain the reality. In the Supreme Court, judges have not switched on their microphones since the inception of the sound system three decades ago. They want people to read judgments, not hear what they whisper to the brethren on the bench.
However, when some benches do choose to lift the veil on the state of arbitration in India, it evokes shock and awe.
The Supreme Court delivered a judgment a few weeks ago explaining how “time-consuming and disproportionately expensive” arbitration is in this country (Sanjeev Kumar vs Raghubir Saran). The judges described what happens behind closed doors: “Two sessions in a day is treated as two hearings for the purpose of charging fee; or about a session for two hours is treated as full session; or non-productive sittings are treated as fully chargeable hearings. It is pointed out that if there is an arbitral tribunal with three arbitrators and if they are from different cities and they are accommodated in five-star hotels, the cost per hearing may easily runs into Rs 1 million to Rs 1.5 million per sitting.”
These remarks might sound harsh or universalisation of stray aberrations, admits the court. But the court justifies the observations “in the interest of ensuring that arbitration survives in India”. According to it, arbitration proceedings are often being shifted to neighbouring Singapore or Kuala Lumpur on the ground that these places provide more professionalised or institutionalised arbitration that gets concluded expeditiously at a lesser cost.
The court also suggests some elementary steps to reverse the situation. One, the fee structure should be disclosed before the arbitrators are appointed so that a party that cannot afford it can express unwillingness. Two, the court appointing arbitrators should fix their fee. Another remedy is institutional arbitration, in which the arbitrator’s fee is pre-fixed. Each high court can set a scale of arbitrator’s fee proportionate to the amount involved. Retired judges who offer themselves as arbitrators should disclose their fee beforehand to the high court concerned.
This is not the first time the court has lamented this state of affairs. In 2009, it remarked that an urgent solution must be found “to save arbitration from arbitration cost” (Union of India vs Singh Builders).
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Surprisingly, that judgment found the brethren themselves contributing to the excessive cost. “There is no doubt,” said the judgment, “there is 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.”
Though the Arbitration and Conciliation Act, 1996, updated the old laws, the courts have to deal with cases involving the Act’s interpretation all too often. The Supreme Court itself has delivered some 50 judgments this year, most of which pertain to jurisdiction of the courts, their power to intervene in international awards, appointment of arbitrators and fairness of the award. Though the contracts are drawn up by skilful lawyers, a frequent question is whether there is an arbitration clause. Very often appeals against interim orders of the courts below make a few trips to the Supreme Court.
The objective of the law, modelled on the United Nations Commission on International Trade Law, was to keep the courts out of arbitration, but it has failed. Preliminary issues are dressed up as weighty legal questions and employed to stall the works. The real arbitration trundles its way for years. It is said that often the arbitrators only decide when and where to meet next time. With high perks, the process drags on, much like government’s enquiry commissions. The arbitration route has become as expensive and tedious as that of an ordinary civil suit.
If the existing law and practice require so much interpretation and adjudication by the Supreme Court and high courts, they definitely require serious repair. In fact, a Bill has been drafted; but India’s lawmakers have little time to consider it. They are busy searching for that one magical legislation that will snuff out corruption from society.