Arbitration, as a consensual method of resolving disputes, places significant emphasis on the autonomy of the parties involved. Recently, the Supreme Court of India has addressed a petition accusing a trade association of overstepping its bounds by administering arbitrations under its own rules. The Court’s decision to notify the Union government concerning the formation of the Arbitration Council of India (ACI) has reignited discussion about the regulatory framework governing arbitration in India.
Despite the legislative proposal for the Arbitration and Conciliation (Amendment) Bill, 2024, which aims to streamline institutional arbitration, the ACI has not yet been constituted, although years have passed since its statutory inception. The petition in question suggests that all arbitration institutions, regardless of their engagement, should be under ACI oversight. However, this perspective could potentially undermine the principle of party autonomy, impeding the innovation and diversity necessary for India to establish itself as a global arbitration leader.
Understanding Different Arbitral Institutions
The 2019 amendment to the Arbitration and Conciliation Act introduced a framework for the recognition and regulation of arbitral institutions responsible for appointing arbitrators under Section 11 when parties would normally turn to the courts. In such cases, regulatory oversight is sensible to ensure neutrality and procedural integrity.
Contrastingly, when parties mutually select an arbitration institution with its own rules, as highlighted in the petition before the Supreme Court, prior regulatory approval is not required. Enforcing such requirements would infringe upon the core principle of party autonomy in arbitration.
The proposed Arbitration and Conciliation (Amendment) Bill, 2024, underscores this distinction by clearly defining an arbitral institution as an entity conducting arbitration under its own rules, while recognizing only those institutions performing Section 11 functions. This distinction acknowledges that not all institutions serve the same purpose and should not be uniformly regulated.
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The authority of an arbitral institution selected by agreement arises from the contract between the disputing parties, not from regulatory endorsement. While institutions performing functions traditionally handled by courts may require oversight, those operating under party agreements should be respected for their choice, providing administrative rather than adjudicative support.
Addressing Concerns of Institutional Overreach
Concerns about institutional overreach should be addressed within the existing arbitration legal framework. Recognizing that a party-selected institution focuses on administrative roles, while adjudicatory power resides with the arbitral tribunal, addresses many apprehensions at the outset.
The Arbitration Act already includes safeguards such as the ability to challenge arbitrator appointments, mandatory disclosure requirements, and judicial review of awards on specific grounds, ensuring that parties are not left without recourse. Rational parties are expected to choose institutions with skilled arbitrators, ensuring procedural fairness through informed decision-making rather than regulatory constraints.
The Importance of Autonomy for Global Competitiveness
India’s goal to become a favored location for international arbitration should consider global precedents. Established arbitration centers like the United States, England, France, and Singapore thrive by respecting party autonomy in selecting arbitration forums. Parties in these jurisdictions choose among institutions like the American Arbitration Association, the LCIA, the ICC, and the SIAC without requiring prior government approval.
These jurisdictions prioritize transparency, procedural fairness, and effective post-award remedies, avoiding mandatory recognition gatekeeping. The draft 2024 Bill aligns with this approach by tailoring regulation based on function rather than form.
India’s competitiveness depends on assuring commercial entities that their contractual choices will be upheld. Dismissing party-selected institutions due to a lack of prior sanction shows unnecessary distrust in informed choice, reducing India’s appeal as an arbitration-friendly environment.
Towards a Balanced Regulatory Framework
A balanced approach would involve the prompt establishment of the ACI to facilitate arbitrator appointments under Section 11, reducing the burden on courts while maintaining a clear distinction between these institutions and those directly chosen by parties. This balance, as articulated in the draft 2024 Amendment Bill, is crucial for fostering institutional credibility without undermining the autonomy central to arbitration.
Justice AK Sikri, a former judge of the Supreme Court of India, and Rajendran Nair Karakulam, Founder and Director of Karakulam Consulting, a government relations and public policy firm based in Delhi, contribute their insights on this evolving regulatory landscape.
