Arbitration has long been heralded by industry experts as the premier method for resolving commercial disputes. Yet, contrary to this widespread acclaim, informal discussions with General Counsel from leading multinational corporations reveal significant concerns regarding arbitration’s escalating costs, prolonged timelines, and unpredictability, particularly within the Indian context. The critical inquiry, therefore, is not whether arbitration is obsolete, but why it is failing to consistently fulfill its foundational promises in India.
Recent discussions have underscored the dual nature of this debate. On one hand, there are criticisms that current arbitral frameworks may be compromising effectiveness. On the other, there is recognition of arbitration’s potential as a vital solution amidst the growing backlog in courts. This paradox does not signal a decline but rather a pivotal moment for arbitration, warranting introspection rather than abandonment.
This article dismisses alarmist calls to forsake arbitration in India, arguing instead for a shift in focus towards understanding why arbitration does not consistently deliver on its commitments of cost-effectiveness, efficiency, finality, and party autonomy. This perspective realigns the narrative towards addressing the structural and procedural challenges that impede arbitration’s success.
These issues are not unique to India; established arbitration centers like Singapore, London, and New York also face criticisms regarding costs, delays, and arbitrator quality. However, these jurisdictions have responded by refining rules and enhancing institutional support. Viewed through this lens, India’s criticisms reflect a maturing system poised for reform.
Central to this discussion is the often-overlooked role of General Counsel, whose decisions during contract drafting significantly impact arbitration outcomes. Factors such as the choice of arbitral seat, dispute resolution clauses, and procedural expectations shape arbitration’s effectiveness. Thus, General Counsel play a crucial role in ensuring arbitration’s success even before disputes arise.
Pillar One: Crafting the Arbitration Clause
The arbitration clause is foundational. Often, clauses are inserted into contracts without considering the specific commercial context, ignoring factors like dispute complexity, transaction value, governing laws, and procedural mechanisms. This oversight can lead to misaligned clauses that complicate disputes, making arbitration less effective.
Pillar Two: Selecting the Right Arbitrator
The choice of arbitrator is critical. Confidence in an arbitrator’s independence, competence, and experience is essential. In India, this is especially important given statutory timelines for arbitration under the Arbitration and Conciliation Act, 1996. Arbitrator selection should focus on their ability to manage the case efficiently and deliver timely awards.
Pillar Three: Treating Arbitration Like a Business Project
Even with a well-drafted clause and a competent tribunal, parties must conduct arbitration effectively. This includes narrowing issues early, avoiding excessive procedural disputes, and utilizing technology for efficiency. Delays often result from party conduct, such as over-litigating procedural issues or seeking unnecessary adjournments.
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The government’s approach to arbitration also requires alignment with its vision of India as a credible arbitration hub. Consistent enforcement and confidence in institutional mechanisms are crucial. While mediation is gaining emphasis, it should complement, not replace, arbitration.
In conclusion, meaningful dialogue among stakeholders is essential to advance arbitration in India. Rather than abandoning arbitration, parties should identify and learn from past missteps. Despite its challenges, arbitration remains a significant alternative to litigation, offering privacy, flexibility, and international enforceability.
Naresh Thacker is an Independent Counsel practicing before the Bombay High Court.
